Covid-19 outbreak hits Sri Lanka economy significantly

Covid-19 outbreak hits Sri Lanka economy significantly

31 March 2020 08:20 pm

Even if Sri Lanka still has relatively few corona virus cases, the island nation is already feeling the economic repercussions.

Covid-19 outbreak has exerted a significant economic impact initially particularly in the second half of this month, Central Bank’s external sector performance report revealed.

The Central Bank has undertaken a number of emergency operational and policy measures, including some intervention in the domestic foreign exchange market to tackle this situation.

These measures were the suspension of all personal motor vehicle and non-essential consumer  goods imports, limiting issuance of foreign currency notes as travel allowance up to a maximum of US dollars 5,000 and suspension of purchase of Sri Lanka International Sovereign Bonds by licensed banks in Sri Lanka.

The government established a fuel price stabilisation fund to maintain stable energy  prices domestically, while enabling the utilisation of benefits accruing on account of the sharp decline in international crude oil prices more productively, Central Bank disclosed. 

The domestic foreign exchange market has been affected greatly CB said adding that the trade deficit has widened with a decline in exports while expenditure on imports increased.  

A notable depreciation of the Sri Lanka rupee was observed, primarily due to speculative market behaviour and foreign investment outflows from the government securities market, CB said.

This has pushed up the indicative exchange rate, the mid-rate of buying and selling rates, to Rs. 189.55, up from Rs. 187.63 a week ago and from Rs. 177.48 a year ago, CB data showed.

A net inflow of foreign investment amounting to US dollars 19 million was recorded in the rupee denominated government securities market in January 2020.

Foreign investment in the CSE, including primary and secondary market transactions, recorded a net outflow of US dollars 16 million during the month of January 2020.

Further, net outflows on account of long term loans to the government amounted to US dollars 85 million during January 2020.

Gross official reserves stood at US dollars 7.5 billion at end January 2020, equivalent to 4.5 months of imports.

Meanwhile, total foreign assets consisting of gross official reserves and foreign assets of the banking sector amounted to US dollars 10.3 billion at end January 2020, equivalent to 6.2 months of imports.

The government raised almost Rs. 311 billion through Treasury Bills, Bonds, SLDB’s and FCBU loans during the first two months in 2020 and the expenditure was Rs.427.65 billion

Treasury cash inflows from revenue and other receipts in March to May will be Rs,420 billon and the  expenditure is estimated at Rs.1229 billion leaving a net cash  deficit of Rs 809 billion for the treasury to  bridge.

The unexpected cost of healthcare and pandemic management falling in a critical year for debt settlements can have severe consequences; an economic expert said adding that the cost due to loss of productivity and economic activity is yet to be ascertained. .  

Not every person can work from home, and the loss of productivity in agriculture, industry, and services will cost Sri Lanka as significantly as other economies. Our low economic growth amidst the tax cuts that were provided earlier this quarter further highlight the seriousness of this matter.