Silver linings among the dark COVID clouds

An export revival, reduction in the trade deficit due to a decrease in imports and the prospect of increased workers’ remittances are silver linings among the dark clouds of our country’s rising COVID-19 crisis and the continuing pandemic.

Cautious optimism

Although a continued improvement of these is hoped for, the current global economic environment and the country’s spreading of COVID-19, calls for only cautious optimism as these favourable developments are fragile and could reverse in a short period of time in a pandemic stricken world. Furthermore, world health authorities expect the pandemic to be eliminated by only the end of 2021. It is then that we can expect a substantial economic resurgence.

Exports

The recent revival of exports to pre-COVID levels is the best recent economic outcome. Since May this year monthly exports have hovered around US$ one billion, which is around last year’s pre-COVID monthly average of exports.

The annual exports of US$ 11.9 billion in 2019 is slightly less than a billion dollars imports each month. Fortunately, exports that were severely affected early this year revived since June to reach around US$ one billion a month, which is about the monthly average of last year.

The Export Development Board ( EDB) Chairman cited Customs data to announce that exports were over US$ one billion in September. Consequently, the export earnings in the first nine months were about US$ 7.5 billion.

Therefore, despite this year’s usual exports being adversely affected by the global lockdown for about two months, this year’s exports are likely to be about US$ 10.5 billion: Only about nine percent less than last year’s US$ 11.9 billion. This is owing to manufacturers diversifying into new products that had an international demand.

Encouraging feature

The encouraging feature of the country’s export performance this year is that despite a sharp fall in the country’s normal manufactured export items, such as apparel, solid tyres, ceramics and leather goods, the manufacturers of several of these goods have adapted themselves to produce new products demanded by the international market, especially rubber gloves, surgical gloves, masks and personal protection equipment (PPE).

Agricultural exports

However, the country’s agricultural exports have not increased. In the first eight months till August, agricultural exports amounted to only US$ 1.5 billion, a nine percent decrease from last year’s low export value of US$ 1.7 billion.

Particularly disappointing is the country’s tea exports of only US$ 815 million in the first eight months of this year compared to last year’s low export value of US$ 915 million.

Both a reduced quantity of exports and a decline in prices account for this.

Longer view

Agricultural exports cannot be increased suddenly. A long term plan to increase production and productivity of tea, rubber, coconut and spices are needed to make an impact on increased production of these exports.

Sea food

Despite an expectation that the export value of sea food would increase owing to a higher demand for fish due to a shift in preference from meats to fish after the COVID pandemic, sea food exports decreased by 12 percent in the first eight months.

Workers’ remittances

A possible setback to the external finances this year was a decrease in foreign remittances by Sri Lankan’s working abroad. Remittances in the first eight months of this year fell by 1.5 percent to US$ 4.3 billion, from US$ 4.4 billion in the first eight months of last year. However, there was a surge in remittances in August this year when they amounted to US$ 664 million compared to US$ 518 million in August 2019: an increase of 28 percent.

Why?

This increase could be because returning workers are bringing back their savings as they do not expect to return to their workplaces. Therefore there is no certainty as to when and whether workers’ remittances would pick up again. Another reason may be that relations residing abroad have remitted money to help their kith and kin who have lost their sources of income here.

Tourism

Foreign earnings from tourism have been the worst affected item in the balance of payments. They have fallen to negligible amounts. It may be quite some time when international travel resumes again. The current wave of COVID in the country is an additional setback to tourism. At best, international travel and tourism is expected to bounce back at the end of 2021. This could be realised only if the pandemic and ours is more or less eliminated. There are no signs of this as at present. There are no silver linings so far, in tourism.

Other services

Other services such as ICT have not fared well though there is a prospect of their recovery and growth in the longer run. It is difficult to predict how these earnings would fare in 2021 and beyond.

Summing up

There is only a glimmer of hope that the country’s balance of payments will not be too unfavourable. Much depends on a continued improvement in the trade balance by a reduction of imports and an increase in recent manufactured exports. With no prospect of earnings from tourism, the continued flow of remittances is vital to reduce the balance of payments deficit.

Conclusion

There is a further need to strengthen the country’s export earnings as the upsurge in remittances are likely to peter off once the accumulated funds are remitted and as there would be a decline in the number of workers going abroad in the foreseeable future. Tourist earnings too would be negligible for quite some time.

At best these may revive to a limited extent in the later part of 2021. Even this is uncertain. Therefore containing the trade deficit to a minimum is mandatory.

If exports could be increased to about US$ 1.25 billion a month in the next few months of this year and next year, then the balance of payments could be reined in to generate a small surplus. This is the way forward.