The contemporary world order operates on the basis of globalization, where national economies are interconnected and interdependent, in terms of international trade, finance as well as travel and tourism to name a few. Within an intricate system of this nature, a global crisis such as the COVID-19 pandemic could result in a large-scale economic shock that has the potential to develop into a global economic recession in the long run.
Sri Lanka has taken necessary steps to lock down the state by imposing an island-wide curfew and by suspending all passenger flights and ship arrivals into the country until the thread of the epidemic is brought under control. Furthermore, all public and private institutions have been temporarily closed, except for essential services such as health, communication, police and defence sectors.
The foreign exchange inflow of Sri Lanka, thus, has been adversely affected since major revenue sources of the country such as tourism, apparel exports and foreign remittances have been ceased. Therefore, if this situation continues to the second quarter of 2020, it may potentially lead Sri Lanka to an economic crisis shortly.
When considering the Tourism industry of Sri Lanka, it has developed into a booming strategic sector of the post-war domestic economy and it can be identified as one of the most foreign revenues and employment generating industries of the country. However, due to the suspension of flights and the inability to accommodate tourists at a crucial and risky period such as this, it has become one of the most impacted sectors of the local economy. This inevitable halt would become an added pressure to the tourism industry, which is still recovering from the repercussions of the Easter terrorist attacks that took place in April 2019.
Similarly, the apparel industry is another major export industry of Sri Lanka that faces uncertainty and many risks at present. The industry has been completely closed down while it was already making losses from the export orders of finished goods that were being halted by the European markets. Since the United States and the European Union (which are the hardest-hit regions of the Coronavirus) are the main import destinations of Sri Lankan apparels, the industry is at risk of failing to recover their losses until the global markets return to normalcy.
Moreover, due to the rapid spread of the virus in countries like Italy and South Korea where a significant number of Sri Lankan migrant workers are employed, the Sri Lankan government has taken necessary steps to bring them back to Sri Lanka and direct them to quarantine centres. A majority of these migrants can be recognized as unskilled labour and they face the risk of becoming unemployed in the coming future until the international labour market reinitiates recruitment. This would undoubtedly result in a massive loss of foreign remittances to the country.
Therefore, the impact of the suspension of key foreign exchange earning sources such as tourism, apparel and remittances in this manner has proven to be detrimental on the Sri Lankan rupee, as it continues to depreciate along with the spread of the pandemic
On a positive note, novel solutions and innovations especially in the health sector, such as the development of ventilators, hospital beds and protective gear have already been successfully tested and directed towards domestic production lines, to compensate the lack of resources and import limitations. It is important to note that with the suspension of imports, large scale dumping into the Sri Lankan market by global importers has also ceased, giving Sri Lanka an unexpected opportunity to initiate the improvement of domestic industries and pursue further innovation and technological advancements locally.
Furthermore, to successfully control the spread of the pandemic and provide relief to vulnerable citizens, Sri Lanka has gained both financial and material aid from both local and foreign sources including many international organizations such as the World Bank, IMF and WHO, along with multinational companies such as the Alibaba Foundation.
In conclusion, the Sri Lankan Government and Central Bank must further administer strategic fiscal and monetary measures to rebuild the economy and prevent it from collapsing into a crisis, by establishing suitable macroeconomic policies and by maintaining the exchange rate from depreciating further.
Ayanthi Gurusinghe, is MD & Founder of CORD 360, B2B trade platform. She is also the National Export Strategy at United Nations-ITC. She lives in Colombo.