The spillover effects of a global economic downturn due to the ongoing coronavirus crisis is likely to curtail Sri Lanka and Maldives annual economic growth. Furthermore, the coronavirus cases climbed to more than 1450 cases in both these southern neighbours of India. The two island economies are dependent on exports, limited manufacturing and tourism. The three sectors are likely to be affected. For smaller economies like Maldives the stress on tourism and hospitality industry would raise unemployment levels and also debt servicing would be adversely affected.
Coronavirus Impact on Sri Lanka’s Economy
In the wake of coronavirus crisis the Sri Lankan authorities enforced a countrywide curfew that was followed by strict border control measures. Under the current contexts, the unprecedented nation wide interruptions were putting the inbound tourism market and segments of the hospitality industry, textile and apparel manufacturing units and other exports at risk. Firstly, tourism, the third-largest earner of foreign exchange in Sri Lanka, with over US$ 4 billion, has been badly impacted by the current pandemic. Secondly, the island nation’s apparel sector, whose exports to the US and EU markets amount to over U$ 4 billion are hence faced with unprecedented challenges. Thirdly, due to the cancellation of flights and disruptions to the freight forwarding facilities, the US$ 1.5 billion worth tea sector consignments were lying in warehouses. Lastly, the Small and Medium Enterprises (SMEs) that generate over 50% of Gross Domestic Product (GDP), collapsed due to the lockdown.
Apart from these concerns, the U$ 7.2 billion worth worker remittances from the Middle Eastern region could be at risk. In addition, the government must act to ensure continued payment of wages to the 1.5 million public sector employees and private sector workforce.
Sri Lanka readies for post COVID Economic revival
To deal with the first factor, the Government of Sri Lanka is planning to implement a two-step revival process during the post coronavirus phase. For example, Sri Lankan agencies responsible for tourism are going to focus on high spending tourists with a longer stay in Sri Lanka as an option to revive the sector. Concerning the revival of the third and fourth export sectors, the Sri Lankan authorities are continuing their activities through diplomatic channels to find potential buyers. Already the bilateral, regional, and multilateral-level discussions received positive responses. Furthermore, as a sensible measure, the government has instructed the national carrier Sri Lankan Airlines to use its entire fleet to air lift massive amounts of cargo to Europe, Middle East, Far East, and the Indian Subcontinent from 18th May. In addition, the Colombo and the Hambantota ports will be fully operational with all their regular services guaranteeing to handle full trade. Furthermore, another important factor for boosting the Small and Medium Enterprises' (SMEs) confidence, the government is providing subsidies for small holdings that can push the economic growth levels of Small and Medium Enterprises.
On the other hand, Sri Lankan Missions abroad are ensuring the welfare of the 1.6 million overseas Sri Lankans (OSL). The government, through its diplomatic channels, urged countries to adopt new standards to ensure decent working conditions for the overseas Sri Lankans (OSL) during these unprecedented times. The recent economic turbulence has forced Sri Lanka to borrow more to pay Rs 100 billion for the state sector workers salary payments every month. However the Sri Lankan cabinet spokesman on a confidence building measure stated “Although this may be a temporary pressure on the economy, the government is duty bound to service its debts.†At a time when Sri Lanka is facing a global health crisis and a domestic economic impasse, both India and China are very important, due to their lending capacity to increase the chances of economic stability for Sri Lanka. Additionally, China provided a concessionary loan of US$ 500 million with a term of ten years, to support the island nation during the coronavirus crisis. Sri Lanka will also enter into the agreement with the Reserve Bank of India (RBI) for a Bilateral Currency Swap Arrangement worth USD 400 million aimed at boosting the island nation's foreign reserves. Definitely the loans and currency swaps that will boost the country’s economy. However heavy borrowings from China and India come with their own strategic interests impinging on Sri Lanka’s development agenda.
Coronavirus Impact on Maldives Economy
A major part of Maldives Gross domestic Product (GDP) is dependent on the tourism and fishing industry. Statistics reveal that over 1.7 million high-end tourists visit this coastal paradise annually. When the coronavirus cases in the Maldives rose, the authorities imposed strict border control measures. Obviously, the coronavirus impact on the Maldivian economy will be enormous. At the moment over 160,540 travel bookings to the Maldives were cancelled . The massive revenue losses in the tourism sector could lead to 11,000 workforce losing employment in 145 resorts. However, lack of significant revenue from tourism is slowing economic growth in the nation. For instance this situation will add pressure to Maldives economy and add to the accumulation of debt . The Maldives has a total of US$ 3.36 billion in debt. Additionally, the Maldives is cchallenge with over 100,000 migrant workers, mainly from Bangladesh. Perhaps these factors can be a serious challenge to drive the economic growth levels during the post Coronavirus stages.
Moreover, Sri Lanka and the Maldives will have to reduce their budget deficits and make structural adjustments by cutting down on welfare projects in the coming months. Also, the idea of regional economic collaboration needs new impetus from the remaining South Asian Association of Regional Cooperation (SAARC) countries to help both these nations . Although having procedures in place to achieve these goals, the most vital transformation for Sri Lanka and the Maldives on post coronavirus period should be one that replicates sustainable economic growth that is inclusive, while integrating measures for multidimensional development in the socio, economic and political spheres.
(Pic Courtesy-Srimal Fernando)
(Srimal Fernando is a Doctoral Fellow at Jindal School of International Affairs (JSIA), India and Advisor / Global Editor of Diplomatic Society for South Africa. He is the winner of the 2018/2019 ‘Best Journalist of the Year’ award in South Africa, and has been the recipient of GCA Media Award for 2016.In the field of politics, and Policy affairs, Fernando is a specialist, with over ten years of first hand experience in Sri Lanka and the Maldives. The views expressed are personal).
