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Thursday September 29th, 2022

Sri Lanka unemployment spikes to 11-year high amid Coronavirus, monetary instability

ECONOMYNEXT – Sri Lanka’s unemployment has spiked to 5.8 percent in the third quarter of 2020 amid a Coronavirus crisis, and several years of monetary instability coming from ‘flexible’ inflation targeting and a ‘flexible’ exchange rate.

The 2020 third quarter unemployment is the highest since 5.9 percent in December 2009, after a 30-year war. Unemployment hit 6.2 percent in the June 2009 quarter when the war ended.

Unemployment fell steadily to 3.9 in 2011 with the rupee coming back to pre-crisis level.

Sri Lanka hit a balance of payments crisis in 2012 when the rupee fell from 113 to 131 to the US dollar and unemployment was at 4.2 percent in the third quarter of 2013 when the credit system started to recover from the crisis.

In 2015/2016 Sri Lanka hit another currency crisis as money was printed on the claim that inflation was too low. The rupee fell to 161 in that crisis.

In 2018 money was printed to target an output gap. The rupee fell to 182 in the crisis. By the last quarter of 2018 unemployment was at 4.6 percent.

In 2019 April tourism was hit by Islamist suicide bombers. From August 2019 another round of output targeting began.

In March2020, the Coronavirus lockdowns began driving unemployment to 5.7 percent.

Sri Lanka’s economic activity started to recover from the third June quarter as the lockdowns were lifted but a renewed Coronavirus wave hit the economy.

However economic activities are coming back to normal since then. Monetary instability however is continuing, with unprecedented money printing triggering a steady drain in forex reserves. (Colombo/Mar30/2021)

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