Into The Great Economic Abyss

We are facing a global health crisis unlike any in the 75-year history of the United NationsThe unique and devastating character of the current global economic crisis is that it is creating both supply and demand shocksExtracted massive profits of the financial elite has now been battered

- Ahilan Kadirgamar

Societies across the world are facing tremendous challenges. And on March 31, 2020, United Nations Secretary-General Antonio Guterres described the situation as follows:

“We are facing a global health crisis unlike any in the 75-year history of the United Nations — one that is killing people, spreading human suffering, and upending people’s lives… But this is much more than a health crisis. It is a human crisis. The coronavirus disease (COVID-19) is attacking societies at their core… a disease that represents a threat to everybody in the world and... an economic impact that will bring a recession that probably has no parallel in the recent past… The combination of the two facts and the risk that it contributes to enhanced instability, enhanced unrest, and enhanced conflict are things that make us believe that this is the most challenging crisis we have faced since the Second World War.”

This deeply worrying warning is even more applicable to countries like Sri Lanka, whose economies are now on the brink of collapse. How should we address the most serious economic challenge we have faced since Independence?

Supply and Demand Shocks

The unique and devastating character of the current global economic crisis is that it is creating both supply and demand shocks. Due to the restricted movement of people and hence goods, including the closure of airports and ports and the constraints on land transport, have greatly reduced supplies. Furthermore, with lockdowns and curfews, the demand for goods and services have also reduced. Even where there is demand for essential items, primary producers are hoarding due to insecurity and speculation of increased prices in the future. Therefore, supplies are disrupted even when there is no scarcity, and this is what we might see for example in the international wheat market.