Containing COVID a pre-condition for economic revival in 2021

Containing the spread of the COVID19 virus is a pre- condition for the economy to revive in 2021. However, containing the spread of COVID in tandem with reviving the economy and resolving the serious economic problems of the country are tough tasks.

Difficult task

Although the stable and strong Government in place is an advantage at this time of the COVID crisis, controlling the spread of the virus while opening up the economy is enormously difficult.

Nevertheless, the containment and eradication of COVID globally and in Sri Lanka is a pre- condition for the island’s economic recovery and sustained growth.

Multiple problems

Reviving the economy this year after two years of economic decline, a serious depletion of foreign reserves, large foreign debt repayments and inadequate finances, is a huge challenge. It is not clear how these difficulties would be overcome in the coming months of the year.

Priority

The containment of the COVID- 19 virus globally and in the country would be an important determinant of the island’s economic performance this year. In spite of several vaccines being available and used worldwide, the eradication of COVID-19 is many months away and global economic revival even further away.

Manufactures

The expansion of the country’s manufactured exports and recovery of tourism would enhance the country’s foreign earnings and would improve the trade balance and balance of payments. While there are strong expectations of containing the virus by the newly developed vaccines, the enormity of the needed coverage and the emergence of new strains, have dampened expectations of early success.

Global recovery

The global containment of COVID is vital for Sri Lanka’s trade dependent economy. A revitalisation of exports would have an immense impact not only on export earnings, but employment and incomes of people as well.

Global expectations

Global expectations of containing COVID-19 have been boosted by the availability of several vaccines.

However, the light is at the end of a long tunnel. It may be at year’s end, at best, that most economies will return to near normal virus free economies.

Increased demand

The use of the vaccine in the countries that are our main markets would hopefully revive demand for our exports such as apparel, tyres, rubber manufactures, ceramics and other goods that were the main manufactured exports prior to the pandemic. Hopefully, there would also be a continuation of the demand for PPE export items such as rubber gloves and masks too throughout the rest of the year.

Responsive

Industrialists would have to be receptive to the emerging new patterns of international demand and export possibilities and adapt their production capacities to exploit them. In as much as there may be changes in the demand for goods, there would also be changes in the markets for goods.

It is most likely that China and East Asia would emerge as more important markets for consumer goods than the traditional western countries that have been the main markets. A more Eastward looking international demand is expected.

Salient factors

There are several salient factors that the government and exporters should be mindful of in the future. It is important to realise that imports and exports are two sides of a coin. This is especially so for Sri Lanka whose manufactured exports have a high import content.

Import restrictions

The restrictions on imports should not hamper the availability of a large range of raw materials needed for export industries. On average the import content of exports is around 65 percent of export manufactures. At present even small manufacturers are having difficulties in obtaining required raw materials and have had to abandon their trade.

Re-think

There should be rethinking on import policies to ensure that essential raw material imports are not hampered. There should only be a selective restriction of imports.

Disadvantages

The global economic recovery is not without disadvantages. While several aspects of global economic recovery, such as world travel and tourism, will take time and may benefit us at the year’s end, there are developments that are immediately adverse. Most important of these is the rise in oil prices.

One of the important means by which the trade deficit was contained in 2020 was lower international oil prices. During the first nine months of this year fuel prices were at an average of about US$ 30 per barrel. Lower international prices of oil together with lesser imports due to subdued transport activity reduced oil import expenditure by about 30 percent in the first nine months of 2020.

Oil prices have begun to rise. At the time of writing the oil price is at US$ 52 per barrel, and climbing. This would make a dent in our trade balance and balance of payments.

Tourism and COVID

A matter of grave concern is the opening up of tourism to foreigners. Several plane loads of Ukrainian tourists have arrived in the country and are travelling to places of tourist interest like the Yala game sanctuary. At the time of writing, more than seven Ukrainians have been found to be infected with the virus. It is only a matter of time before locals in contact with the tourists will become infected.

Risk of spreading

Is this risk justified? These tourists are from one of the most COVID-affected countries. If COVID spreads in the country as a consequence of opening up tourism, the costs of containing the fresh wave of the pandemic and the consequent dislocation of production in the country could be a step backward in our quest of eliminating the virus, and it will be of little benefit economically.

The humanitarian losses could be incalculable. It may also taint the future image of the country as a tourist destination.

Other countries

In contrast to our opening up to tourism, other countries are expected to permit tourists from only countries that have eliminated the pandemic. This implies that normal tourist traffic will take some time to resume. The revival of tourism to any significant extent is unlikely unless we eradicate COVID. However, tourists from the region may in all probability come to the island. The main countries from which we could expect tourists are China, India and the Middle Eastern countries.

We must be mindful, as these tourists may pose a threat to our efforts to contain COVID in the island. This underscores the need to give priority to health issues and containment of the virus for the revival of the economy in the fullness of time.

Concluding reflection

Containing the spreading of COVID is crucial for a sustained growth of the economy. However this is not sufficient. The resolution of the fundamental economic problems of repaying debt, improving the balance of payments and fiscal prudence are essential for economic stability.

Eradicating the several strains of COVID globally and locally is an urgent pre-condition at this moment in time.