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Sri Lanka GDP to shrink 3.0-pct in 2020 as economy hit by Coronavirus: WB

ECONOMYNEXT – Sri Lanka’s economy may contract as much as 3.0 percent in 2020, the World Bank has said as a Coronavirus crisis hit exports, domestic demand and the external sector has also weakened under monetary stimulus.

Most of Lanka’s economic activities have been brought to a standstill from March as the crisis first hit tourism, exports through supply chain disruptions and curfews brought all domestic economic activities to a standstill.

“For Sri Lanka a recession is anticipated, with annual growth estimated between -3.0 and -0.5 percent,” the World Bank said a report on South Asia.

Sri Lanka’s central bank Governor W D Lakshman told a local television channel that the economy would contract in the June quarter.

Sri Lanka was expecting to grow about 3.5 percent in 2020 as the country recovered from the effect of a currency crisis in 2018 brought triggered by liquidity injections to enforce rate cuts.

Sri Lanka’s apparel exports are expected to fall by 1.5 billion dollars in the June quarter industry officials told EconomyNext. Overall exports are expected to fall by a third.

Domestic consumption except for basic foods and medicines has been halted under Sri Lanka’s lockdown.

The World Bank said in for every million dollars of demand forgone in services 170 people would be unemployed in Sri Lanka.

“This means that if consumption were to drop to the levels envisaged under the baseline scenario range (anywhere between 2 to 4 months), overall employment will decline by between 2.4 percent and 9 percent of total employment in those sectors of Sri Lanka,” the report said.

Sri Lanka however is making plans to re-open the economy progressively from late April or early May if new infections go down.

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The strategy adopted by Sri Lanka Vietnam and Korea where the infections spread more than the other countries, involving aggressive contact tracing is ill understood by outsiders.

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Sri Lanka’s budget was already under pressure before the crisis by a fiscal ‘stimulus’ involving a steep value added tax cut in January which had spooked rating agencies and investors.

Sri Lanka was expected run a a deficit of over 7 percent of gross domestic due to the ‘stimulus’.

The World Bank said Bangladesh Pakistan and Sri Lanka are expected to see deficits rise to between 7 and 10 percent of GDP.

The projections do not take into effect any fallout from a currency slide and effects on external payments.

Sri Lanka’s external sector is again under pressure due monetary stimulus with a soft-pegged exchange rate. Sri Lanka’s rupee has fallen from 182 to the US dollar to around 195 after a some losses were recouped amid intervention. (Colombo/April13/2020)

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