The Impact of COVID-19 on Sri Lankan Economy

Abstract

The reporting of the first Sri Lankan case of COVID-19 in March 2020 led the government of Sri Lanka to quickly adopt a precautionary policy response and lockdown the entire country, restricting the movement of people. The main objective of the policy was to protect lives from the pandemic. The policy led a successful control of the pandemic as the number of cases and death reported was minimum. This policy however affected the economy badly as complete lockdown measures had negative impact on it. This study by analyzing monthly data in a univariate modelling framework found that export and import trade of the country was severely affected by the pandemic during the months of March, April and May. Extending the analysis to a second wave with a potential end in December 2020, the study estimates that the country's overall exports and imports will drop by 67% and 45% respectively due to the pandemic. Further, the negative shock created by the pandemic will disturb behavioral patterns of different components of exports and imports of the country significantly. The passive nature of policy responses adopted by the government in the face of the second wave of COVID-19 targets the maintenance of economic activities during the pandemic. If the policy, however, leads to a community level spread of the pandemic, it will create a huge and an extended negative impact on foreign trade and economy as the lifetime of the virus becomes endless and as a result it will have a lingering effect on the economy.