Sri Lanka GDP contracts 3.6-pct in 2020 amid Coronavirus, import substitution
ECONOMYNEXT – Sri Lanka’s gross domestic product has contracted 3.6 percent in 2020, down from 2.3 percent in 2019 amid a Coronavirus shock the state statistics office said, as the country was hit by monetary instability triggering a 2.3 billion US dollar balance of payments deficit.
Agriculture contracted 2.4 percent, industry 6.9 percent and services 1.5 percent.
The Coronavirus outbreak had particularly hit manufacturing,, construction, mining and quarrying tourism, real estate, personal services and fishing, the Department of Census and Statistics said.
Marine fishing had contracted 21.7 percent, coconut 10 percent, tea 7.1 percent.
But growing of cereals had grown 41 percent, with rice up 5.7 percent, vegetables 10 percent and fruits 6 percent, rubber 4.6 percent.
In industry manufacturing at contracted 3.9 percent, rubber down 17.7 percent, textile, apparel and leather down 11.9 percent. Food beverages and tobacco was up 4.4 percent.
Construction contracted 13.2 percent.
Sri Lanka’s gross domestic product was estimated to have grown 1.3 percent in the fourth quarter of 2020 against 1.6 percent in 2019 as the economy recovered from a Coronavirus pandemic, the state statistics office said.
Agriculture grew 1.3 percent, industry 1.3 percent and services 1.9 percent, the Department of Census and Statistics said.
The third quarter growth was revised down to 1.3 percent from an earlier 1.5 percent.
The second quarter contraction was revised up to 16.4 percent from 16.3 percent.
The economy was hit by Coronavirus lockdowns after March 20, 2020 and was re-opened in the second quarter.
The first quarter contraction was also revised up to 1.8 percent from 1.7 percent.
In 2020 Sri Lanka was hit by monetary instability as large volumes of money were printed triggering credit downgrades reducing access to international markets and a balance of payments deficit of 2.3 billion rupees.
Sri Lanka has been hit by so-called ‘stop-go’ policies which had intensified in recent years with ‘flexible’ un-anchored policy.
Sri Lanka been targeting real effective exchange, lending rates and deposit rates through price ceilings, an output gap and call money rates with high levels of excess liquidity as part of ‘go’ polices though the central bank’s mandate is to maintain economic and price stability.
Stop policies are hit as depreciation or reserve losses intensify resulting in output shocks.
Tax cuts were added to ‘go’ policies in December 2019 followed by more liquidity injections to make up of lost revenues, triggering downgrades and a 2.3 billion US dollar balance of payments deficit.
In 2020 consumers were also hit by import substitution with shortages in some goods and rising domestic prices, especially in construction materials. In 2021, directed credit is planned. (Colombo/Mar16/2021)