CB cuts growth below 5% for this year as economy on precipitous path

The Central Bank last week slashed Sri Lanka’s growth for this year from 6.0 percent to below 5.0 percent as virus restrictions are taking a massive toll on the economy with thousands of businesses going out of business, while many millions more who are prevented from engaging in their chosen livelihoods being pushed into dire poverty by the day. 

The announcement came just hours before Sri Lanka’s virus controlling task force last week made an about turn, deciding to extend the restrictions for a further week till June 21, with the  possibility of further extensions.  

Hence, the below 5 percent growth could be an underestimate as it was made expecting the lockdown styled restrictions to end on June 14 as planned earlier.  Hence, the slump could well be deeper than what was re-projected on Friday as the government flip-flopped on its policy on restrictions. 

The Central Bank’s projections are more sanguine than the more conservative forecasts made by others, including the multilateral agencies, independent research houses and rating agencies even before the fresh round of restrictions gutted the economy. 

The Central Bank earlier urged the government to strike a balance between virus containing measures and their potential implications on the broader economy, particularly the 70 percent of those who make a living out of daily income, stressing that the country cannot withstand another contraction in the style of last year’s.

Sri Lanka’s economy contracted by 16.4 percent in the second quarter last year, bringing the entire economy down by 3.6 percent for the year in 2020 making the people poorer and worse off than a year ago. 

Out of the 8.5 million labour force, 2.5 million get a pay check at the end of the month but six million have to work their tail off daily to earn a living and the restrictions strangle them to death, throwing them out of business and throwing them out on the street. 

“I don’t think the Sri Lankan economy could withstand a similar contraction any longer. We have to focus on that as well,” said Dr. Chandranath Amarasekara, Director of Economic Research Department at the Central Bank. 
It was recently measured that the lockdowns cost a whopping Rs.15 billion to Rs.40 billion to the Sri Lankan economy for a day.

Weighing in on the lockdowns and their economic cost, State Minister of Finance Ajith Nivard Cabraal said that he was very concerned about the harsh economic consequences of the lockdowns. 

“When the gross domestic product contracts, all other macro-economic fundamentals weaken. When those weaken, the country’s debt burden looks larger than it actually is and our ability to support the economy by providing relief diminishes,” Cabraal said stressing the importance of maintaining a working economy to support virus control and all other matters.