THE BIG PICTURE
THE BUSINESS TSUNAMI
The coronavirus has come at a crucial juncture for our nation
Recently renamed COVID-19 by the WHO, the coronavirus is causing havoc in most parts of the world. Parts of China and some regions in Southeast Asia have been on virtual lockdown for weeks, and the Far East and Western world haven’t been spared either.
And there’s no saying whether the virus will spread to our part of the world with some saying it’s a case of ‘when’ rather than ‘if.’
For Sri Lanka, the timing couldn’t have been worse. In late October 2018, the former president held parliament and the public to ransom by shutting the house in what was ruled as being unconstitutional by no less than the supreme court some six weeks later.
Around four months thereafter, the nation and its people were taken by surprise yet again – on Easter Sunday, no less. That was when the ugly hand of terrorism struck a country that until then was one of the most peaceful nations on Earth – an emerging darling of the world since it had broken the shackles of 26 years of war and terror of less than a decade ago.
Sri Lanka is now counting the cost of an external bombshell of potentially extreme proportions with international supply chains and travel in disarray; this at a time when the engine of growth was barely forging ahead with its gears firmly in survival mode thanks to the events of last April and October-December before it.
If nothing else, let’s keep in mind that more than a fifth of our imports come from China while three percent of exports are destined for the world’s second largest economy. And then there’s the impact on inbound tourism too.
Thankfully, the newly elected president announced a slew of relief measures for both the people and business by abolishing certain taxes and reducing others – at the risk it has to be said, of blowing the budget deficit and current account out of proportion, and having to find the money to bridge the impending treasury gaps.
Questions are also being raised about Sri Lanka’s downgraded ratings and indeed, the prospect of more bad news – although the recently appointed Governor of the Central Bank of Sri Lanka Deshamanya Prof. W. D. Lakshman maintains that the rating downgrades will be reversed during the next budget cycle.
Speaking at the launch of Economic Outlook 2020 at the Ceylon Chamber of Commerce in mid-February, Lakshman referred to the downgrades by international rating agencies as “worrying” while expressing confidence of a reversal on the back of sustained growth through the government’s structural reforms.
In contrast, the likes of the IMF and analysts have expressed concern about the prospect of widening deficits and fiscal slippage – in fact, the International Monetary Fund, in its most recent review early last month, noted that Sri Lanka failed to meet its fiscal targets last year; and the finance ministry has conceded that its estimate of a seven percent budget deficit for 2019 could increase to 7.5 percent when overdue bills are settled.
It follows that the government’s stimulus package along with the challenges confronting the external economy could undermine growth in the short to medium term… but more than anything else, this life threatening and highly contagious virus has to be contained.