Despite the heavy toll of the COVID-19 pandemic on Sri Lanka’s economy and the lives of its people, the economy will recover in 2021, though challenges remain, says the latest World Bank Sri Lanka Development Update: Economic and Poverty Impact of COVID-19
The Sri Lanka Development Update (SLDU) notes that the country, hit with an unprecedented economic downturn due to the pandemic, is now on the road to recovery. Sri Lanka’s economic growth is expected to recover to 3.4 percent in 2021, mainly due to foreign investments as well as normalizing tourism and other economic activities. However, the slow global recovery, coupled with continued trade restrictions, economic scarring from the slowdown, and the high debt burden may continue to affect growth.
The report provides an update on Sri Lanka’s economy and outlook, highlighting the devastating impact of the pandemic. Sri Lanka’s economy contracted by 3.6 percent in 2020, the worst growth performance on record, as is the case in many countries fighting the pandemic.
Government acted decisively with steps such as cash transfers and postponed tax payments. The Central Bank’s introduction of a debt moratarium and other measures to encourage lending also helped reducing the adverse impact of COVID-19 on businesses and livelihoods. At the same time, increased expenditures and lower revenues amid the pandemic contributed to a deterioration of the fiscal situation. Public and publicly guaranteed debt is estimated to have increased to 109.7 percent of GDP. Reserves declined to an 11-year low in February 2021, and the exchange rate depreciated by 6.5 percent from January through March 17, 2021. Striking a balance between supporting the economy amid COVID-19 and ensuring fiscal sustainability remains a key challenge.
“As in countries around the world, COVID-19 has had an unprecedented impact on Sri Lanka’s economy and people’s livelihoods. But we are already seeing positive signs as the country enters the recovery phase,” said Faris. H. Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka. “Through an enhanced focus on an export-oriented growth model that taps the full potential of private investment, Sri Lanka could increase its competitiveness and raise growth in a sustainable manner.”
