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IMPACT OF COVID-19 on sri lanka’s  economic growth

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The COVID-19 epidemic has affected the health as well as the whole economy becoming an unprecedented threat to Sri Lanka. With the liquidity crisis, international trade and travel and tourism bans, policymakers are facing unprecedented challenges and the epidemic has severely hampered all sectors of the economy. This assignment discusses the impact of the epidemic on the overall economic growth and GDP of Sri Lanka, the drawback in key sectors and the various policy recommendations taken by the government to address these problems.

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Coronavirus pandemic caused thousands of deaths all around the world, tremendously changing people’s living style causing economic, social and mental downturn in the whole world. Due to travel restrictions and island wide curfew imposed by the government, the productions fell, making industries redundant. But with the technological advancement people were able do their transactions and other day to day work online, remotely with the opportunity of working from home.

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Sri Lanka’s predicted GDP rate for 2020 is  -4.55%.  Even though it was predicted to increase up to 5.27% in 2021, there’s a very less chance for it with the development of 3rd Covid wave that is currently happening in Sri Lanka. Inflation is predicted to stay at an average of 5% in 2020 unemployment rate is shown to be approximately 4.18%

Sri Lanka: Gross domestic product (GDP) in current prices from 1986 to 2026 (in
billion U.S. dollars)
125
114.28
107.
100.
94.05
100
87.42
83.98 84.53
80.56
74.28
65.27
56.71
46.6
32.36
23.66
18.43 19.37 19.59
16.05
13.78
11.18
7.57 8.24 9.47

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Foreign reserves as at April 2021 was USD4.476 bn Foreign Direct Investments were decreased to USD 528 million in 2020.

IMPORTS  Imports reduced up to USD15.584 Bn in 2020 with the government restrictions imposed to reduce the spread of Covid-19. EXPORTS  Exports in 2020 was USD13.39 Bn

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Government revenue in 2020 amounted to 1389 Bn, representing 9.3% of GDP.

Government expenditure in 2020 amounted to 2,834 Bn, representing 18.9 % of GDP.

The total government debt in Sri Lanka reported a 78.3 USD bn with 98.3 % of GDP in Sep 2020 out of which external debt was USD 35.3Bn as at August 2020

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As at 2020 the Sri Lanka recorded a budget deficit of 11.1% of GDP which bridged the budget gap of at least 3.4% in central bank credit.  Amidst debt repayments and depleting foreign reserve Sri Lanka recorded a balance of payments deficit of USD 2083 Mn by 2020 in contrast to the positive BOP of USD 667 Mn in 2019.

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By 2019, the agricultural sector had contributed 7% to the Sri Lankan economy. The agricultural sector recorded a growth of 2.4% in 2020.

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With major problems like reduced access to animal feed, reduction in the capacity of processing companies due to supply constraints, shortage of labor there was a decline in the market demand livestock sector. By 2020, beef, pork and mutton production had declined by 54.5%, 4.7%, and 11.0%, respectively to 13,580 metric tons, 8580 metric tons, and 1610 metric tons.

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In 2020, total fish production declined by 15.2%. It accounts for 76% of the total fish production. Due to the Covid-19 situation, the average fish species recorded a marginal decrease of 0.4%, while seafood exports were declined by 29.5% in 2020 due to declining demand from major export destinations and disruptions to global supply chains.

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The services sector contributed 58.2% to the GDP in 2019 and has grown to 59.2% in 2020.

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In May 2020, Fitch downgraded the operating environment (OE) score for banks in Sri Lanka from B to B-. Gross loans and advances rose 0.7% quarter-on-quarter during the period. Net interest income in the banking sector fell by 3.3% in 2020 due to slower credit growth, lower interest rates, and the imposition of a credit ban.    Under the credit ban, the gross non-performing loan ratio rose to 4.9% by the end of 2020.

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Customers had to wait in long queues to get products while suppliers were unable to sell their products due to production shutdowns and travel restrictions. Due to the concept of working from home overall production capacity of the industry fell by 50%. The supply chain and reinvestment of the industry are at risk due to loss of profits and reduced cash flow.

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To protect children from the plague, the government closed schools and universities and introduced online education as a solution. This has a long-term impact on children's learning process. Online education made it difficult for children without network problems and technical devices to continue their education. Learning online over a long period of time has led to an increase in students' depression and eye disorders.

