The usual bustle of the capital city has now been replaced by an eerie silence as the new coronavirus (COVID-19) takes its toll on the country. Islandwide police curfew has been introduced to reduce the spread and to flatten the epidemic curve. Whilst Sri Lanka's comparatively low number of COVID-19 positive cases suggest the success of these measures, they still come at a heavy cost to the local economy.
When COVID-19 struck us we were actually in a relatively weak economic situation. Our growth rate had fallen to 2.6 per cent, which is very low compared to our growth rates in the last three decades. Earnings from tourism has fallen particularly after the Easter Sunday attacks. The immediate future for tourism did not look good. When we look at the economic impact of COVID-19, there is a direct effect and an indirect effect.
But when it comes to the long-term, I see that the Government might overplay this situation, by not having a price mechanism but rather giving directions, quantity restrictions etc. Measures to help the poor has to be administered by the public service, which is not known for its speed or efficiency.
"With our inability to export our own production coming down and there is reason now to worry about what we may call luxury. For example, restricting the imports of motor vehicles where Sri Lanka expends a lot of foreign currency. All the same, I don't think the Government should be defining what the essential imports are and suffering the consequences of accidentally restricting an essential item. Rather they should have an essential list, selectively target a few non-essential items."
According to Prof. Sally, the global economic impact of COVID-19 will far outreach the impact of 2008 global financial crisis.
"We're still in the early stages of experiencing this, but it will be considerably worse than the 2018 financial crisis. From our experience of past pandemics, the huge short-term economic costs have been followed by lasting structural changes in societies and economies, lasting for decades and centuries. I suspect we might see something similar from this pandemic. The negative aspect is that this pandemic is spreading much faster because of globalisation, travel and trade.
He further added that similar to previous pandemics, the poorest in society would be the hardest hit.
"In the short- term macro economic sense what we are seeing is our already high debt burdens around the developing world now becoming unsustainable, given what's happening. So we are on the cusp of very significant debt defaults, debt relief and debt restructuring."