Pandemic’s toll on economy estimated at Rs.2.5tn a year

• CB projection shows subnormal GDP performance due to pandemic in 2020 and 2021
• SL’s economy contracted 3.6% in 2020 after a two-month long lockdown
• CB expects 5% economic growth in 2021 on lower base effects
• SL has recorded unemployment rates above 5% since onset of pandemic

The economic toll of the pandemic-induced lockdowns and related restrictions has cost the Sri Lankan economy a thumping Rs.2.5 trillion in nominal terms for a year, bringing the total loss of economic output during the pandemic’s two years to a whopping Rs.5.0 trillion.

According to a projection made by the Central Bank on the potential economic output for 2020 and 2021 under normal circumstances, Sri Lanka’s nominal gross domestic product (GDP) was estimated to grow up to Rs.17.39 trillion in 2020, expanding to Rs.19.17 trillion in 2021. 

However, the pandemic limited the nominal GDP in its first year to Rs.14.97 trillion and the Central Bank now estimates the GDP to end up with Rs.16.5 trillion in 2021, due to the pandemic’s lasting effects, depriving the economy Rs.2.42 trillion and Rs.2.67 trillion, respectively, in the two years, erasing as much as combined Rs.5.09 trillion. 

Sri Lanka’s economy shrank 3.6 percent in 2020, after a two-month long lockdown imposed at the onset of the pandemic, as the second quarter growth plunged to a contraction of 16.4 percent.

The Central Bank expects 5.0 percent economic growth in 2021, mostly on the lower base effects of last year. 
The subsequent recoveries were repeatedly beset by the re-emergence of the pandemic from time to time since the end of the first wave. 

Sri Lanka is still battling the third wave that struck in April this year while the new variant Omicron discovered in late November appears to be complicating the recovery both globally and locally, if it found to be more transmissible and escapes the existing vaccines. 

Sri Lanka has already lost thousands of jobs and livelihoods in sectors that were most susceptible to the virus and its related restrictions, such as tourism, entertainment and education and other sectors, which require close proximity to people. 

“Furthermore, Sri Lanka has recorded unemployment rates above 5 percent since the onset of the pandemic, compared to the average unemployment rate of 4.4 percent since the end of the conflict,” the Central Bank said in a special note released recently, pointing at the elevated vulnerability of the population to the 
economic restrictions. 

Out of the 8.03 million employed population in Sri Lanka, the informal sector accounts for 57.4 percent, which highlights that the majority stands vulnerable to any type of restrictions on economic activities.

It was only a few weeks ago Mirror Business showed that a large section of people are staying on the sidelines without looking for jobs, as seen from the falling labour force participation rate, in a sign of loss of hope, a phenomenon which is not reflected in the official unemployment data.  

Sri Lanka’s official jobless rate was at 5.1 percent by end-June this year, falling from 5.8 percent in the third quarter of last year but the labour force participation rate, the section of workers who are both employed and unemployed but still looking for work, fell to 49.8 percent, from 50.2 percent a year ago. 

“In this regard, such loss of livelihoods results in increased vulnerability and increased poverty, especially in relation to those who are just above the poverty line and those who are outside the ambit of social safety nets,” the Central Bank added.