The World Bank forecasts a bouncing back in Sri Lanka’s economic activity with up-and down-side risks in financial vulnerabilities despite the heavy toll of the COVID-19 pandemic.
This was highlighted in the Sri Lanka Development Update (SLDU) released recently by the World Bank with a special focus on the economic and poverty impact of the coronavirus contagion on the island nation and the lives of its people. The latest report captures the bank’s analysis of recent economic developments, outlook, risks, and policy options for reforms as well as the poverty level of the people in Sri Lanka.
A virtual presentation and panel discussion on the World Bank’s Sri Lanka Development Update was conducted on Wednesday creating awareness mainly on poverty levels in the country due to disruption of economic activities affecting the self-employed following the COVID-19 pandemic.
Delivering the keynote address, Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka noted that Sri Lanka’s economic growth is expected to recover 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, he said.
The report notes that 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.
Poverty has risen since the onset of the pandemic mostly due to widespread job and earning losses. The report looks at how Sri Lanka could protect livelihoods amid the current pandemic and prepare for any future crises, he revealed. Presenting the country’s development update, Robert Beyer, Senior Economist at the World Bank said that measures to support the poor and vulnerable amid the pandemic put pressure on public spending.
Sri Lanka ranks the highest in the South Asia Region in the World Bank Human Capital Index for the second time in a row, he disclosed. With jobs lost and earnings reduced, the US$3.20 poverty rate is projected to have increased from 9.2 percent in 2019 to 11.7 percent in 2020.
The government spent an estimated 0.7 percent of GDP in cash transfers to displaced daily workers, affected senior citizens, persons with a disability, and kidney patients, among others and these measures likely helped soften the impact of the crisis on poverty, the report revealed. The current social protection system could support prosperity and the reintegration of those who lost their jobs.
In the medium term, social safety nets could be better targeted toward the poor and vulnerable and adjusted to allow for support to be scaled up quickly and effectively in times of crisis.
Dr. W.A. Wijewardana, Former Deputy Governor of the Central Bank, noted that although the World Bank has predicted that price inflation would rise gradually from 5.2 percent in 2021 to 6 percent 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 percent 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 percent in 2020, he opined.