Impact of COVID-19 on Sri Lankan Economy

The World Health Organization declared a global emergency condition due to widespread of COVID-19 across the globe. The present study comprehensively examines the impacts of COVID-19 on GDP, employment, inflation, stock market, externa sector performance and poverty in the context of Sri Lanka. The analysis reveals COVID-19 creates adverse impacts on both GDP and employment in Sri Lanka, despite magnitude of the impacts is significantly lower than that of South Asian average. Apart from that, ‘panic buying’, interrupted domestic production and distribution and restriction on imports have created an inflationary pressure on the economy led by headline inflation. Moreover, COVID-19 drastically affected Colombo Stock Exchange in Sri Lanka, reporting a historical low in mid-March 2020. External sector performance of Sri Lanka has weakened due to reduced export earnings, tourism receipts and remittances and in turn Sri Lanka rupee has sharply depreciated against major currencies in the world. In addition to major macroeconomic impacts of COVID-19, the study also observed microeconomic impacts of COVID-19 through projecting poverty dynamics under four-way poverty classification. The predictions reveals that there is a greater potential of increasing poverty incidence related to all poverty types (Extreme Poor, Poor and Vulnerable Non-poor) under present pandemic situation. Ultimately, the welfare effect of COVID-19 which will be higher than expected will essentially hinder the long-term economic development process of the country. Therefore, appropriate measures should be taken to regain the economy while controlling the spread of the pandemic.