Asia St: Sri Lanka’s Path to Post-Pandemic Recovery

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Sri Lanka’s Path to Post-Pandemic Recovery

March 21, 2021

BGA Sri Lanka Senior Advisor Chullante Jayasuriya recently wrote a forecast for the country for clients looking ahead to the rest of 2021. The forecast, published March 21, focused on the manifold challenges the country faces domestically, including in addressing the current coronavirus pandemic, as well as its future prospects.

In the update, Jayasuria argued that while Sri Lanka has made clear that it is eager to facilitate post-pandemic economic recovery as it transitions from income support measures to growth enhancement policies in the first quarter of 2021, leaders are also acutely aware that vestiges of the Covid-19 pandemic linger beneath the surface in the form of low business confidence, rising debt, depleting foreign exchange reserves, high unemployment and reduced exports.

Colombo, Sri Lanka

To manage this, Sri Lankan policymakers are exploring opportunities to reset and emerge from the downturn on a surer footing. Some of these moves include specific measures such as trade policies and currency swaps. More broadly, they are also designing incentive schemes to attract greater foreign investment, providing concessional loans to businesses in key sectors and embarking on an ambitious vaccination program.

Still, Jayasuria notes that Sri Lanka’s policymakers have their work cut out for them as they chart the way to recovery. The country’s reliance on import substitution and reluctance to perform market reform may inhibit its reintegration into global value chains, impacting export performance. Geopolitical realities also factor into Sri Lanka’s post-pandemic economic outlook: although Sri Lanka’s currency swap with China may stave off looming debt defaults, it has pushed the country further into China’s orbit and strained ties with India. And, domestically, the passage of the 20th constitutional amendment has invested considerable power in President Gotabaya Rajapaksa, removing parliamentary checks on his authority with broader implications for democracy, rule of law and human rights.

While companies can expect a return to some positive growth in 2021, Jayasuria, who has over 30 years of experience in various areas including trade and investment promotion, private sector development and policy planning and implementation, notes that it will be important to keep an eye on any potential policy changes the government may enact — whether in trade, investment or fiscal measures — to shepherd the country through the recovery period.