Economic Fallout Of Covid-19

The oncoming recession will hit sri lanka harder than the easter bombings we need large stimulus packages supporting workers, the public and the firms sri lanka’s economic policy has been protectionist and nationalist since the beginning of the war election-based government policy like lowering taxes to incentivise consumption had greatly increased national debt

- Migara Rodrigo

While the government’s response to COVID19 may have shielded Sri Lanka from a major loss of life, the imminent large-scale economic fallout will be harder to prevent. The country has been struggling with low economic growth in 2019/20, poor export growth, a decline in tourism and high currency depreciation. With many economists predicting an oncoming global recession or depression similar to the 1930s Great Depression, it is evident that Sri Lankans will face many hardships ahead.

Pre-existing problems

According to experts, Sri Lanka’s pre-existing economic problems will exacerbate the COVID-19 recession. According to Murtaza Jafferjee, CEO of JB Securities and a director at Colombo Stock Exchange (CSE), Sri Lanka has needed major structural reform for years.

“Sri Lanka’s economic policy has been protectionist and nationalist since the beginning of the war. These policies were never altered. This has led to a domestic industry that has not been focused on increasing productivity,” he opined. “The economy has relied on high tariffs on imports; for instance, furniture faces an import tax of up to 45%. This lack of competitiveness and increase in productivity have led to an ever-widening trade deficit. The trade deficit rose from $7.6 billion in 2013 to $10.3 billion in 2018. There has been little export-sector growth in the past decade. For instance, in 2019, agricultural exports declined by 4.6% and tea exports by 5.7%. The end result is a non-competitive economy in desperate need of reform and which will be hit especially hard by the decline in demand for Sri Lankan exports in the coming months.”