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Thursday May 6th, 2021
Economy and Markets

Sri Lanka axing climate-related spending to narrow deficit

ECONOMYNEXT- Sri Lanka, which has been hit by extreme droughts and floods and been identified as one of the top countries at risk from volatile weather, has cut spending on disaster management and recovery to trim the budget deficit, an economist said.

“Sri Lanka spent about 54 billion (rupees) in 2017 and 21 billion in 2018," Ceylon Chamber of Commerce Chief Economist Shiran Fernando said, totalling the actual expenditure on disaster risk management and recovery.

He was speaking at a forum organized by the Colombo Stock Exchange and the Global Reporting Initiative (GRI), an entity which helps private companies publish eco-friendly business practices and indicators.

Fernando said the government is reducing its spending on disaster risk management due to its fiscal constraints.

"The difference shaves off a certain percentage point off the fiscal deficit," he said.

Kanchana Wickramasinghe, an economist at Colombo-based Institute of Policy Studies says the government had allocated 27.71 billion rupees to manage climate risk in 2019, down from 39.1 billion rupees in 2018.

Disaster risk management includes raising river banks to minimize floods, rehabilitating rural tanks to mitigate droughts, and housing, insurance schemes and building better early warning systems to mitigate risks.

Recovery spending includes providing material relief to people affected by disasters and reconstructing damaged housing and public infrastructure.

Sri Lanka experienced floods in 2016 and 2017 in some parts of the country, while other areas experienced the worst drought in 40 years, pushing costs for disaster relief.

Sri Lanka’s Treasury had to incur an additional cost totalling 0.3 percent of gross domestic product (GDP) in 2017 to provide relief and reconstruct disaster-affected areas which were estimated to have cost 0.5 percent of GDP in property damage.

Sri Lanka’s growth slowed down in these years, with the agriculture sector contracting in 2017.

The World Bank says Sri Lanka is one of Asia’s worst at-risk climate hotspots, and could lose up to 7.7 percent of its gross domestic product and between 4.9 percent to 7 percent of living standards by 2050.

Sri Lanka has experienced higher levels damage from natural disaster in recent years, partly due to areas such as land near river banks or steep slopes, which were previously not used for housing amid population growth.

The 2019 Climate Risk Index, compiled by Germanwatch, a think tank, ranked Sri Lanka as the world’s second-most affected country from climate change in 2017.

Germanwatch said in the longer-term, from 1998-2017, Sri Lanka was the 31st most affected in the world.

"Which is in the top 50 and not a healthy position to be in, in the long-term perspective," Fernando said.

"So it highlights some of the policy interventions that are required to limit some of the losses that we have seen in terms of growth and economic losses and human losses."

Sri Lanka is currently amidst an election year, but has to manage the highest external debt repayments, requiring a tight balance of fiscal policy. (Colombo/Apr03/2019-SB)

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