The Government was compelled to impose curfew to implement social distancing effectively in order to prevent the spread of COVID19. While this has curtailed the spread of coronavirus, the downside of the move was that the entire economic sphere has come to a standstill. Particularly in the services sector, manufacturing and retail services have come to a halt.
Although, the public and private sector employees have been instructed to work from home during the period of lockdown, only a very few economic activities could be carried out in such a manner.
Even though the Government has allowed agricultural production to continue unhindered, doubts about marketing the produce due to uncertainties on the lifting of curfew hours, difficulty in obtaining fertilizer and other inputs, and worries about possible crop wastage due to lack of storage facilities has prevented a substantial section of the farming community from engaging in harvesting.
While economic analysts forecast a major economic downslide, the exact short-term impact is difficult to estimate immediately. The sectors that suffer most are the daily wage earners and micro, small and medium enterprises (MSMEs), including those in the informal sector. The daily wage earners could be taken care of by the temporary welfare scheme of a Rs 5,000 handout and supplying essential food items.
However, the loss of economic contribution from MSMEs that accounts for a little over half the national employment would be a heavy loss to the Gross Domestic Production (GDP). The absence of any meaningful economic activity for a month or two would severely affect the wellbeing of those involved. Since daily wage earners and many MSME employees operate on thin margins and low levels of reserve savings, a prolonged lockdown without adequate support would lead to unemployment and a major loss to GDP.
With these in mind, President Gotabaya Rajapaksa instructed the officials of the Central Bank of Sri Lanka (CBSL) to prepare a post-COVID-19 economic strategy to minimize the possible economic downturn due to the closure of all economic activities due to the coronavirus pandemic. Instructions were given during a discussion the President had with the CBSL Governor Prof W D Lakshman and other senior Central Bank officials.
During the discussion, attention was focused on minimizing the overall economic impacts to the country due to the deadly virus outbreak. Emphasizing the need for money circulation, President Rajapaksa has instructed the Governor to take necessary steps to keep all banks open during the crisis period. The discussions were also aimed at assessing the emerging macro-economic conditions due to the impact of COVID-19.
The measures taken by the CBSL to manage the operations of the Bank to provide liquidity and access to finance were also discussed. The President also inquired into the issues connected with the management of Foreign Exchange Budget and external reserves.
He urged the CBSL officials to ensure that maximum confidence building measures are taken for the investors in the Sri Lanka Sovereign Bonds.
To boost the falling economic and business activities, it has been decided to return about 20 percent of Employees Provident Fund balance to holders (estimated release, Rs. 500 billion). This simple and uncomplicated return of capital could be a useful and viable alternative that could achieve the same outcome of serving as an economic stimulus, without any fiscal burden placed on the Government, Ajith Nivard Cabraal, Economic Advisor to Prime Minister said. He added that this newly created ‘equity’ in the hands of individuals would expand further and perhaps even double, as many recipients are likely to leverage such funds with borrowings from lending institutions, which would provide a further boost to the economy.
The release of such finances would result in enhanced economic growth being recorded in the economy due to the higher investment and consumption as a result of funds infusion. Furthermore, many persons will be able to settle their high interest debt which is crippling them at present and new business ventures could be created as persons with entrepreneurial ideas and abilities would be able to embark on new ventures.
The availability of finances would create more opportunities for the financial sector to lend, since persons who are embarking on new economic activity are likely to leverage their new equity with debt. This would enhance business confidence and optimism rekindled due to the higher level of economic activity as a result of the investment of the newly released ‘locked’ savings, in the wider economy.
Additional benefits would be a possible upturn in the small-scale construction activity in all parts of the country, which is now at a standstill and enhanced employment opportunities arising in the SME sector of the country, leading to lower social tensions. The resulting economic activities would ensure a rise in government tax revenues.
These fiscal steps would be augmented by the other activities of the Task Force. They include, directing and providing facilities to the Department of Agriculture and to the Department of Agrarian Services to provide seeds, plants, fertilizer and equipment required for farming and encourage seed farming, use of organic fertilizers and home gardening as well as to grant loans to farmers through the Bank of Ceylon, People’s Bank, Regional Development Banks and Samurdhi Bank branches.