Return of normalcy expected to unleash burst of economic activity this year

„Says every high frequency data improved in 2020 second half, despite second COVID-19 wave in Oct. „Expects SL to rejoin upper-middle-income club this year

Sri Lanka is expected to unleash a burst of economic activity this year, as the pandemic fades and the people and businesses are resuming activities that were put off last year, possibly elevating the country again into the uppermiddle-income level, a status which was lost two years ago in 2019.

According to the Central Bank, almost every high frequency data on the economy, such as industrial production,

Purchasing Managers’ Index, credit to the private sector, power generation, paddy production, etc. improved in the second half of 2020, despite the second wave of COVID-19 in October.

Households are believed to be sitting on a significant pile of cash, which they stashed away last year and are waiting to splurge on activities such as travel and leisure, dining, throwing family reunion parties and shopping, which were prevented in 2020, due to the lockdowns.

That is expected to fuel a substantial demand for goods and services, propelling a faster economic growth, as when money is spent, it energises a cycle of higher production and output, job creation and investments—a virtuous economic cycle of high income generation and poverty alleviation.

With a faster rebound in economic activities, except in few areas such as travel and tourism, restaurants and entertainment, Sri Lanka was able to contain the contraction of the economy to 3.6 percent in 2020, much better than the contraction forecasts made by multilateral lenders and rating agencies. The International Monetary Fund (IMF) and Asian Development Bank (ADB) projected the Sri Lankan economy to shrink by 4.6 percent and 5.5 percent in 2020, respectively, after revising their forecast several times. The World Bank forecasted a contraction of 6.7 percent.

The World Bank in April 2020, at the height of the pandemic, said the remittance income to Sri Lanka would slump by 19 percent, just to see last year being ended up as the best year for remittance income since 2016.

Now the Central Bank is bracing for an unwavering 6.0 percent growth in the economic output in 2021, putting the country back into the US $ 4,000 per capita income club by the end of this year, a status which Sri Lanka could have regained in 2020, if not for the pandemic.

The World Bank in July, last year, downgraded Sri Lanka to a lower-middle-income country, based on the 2019 per capita income data, which showed over a US $ 200 decrease to US $ 3,741, from US $ 3,968, based on the gross national income of 2018. Meanwhile, the per capita gross domestic product dropped to US $ 3,852, from US $ 4,079 in 2018, which was a result of continuously bad economic policies since 2015. The 2020 per capita income, which is expected to have further dwindled, will be available in a matter of weeks, as the Central Bank releases its annual report in April. According to the World Bank, the per capita income between US $ 4,046 and US $ 12,535 is the new upper-middle-income category while the countries with a per capita income above that level are identified as high income countries.