By Asankha Pallegedara –
Devastating impacts have been witnessed across continents due to the Covid-19 pandemic. Like in many other countries, Sri Lankans are facing heavy blow not only from the health impacts but also from economic and social impacts. While direct health impacts are significantly low (889 Covid-19 positive cases with only 9 deaths reported as of 13th of May 2020) in Sri Lanka compared to US and other European developed countries, Sri Lankans are potentially facing the worst economic and social impacts after the brutal conflict between Sri Lankan government and LTTE ended in May 2009. From the macro-economic perspective, Sri Lankan economic growth rate was 2.3% in 2019 and it was well below 3.3% reported in 2018. Prior to this Covid 19 outbreak started in early March, Central Bank of Sri Lanka expected Sri Lankan economy to grow around 3.7% in 2020 after sluggish performance reported in 2019 mainly due to the Easter Sunday terrorist attacks in April, 2019. However, ADB forecast recently that Sri Lanka’s economic growth is projected to fall to 2.2% in 2020 with global Covid-19 outbreak. The Economist, a well reputed international magazine has ranked Sri Lanka as 61st among 66 emerging economies worst hit by the Covid-19 epidemic mainly due to high exposure to high public & foreign debt and low foreign reserves. Not only from the macroeconomic context but also microeconomic context Covid 19 may worsen already affected Sri Lankan economy causing serious challenges for households. Thus, this article mainly explores microeconomic effects of Covid 19 on household welfare and discusses some mitigating strategies that Sri Lankan government may consider to reduce the negative welfare effects.
The novel corona virus more correctly referred as Covid-19 could directly and indirectly affect household welfare. Firstly, direct impacts mainly occur through income and consumption. According to latest Sri Lanka labor force survey, out of roughly 8 million Sri Lankan employed population, around 15% (1.2 million) are working in the public sector, 43% (3.4 million) in the private sector and around 33% (2.6 million) workers are own account workers. Covid-19 epidemic mainly affects the own account workers and private sector workers assuming that public sector employees receive their full wage income despite the outbreak. Bulk of the own account workers (according to International Labor Organization’s definition, those are working on their own account or with one or more partners, hold the type of jobs defined as self-employment jobs and have not engaged on a continuous basis any employees to work for them during the reference period) already lost their day to day income due to curfew imposed for at least one month period for most districts and more than a one and a half month for Colombo, Gampaha, Kaluthara and Puttalam districts. Own account workers in Sri Lanka mainly work in traditional occupations such as three wheel drivers, masons, carpenters and laborers in the construction industry, retailers, barbers and hair dressers etc. They have already lost their whole income for at least one month and expect to decline their income in the future due to reduction of economic activities in most sectors. Many own account workers may need to rely on pawning jewelries and other assets for urgent cash needs because they have limited savings and lack of access to insurance schemes. Moreover, it is observed that many vegetable farmers could not sell their harvest owing to disruption of agricultural supply chains and restrictions in traveling between high risk cities such as Colombo, Gampaha and comparatively lower risk cities. Private sector employed workers may not lose their whole income but there is a high probability of reduction of their income due to decline in quantity of work hours, monthly wages, allowances and bonuses. Income loss may happen also through reduction of remittances especially international remittances. Sri Lanka highly depends on remittances received from foreign workers. In 2018, total remittances are reported as approximately 8% of total GDP. However, international remittances may be drastically reduced in the short run due to crisis situation in most places where migrants are employed. The sharp fall income owing to above reasons can increase the likelihood of the poor households falling into poverty.
Decline in income coupled with increase in prices and shortages of basic consumption goods will affect the household consumption. Sri Lanka is heavily dependent on imports of essential consumption goods such as medicines, wheat flour, and dhal as well as raw materials for production. However, many international markets are already disrupted because of export restrictions due to fall in export production and limited functioning of aviation and shipping industries. There will also be indirect welfare impacts on households due to increase in prices of any production inputs because it could affect the production costs and labor income. Prices of imported goods especially production inputs are expected to increase at least in the short run because of depreciating Sri Lankan Rupee. Sri Lankan Rupee had been depreciated sharply with the spread Covid-19 against many currencies including US dollars.
Secondly, apart from direct welfare impacts on household income and consumption, there will be various indirect non-monetary type welfare effects on households. Schools and universities have been already closed for nearly two months. While schools and universities already started teaching using distance learning methods with the help of technology, this can lead to adverse impacts on student learning and educational inequalities. For instance, not all students are able to use technology based distance education methods because larger portion of students in rural areas have no access to computers, smart phones and internet. On the other hand, there will be adverse effects on patients with pre-existing non-communicable health diseases. For instance, patients with heart diseases, diabetics, and kidney diseases may not get adequate care because of potential saturation of health systems owing to Covid-19 patients as well as cancelations or postponement of regular clinics in the public hospitals and private channeling in private hospitals. Moreover, routine immunization services and maternity care services are disrupted and delays in child vaccinations could lead to other disease outbreaks among children.
Given all adverse welfare consequences of Covid-19 on household welfare, it is important to discuss potential policy interventions that Sri Lankan government could introduce to minimize or limit the adverse effects on households. Sri Lankan government immediately introduced several relief mechanisms such as cash transfer of 5000 Rupees for low income households and debt moratorium schemes for individuals and small and medium scale enterprises to mitigate adverse welfare consequences. While these relief measures are indeed great reliefs for the households and businesses in the short turn, government could introduce several additional short to medium term measures.
First, immediate cash transfers need to reach people who really need cash transfers without considering any political affiliation. It is reported that several irregularities occurred in several places when providing cash transfers to households. Opposition parties criticized that government used cash transfers as a tool to gain political support for the government. Thus, if irregularities persists when selecting households, government may consider quasi-universal transfers perhaps at rural village levels. Second, government should give the benefits of low fuel prices in international fuel market to the general public by reducing the fuel prices. Currently, not only the government owned CEYPETCO but also the listed firm: Lanka IOC benefits from significant decrease in world oil prices. Lowering fuel prices will definitely help in declining the essential food prices and it will be a huge benefit for the all households with limited income avenues at the moment. Third, it is very important to support especially SMEs to protect their employees. Government could support SMEs by providing subsidies for maintaining employment through tax exemptions and delays or waivers to business loans. Government can also think of providing temporary subsidies for online service companies to purchase equipment such as servers, mobile phones and computers and access to internet and other communication services.
*Dr. Asankha Pallegedara is currently working as a Senior Lecturer in the Department of Industrial Management at the Wayamba University of Sri Lanka. His research interest is development economics in particular the areas of economics of education, health economics and environmental economics. His research published in international journals such as Health Policy and Planning, Review of Development Economics, Nutrition journal, International Journal of Health Planning and Management etc.