A gloomy prognosis suggests a scenario of negative economic growth, high unemployment and rising foreign debt in 2020 and 2021. Revenue from tourism, remittances and foreign investment are all down. At all costs, one should guard against a pandemic-induced economic crisis from turning into a crisis in the financial system, which would be a double whammy for an already debellated economy.
Although good weather may help revive the agricultural sector, the economy faces a slower and longer road to recovery from COVID-19.
The new government’s election platform over the past few weeks put forward several useful policies to aid economic recovery in Sri Lanka. The president’s proposal for accelerating regional economic development through four multi-dimensional commercial cities – Colombo, Hambantota, Jaffna and Trincomalee – will help spread the benefits of economic development throughout Sri Lanka.
The emphasis on improving domestic agricultural production and reducing postharvest losses will support food security for the people in difficult times. Planned investments in tertiary education and primary schooling will improve the quality of human capital.
Promoting digitisation and e-commerce can support dynamism in business and government. Of course, economic recovery will be dependent on continuing the success in combating the pandemic.
But to ensure a sporting chance of achieving economic success in a slower growing global economy beset by risks, the Pathfinder Foundation recommends that three other things should be done by the new government.
First, Sri Lanka needs to find the resources to pay for the government’s agenda.
Mobilising a large volume of external financing is crucial to create the necessary fiscal space. So far Sri Lanka’s fiscal stimulus has amounted to under 0.5 percent of gross domestic product (GDP) while the figures in Malaysia and Thailand are between 12-15 percent of GDP and in advanced countries between15-20 percent. This means sorting out legacy issues, which have clouded the macroeconomy over decades.
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August 10, 2020