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Effcocious service delivery of health sector enabled the effectwe curbing of the spread of the virus,
bw fatality rates, and the relatively rapid restoration of normalcy to economjc activity.
Public Sector
Nurses
Ayurveda Ector
Hospitals
Private Ector
26.061
Beds
5,058
Hospitals
217
5,173

One of the major problems is that is faced by the health sector the lack of adequate facilities to treat the growing Covid-19 patients.  The COVID-19 vaccination program was launched in January 2021 and the vaccination program could not be implemented properly due to financial problems in importing the required number of vaccines to Sri Lanka.

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The industrial sector contributed 26.25% to the GDP in 2020.

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The impact of the Covid 19 on the textiles & clothing industry was seen both locally and internationally. The risk to the foreign export sector predicts a fall of 30% in the 2021 financial year. The country's national apparel industry has also changed its estimated targets with a decline of US $ 1.7 billion in fiscal year 2020/2021. Due to the barriers to international trade, the garments to be export has left behind.

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Tourist arrivals were 2.3 million in 2018 and 1.9 million in 2019. The number of tourist arrivals from January to March 2020 was 507,311. Passenger flights and ships were stopped for all international travelers from March 2020 Even Though  the country opened for tourists under strict travel restrictions to revive the tourism industry it has now failed due to the outbreak of third Covid wave.

Chart 4: Receipts (U$) • 2001 to 2019
45000
{ 35000
25000
uuuuuu
0.0
Year
Table II: Foreign Exchange Earnings by Industry. 2018 & 2019

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Tea exports, which accounted for 20% of total export earnings, were severely restricted.  Factory workers producers, processors, distributors and importers in the tea supply chain were also severely affected by the situation.

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many projects in the construction industry were canceled or delayed, impacting their cash flows of entities due to Covid 19 pandemic. The government has taken steps to waive the policies on construction companies' loans and loans to small and medium enterprises. High employee handling risk was faced by many companies as they need to provide accommodation and manipulating them in the workplace in line with their social remoteness measures, resulting employee layoffs.

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Agriculture is  the science and Art of producing crops and livestock for economic purpose

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Approval to provide Urea, phosphate and Mop fertilizers free of charge to paddy farmers Climate smart agriculture and smart irrigation agriculture knowledge Provide rapid turmeric cultivation development program Can take steps to reduce the problem of fertilizers

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OECD fisheries support estimate  database  and FSE modeling work Can set a control price for fish

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Industry sector is specific group of companies or businesses, operating in the same segment of the economy or share a similar business type.

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Encourage foreign investments Major apparel  manufacturers  focused on personal protective equipment Encourage to do their services via online platforms

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Given a safe and secure accreditation to display as a mark of assurance Extend the current capital outstanding moratorium period of leasing facilities given to tourism related motor vehicles Can take steps to organize virtual trips Introduced the Bio cell concept

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The service sector consists of the production of services instead of end products.

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The government has given two years to increase the minimum capital for banks to 20 billion rupees.  Introduction of Lanka QR System by the Central Bank. Implementation of credit guarantee schemes to provide relief to borrowers. Taking steps to implement loan concession period as well as concessionary interest rate schemes by the Central Bank of Sri Lanka.

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Offering health and safety requirements to keep smooth demand and supply. Facilitated businesses under the “Saubagya Covid 19” Special Credit Scheme. Promoting business via internet and social media.

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Conducting educational activities through TV channels and other educational applications. Development of E - Thaksalawa, the official website of the Ministry of Education. Establishment of special examination centers for students in quarantine centers and hospitals.

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Exemption of Imported Medical Equipment and Testing Kits from Ports and Airport Development Tax. Locally production of drugs and establishment of new drug production zones. Calling patients to clinics in groups and delivering medicines to dispensaries.

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Covid-19 has had a significant impact on the economic growth of Sri Lanka, leading to a decline in outputs in key sectors such as agriculture, industry and services. The final conclusion is that despite the collapse of the Sri Lankan economy due to the pandemic situation, the government and central bank can take steps to revive the economy through proper policies.

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CM/2018/158 - Devmi Nicola  CM/2018/160 - K.V.A. Sandamini CM/2018/080 - K.K.G.B.M. Kulathilaka  CM/2018/025 - D.M.I.M. Dasanayake  CM/2018/053 - P.K. Gajanayake

IMPACT OF COVID-19 on sri lanka's economic growth

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