Health of the Economy

CEYLON TODAY | Published: 2:00 AM Oct 20 2020

COVID-19, like all other infectious diseases, fatal or otherwise, has come to stay. This is the reality.

Until a vaccine is found, life has to go on.

If COVID-19 can be likened to a terrorist, then the closest parallel is Sri Lanka’s 26- year terrorist war which began on the night of 23 July1983 when the LTTE’s successfully ambushed and killed 13 soldiers in Jaffna and which war finally ended only after troops killed LTTE leader Velupillai Prabhakaran at Mullaitivu 26 years later on 18 May 2009. 

Sri Lanka’s 26-year war with terrorism was waged in two phases. 

The first phase, in the form of terrorism, took place over a six-year period from 23 July 1983 to 29 July 1987.  However, with the uninvited physical intervention of the Indians, first begun with their infamous airdrop of food items over Jaffna on 4 June 1987, followed by the Indo-Lanka Peace Accord nearly two months later on 29 July 1987, that, resulted in all other terrorist groups other than the LTTE and EROS embracing the Indian sponsored peace process. 

Nonetheless, the LTTE, with the EROS merging with the LTTE post 29 July 1987, only made a pretense of giving up arms. That resulted in Sri Lanka, followed by the uninvited Indian Peace Keeping Force (IPKF) taking on the LTTE in October 1987, thereby ending a nearly three-month-old phony peace begun on 27 July 1987. 

That also transformed the previous terrorist war to an LTTE terrorist war which finally ended on 18 May 2009. Nonetheless, during those 26 years of terrorism impacting the country, Sri Lanka never experienced a lockdown like it did this year, spanning a two- month period from mid-March 2020 to mid-May 2020 due to the COVID-19 Pandemic, thereby crippling  the economy and making the terrorists efforts to create a similar impact, peanuts.

During the height of terrorism, the economy retarded only once, in 2001, when the economy shrank by 1.5 per cent, a first, since Sri Lanka began recording its GDP growth in 1950. The cause of this shrinkage was the LTTE’s attack of the Colombo Airport in July 2001, followed by ‘9/11’ impacting on Sri Lanka’s largest export market, the USA and the uncertainty revolving round the Parliamentary Polls of December 2001 held here. 

However, prior to the LTTE attack of the Colombo Airport in July 2001, the economy shrank by 0.1 per cent in second quarter (2Q) 2001, a possible fallback coupled with the lag effects due to the then Government’s liberalisation of the rupee in January 2001 to protect the country’s Spartan foreign reserves.  Nonetheless, the economy contracted sharply by 3.9 per cent in 3Q 2001, with this contraction marginally decelerating to 3.6 per cent in 4Q 2001.

Meanwhile, due to the COVID-19 lockdown this year, the economy in 1Q 2020 sharply contracted by 1.6 per cent, while the World Bank (WB) estimated that the contraction was even sharper in 2Q 2020, with the economy having had shrunk by 10.3 per cent due to the effects of COVID-19.   Official growth figures for both 2Q and 3Q 2020 will however be out only on 15 December. 

Further, the WB estimates that the economy will contract by 6.7 per cent for the totality of this year, led by COVID-19, while the ADB expects the economy to shrink by 5.5 per cent this year and the IMF foresees a 4.6 per cent shrinkage.

Nevertheless, the WB anticipates that the economy will rebound to grow positively by 3.3 per cent next year and by two per cent in 2022; ADB, by 4.1 per cent next year and the IMF by 5.3 per cent next year and by 4.8 per cent in 2022. ADB hasn’t given a growth forecast for 2022.

These growth assumptions vis-à-vis next year and beyond as applicable may have been made by these multilateral donor agencies on the assumption that Sri Lanka will not go in for a second lockdown.

With the possibility of a vaccine to treat COVID-19 being discovered by next year, Sri Lanka will have to wade through the remaining two months and 11 days of this year cautiously whilst keeping options open for a second lockdown only as a last resort.

The health of the economy is as crucial as the health and wellbeing of the people of this country.  

CEYLON TODAY | Published: 2:00 AM Oct 20 2020

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