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Impact of Coronavirus on Sri Lankan Economy

Updated on April 21, 2020 12:00 am
SL Economy

The coronavirus outbreak has infected over 2 million people worldwide. Coronavirus cases in Sri Lanka are 238 in total with 7 deaths reported. The economic dip in manufacturing, export, tourism, and a significant drop in the remittances received from the Sri Lankan overseas is going to be devastating for the Sri Lankan economy.

Impact on the Sri-Lankan Tourism Sector

Tourism is an important sector for the Sri Lankan economy. In 2018, Travel and Tourism accounted for 12.5 percent of the Gross Domestic Product (GDP) and employed around 500,000. According to the World Bank data, receipts from international tourism accounted for 28% of total export revenues for the Sri Lankan economy, largest after the Maldives in Asia. 

SL Tourism


 

Sri Lanka's tourism industry was still recovering from the horrific bombings last year during Easter that killed more than 250 people. Due to the coronavirus outbreak, on March 19, the government banned passengers' flight service and imposed a curfew for an indefinite period until the situation comes under control. And the industry has been on a standstill since.

The decline in the number of foreign visitors has hit both the country's income, employment and balance of payments.

How is Coronavirus Affecting Sri Lankan Exports?

The global disruptions of supply chains and markets are a threat to global trade. With the spread of COVID-19 in Italy, which is Sri Lanka's single biggest European Market, seafood exports immediately felt the effects. Fishermen were unable to export 400 tonnes of fish because of the restrictions and the precautions that were taken by other countries.

Beach

Sri Lanka's merchandise exports were already down by 7.4 percent to $961 million even before the COVID19 crisis. The Export Development Board (EDB) has warned for a challenging time ahead, as they said that the drop in exports will be 20 percent to 25 percent, which is about $750 million. This is the opposite of the Government's positive target to achieve $13.5 billion worth of merchandise exports in 2020.

Remittance inflows amid the Coronavirus Outbreak

Sri Lankans overseas add up to an estimated population of three million. Increasingly remittance inflows have been one of the biggest earners of foreign exchange income for Sri Lanka. In 2018, $7.16 billion remittances were received, which is about 8.25 percent of the country's GDP. For comparison, it is larger than Sri Lanka's three largest export industries combined.

The remittance inflows during the pandemic have been hit significantly without a clear timeline of recovery. In light of financial hardships faced by the country, the Central Bank of Sri Lanka (CBSL) has appealed for help to the Sri Lankans living abroad to deposit their savings in the country's banking system to tackle the current financial hardships brought by the COVID-19 pandemic.

In the same statement by the Central Bank of Sri Lanka highlighted that remittances during the pandemic will be exempted from the exchange control regulations and taxes for a period of three months and would be protected under the banking secrecy provisions.

Here are the cheapest ways to send money to Sri Lanka. 

Best bank accounts for Sri Lankans living abroad.

Government Response to the Coronavirus Pandemic

Sri Lanka acted early and responded to COVID-19 with aggressive quarantine, imposed a partial lockdown, and sealed international borders.

  • By Mid-March, the President announced a four-day holiday, all across the public sector, except the health and the administrative services in order to slow down the spread. Then, the closure of private businesses and all educational institutions were put in place.
  • Banned flights coming from 13 European countries and few Asian countries, including South Korea. The government also mobilized the military to inspect the quarantine centers.
  • 0.1 percent of GDP for quarantine and other necessary containment measures in addition to $5 million has also been allocated to the SAARC COVID-19 Emergency Fund.
  • The government announced the provision of cash transfer payments amounting to 0.1 percent of the GDP to the vulnerable people on 30th March.
  • Extension of 2020 Q1 payment deadlines for income tax, VAT and other taxes until end-April.
  • Concessional loans and food allowances for low-income groups.
  • The monetary board cut the Standing Deposit Facility Rate (SDFR) by 25 basis points to 6.25 percent and 7.25 percent Standing Lending Facility Rate (SLFR)  from the next day onwards and reduce the Statutory Reserve Ratio (SSR) by 1 basis point to 4% to provide cheaper credit.

Sri Lanka post Coronavirus

The World Bank forecasts a recession in Sri Lanka in the coming months with forecast growth between -3 percent to -0.5 percent for 2020.

It is not just Sri Lanka but the global economy that has entered a recession due to the Coronavirus pandemic as the world has put on hold almost all economic activity unless deemed essential services.

The road to recovery and economic growth seems unclear currently, but looking at China and South Korea as an example, we can be optimistic about a rapid recovery. The World Bank estimates a GDP growth rate of 0.2 to 1.2 for 2021. This is part of a developing story. Please follow us on Twitter @CompareRemit for more updates.

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