Wednesday, 05 May 2021 11:03

COVID-19 shocks Sri Lankans and Economy Featured

The Coronavirus (COVID-19) crisis has dealt a significant shock to Sri Lanka’s economy and people. This note examines the expected impact on poverty and inequality amid widespread job and earnings losses.

 

While poverty was relatively low in Sri Lanka prior to the pandemic, pre-existing vulnerabilities were high, partly owing to high levels of informality. Many workers do not have access to employment protection or other job-related social protection benefits, making them vulnerable during times of economic crisis.

This was highlighted in the Sri Lanka Development Update (SLDU) released recently by the World Bank with a special focus on economic and poverty impact of the corona virus contagion on the island nation and the lives of its people.

Livelihoods support programs and various relief measures implemented by the government over the course of the pandemic are expected to have mitigated the labor market shock.

Inequality is expected to increase in the short run because of the unequal distribution of the shock.

Moreover, reduced social mobility as a consequence of widening disparities in access to education for example could increase inequality in the long term.

Dr. W.A. Wijewardana, Former Deputy Governor of the Central Bank, noted that although the World Bank has predicted that price inflation would increase gradually from 5.2 per cent in 2021 to 6 per cent by 2023 while the money supply growth will accelerate inflation in the future.

The release of such a massive quantum of money to the system should necessarily entail pressure for prices to increase, he said.

Normally the government could mitigate the pressure of rising domestic prices by allowing import flows to the country, he said adding that the Central Bank’s’ foreign reserves are not sufficient to ease import restrictions at present.

Inflation should surely be higher than the projection of 6 per cent by the World Bank; he said adding that the hike in the Colombo Consumers Price Index is misleading due to the wide range of price controls of the government.

Sri Lanka is at present on the threshold of an upper middle-income country. The poverty benchmark for this category of countries is $5.50 per day per head in terms of 2011 purchasing power parity dollars.

When applied this to actual data from the Census Department’s Household Income and Expenditure Survey, the poverty level rises to 42 per cent in 2020, he opined.

 

 

Last modified on Thursday, 06 May 2021 10:20

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