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Sri Lanka unemployment hits 10-year high in 2020 March quarter

ECONOMYNEXT – Sri Lanka’s unemployment hit 5.7 percent in the March 2020 quarter, levels not seen since 2009 at the end of a 30-year war, in 2009 when the unemployment rate spiked over 6 percent, data from the state statistic office showed.

Sri Lanka’s tourism sector took a hit with Coronavirus from the first quarter of 2020, but the airport was closed in March 19 and curfews started shortly after.

Sri Lanka’s economic output is expected to contract absolutely in the second quarter, for which data is not yet out.

Sri Lanka’s unemployment hit 6 percent levels at the end of a 30-year war and came down rapidly.

The data is based on statistical surveys which have error margins. Pre-war data may also not be directly comparable as the statistics office was not active in the North and the East earlier.

After the war, there was a construction boom, partly financed by China, which injected demand into the economy.

However, greater monetary instability hit the country from around 2012, with balance payments crises coming in quick succession amid worsening proc-cyclical money printing from the central bank, which ended the relative monetary stability seen in the country from 2000 to 2011.

Sri Lanka’s unemployment rate has been edging up from around mid 4 percent levels over the past three years amid greater monetary instability, price controls, rapid policy and tax fluctuations which made for an uncertain business environment (regime uncertainty).

Sri Lanka’s Import and Export Control Department, which was a key driver of the 1970s economy, a midnight gazette and the Consumer Affairs Authority are key sources of regime uncertainty.

The last administration also set up a new price control authority, the National Medicinal Drugs Authority, instead of reforming the central bank. The NMRA now gives periodic controlled price hikes when the central bank prints money or depreciates the currency for de facto or explicit REER targeting, analysts have said.

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In 2011, Sri Lanka expropriated private firms including Board of Investment approved companies through an ad hominem law and in 2015 a ‘super gains’ and several expropriation taxes were slammed further worsening property rights, policy stability and just rule of law.

The policy has also deteriorated with trade restrictions which worsen whenever the central bank prints money and triggers currency trouble.

Large numbers of Sri Lankans went to work abroad, including under difficult conditions in the Middle East from the 1980s as the rupee collapsed, helping reduce domestic unemployment numbers which hit close to 20 percent during the period of trade restriction in the 1970s.

2020 also started with more regime uncertainty with tax reversals and a debt moratorium just as the economy was starting to recover from a 2018 balance of payments crisis.

Meanwhile, the statistics office said the total employed population fell to 8.02 million in the first quarter of 2020, down from 8.12 million a year earlier.

Agriculture workers had grown from 2.01 million to 2.12 million, while those in the industry fell from 2.31 million to 2.17 million.

Service sector workers fell from 3.85 million to 3.71 million.
Among the unemployed, female unemployment was sharply higher at 9.6 percent, compared to males at 3.7 percent.

Unemployment below GCE A/L qualified persons was 2.7 percent for males and 5.4 percent for females.

Among those with GCE A/L and above unemployment was 10.1 percent, with 5.5 percent among males and 14.7 percent among females.

“Survey results further show that the problem of unemployment is more acute in the case of educated females than educated males, which was observed consistently over the results of previous survey rounds as well,” the statistics office said. (Colombo/July20/2020 – Update II-sb)

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