Spotlight: Econ Op-eds in Summary (Week ended 01st April'20)
1. A brewing storm: Economic impact of COVID-19 on Sri Lanka
By: Kithmina Hewage
· The COVID-19 pandemic has placed both advanced and developing economies at risk. Yet, there is no coordinated global effort to minimise the economic fallout. With a global recession inevitable, a key issue faced is restarting the economy without creating the likelihood of the virus spreading again.
· The Sri Lankan economy has a significant number of export revenue dependent MSMEs. The slowdown in key trading partners like China, the US and EU will lead to severe impacts on export and tourism sectors. Domestically, curfew measures have caused retail and manufacturing to come to a standstill, with MSMEs and informal-sector workers being disproportionately impacted.
· While stimulus measures including rate cuts and moratoriums for vulnerable industries have been introduced, these may not create swift cashflow to affected MSMEs, but could help avoid a domestic financial crisis. The key challenge for the government is designing an effective fiscal response that allows businesses to sustain themselves, while managing a constrained fiscal landscape given the previous tax relief measures and inevitable delays in collecting revenue.
2. A COVID-19 Recession and Debt Shock in Asia and Sri Lanka scenario analysis
By: Ganeshan Wignaraja
· The severity of the Covid outbreak has led to a discussion around how the recovery would be for Asia. Research suggests if the outbreak is contained within a few months, Asia could likely recover by 2021, after a short recession. Else, a lengthy recessionary period is possible where growth bottoms out to levels worse than the 1997 Asian financial crisis.
· The second scenario seems more likely as the virus continues to spread across the world, leading many Asian central banks and governments to undertake various stimulus measures. These measures are adding on to already high public debt levels which have exceeded IMF benchmarks. In South Asia, Pakistan and Sri Lanka are considered as outliers with very high public debt ratios.
· South Asian economies are facing a triple whammy of rising borrowing costs, falling commodity prices and declining tourism receipts. This leads to pressure on limited foreign exchange reserves, increasing the risk of debt distress. Policy makers should factor the risk of a debt shock when loosening monetary and fiscal policy to mitigate the expected deep recession.
(Compiled by: Chayu Damsinghe, Asel Hettiarachchi & Eshan de Mel)
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