We hope the COVID-19 control measures ongoing will work and we will all be safe. While major disease control measures are in place, in parallel we need to consider the economic and social impact we will face from the corona pandemic within Sri Lanka and induced from the rest of the world.
As stated in the UK Guardian on 26 March, the coronavirus pandemic has delivered the fastest and deepest economic shock in history. It will have a major impact on industrialised countries as well as the developing ones. A G8 wide recession is very likely, leading to a decline in purchasing power and consumer demand.
While the G8 countries have already started major economic remedial measures, developing countries are currently more focussed on controlling the epidemic, and at the same time offering ad-hoc measures on the economic front.
While we sincerely hope the Government of Sri Lanka’s coronavirus control measures will succeed, we need to take stock of the potential impact on the Sri Lankan economy. Let us look at some sectors and potential economic impacts:
Tourism will be severely affected for a minimum of six months. There are no tourist arrivals now and even if the pandemic is controlled, it is very unlikely that many people will venture out from their home countries. It is highly likely that the impact will be felt for more a year or so.
Many global airlines face bankruptcy or nationalisation. Cash-rich Middle eastern airlines will survive. The Sri Lankan tourism sector directly employs close to 600,000 while a further 300,000 are employed indirectly. Almost a million workers face redundancy. The hotels and the support industries face a real threat of potential bankruptcy.
Over 80% of our garment exports are to the USA and europe. Shopping malls in these countries have been shut. The summer and autumn orders are unlikely.
The USA and Europe recession from coronavirus will dampen demand. Our garment sector will take a major hit – perhaps over 50% of the future orders. The sector directly employs 350,000 and indirectly employs around 650,000. Huge unemployment in the sector inevitable.
Over 50% of tea consumption worldwide is outside home and in bars and restaurants. The current closure of restaurants and bars in Europe and the USA will have a major dip in tea demand and consequently a price drop. This will affect tea smallholders and the sector.
Over 70% of the natural rubber production is used in tyres and tubes. Germany and India have drastically reduced car production. Global oil prices have collapsed and synthetic rubber will be used as a cheaper alternate to natural rubber.
The global recession will seriously impact on global rubber prices. Considering the labour cost and declining prices, rubber extraction may not even be economically viable. Massive unemployment in the sector is inevitable.
5. Informal sector
Our informal sector estimated as 48% of employment in 2018 and contributes to about 40% of the GDP (Dept. of Census and Statistics). The sector includes the daily artisans (labourers, carpenters, and bricklayers), small barbershops, beauty salons, ‘phone kades,’ village ‘petti kades,’ sweep ticket sellers, small local restaurants/hotels/tea shops, street vendors selling vadai, thambili, etc. These will be the worst hit and least protected by the Government.
The construction sector will face a major hit. The upcoming high rise apartments will go unsold, and pose a major threat to the banks. Real estate values will fall.
Already from post-easter economic slump we see a rise in banks selling real estate kept as collateral for loans.
7. Currency depreciation
You can read up to 3 premium stories before you subscribe to Magzter GOLD
Log in, if you are already a subscriber
Get unlimited access to thousands of curated premium stories, newspapers and 5,000+ magazines
READ THE ENTIRE ISSUE
April 01, 2020