CB calls on govt. to strike balance between minimising pandemic’s human and economic tolls

• Says failure in this regard would negatively impact growth trajectory and national economy’s potential
• Cites the ongoing vaccination drive as the cornerstone of maintaining this balance

 In an effort to break the vicious cycle stemming from the COVID-19 pandemic that can result in further scarring on businesses and households in the near term, the Central Bank of Sri Lanka (CBSL) yesterday asserted it is imperative for the government to strike a balance between minimising the human and the economic toll.

As failing to address issues that have emerged since the Covid-19 outbreak could negatively impact the growth trajectory and the potential of the national economy in the medium term, the CBSL asserted the need for smart planning and implementation efforts ahead.

“Going forward, it is imperative that the government continues to proactively and holistically strike a balance between minimising the human toll of the pandemic while also minimising the economic toll of these circumstances on the Sri Lankan economy which had already been struggling to recover from a long period of sub-par growth,” the CBSL said in the report titled ‘Recent Economic Developments: Highlights of 2021 and Prospects for 2022’ launched yesterday.

The report was released a day ahead of the National Budget 2022 reading which will affirm the government’s plan for the year ahead as Sri Lanka, together with the world, will be able to steer away from the implication faced thus far with the right policy mix.

The CBSL stated that the cornerstone of maintaining this balance is the ongoing COVID-19 vaccination drive spearheaded by the Government. 

The much-acclaimed progress that has been observed especially since July 2021 is expected to minimise any disruptions stemming from COVID-19 in the period ahead. 

However, the public’s close adherence to prescribed health guidelines will also be vital to the recovery of the economy, the CBSL stated. 

“Only then can a virtuous cycle of macroeconomic stability, improved economic growth, and enhanced resilience be established to pave way for the creation of an inclusive and sustainable growth trajectory for the Sri Lankan economy, the report highlighted.

Furthermore, the stimulus extended to businesses hit by the pandemic cannot be continued indefinitely as doing so could lead to adverse macroeconomic repercussions and financial system stability concerns.

Charting the way forward would necessitate future credit evaluation to recognise the pandemic effects on relationships between financial institutions and their clientele, the CBSL said.
Under recent economic developments, the economy rebounded strongly from the Covid-19 pandemic-induced contraction in 2020. The real economy grew by 8.0 percent y-o-y, in the first half of 2021, registering a broad-based recovery of the major sectors of the economy. 

The report highlighted that this recovery was underpinned by the extraordinary policy stimuli provided by the government and the CBSL across a wide spectrum of businesses and individuals, phasing out of the selective mobility restrictions in tandem with the nationwide vaccination programme and normalising global activity.