Economic stability amidst the current pandemic is an essential constituent globally, pertaining to favorable policies and better financial implementations brought forward by governments. Many countries have implemented strategies and schemes in order to succor the economy and businesses that have critically been affected by the COVID-19 pandemic.
Sri Lanka, a lower-middle-income country with a GDP per capita of USD 3,853 (2019) and a total population of 21.8 million, is still thriving to overcome its economic fluctuation amidst the current epidemic. Post Easter Sunday terror-attack many sectors, mostly the Tourism sector was affected greatly and bruised the economy in a catastrophic manner. However, the island managed to be more progressive in terms of rebuilding its economy by imposing beneficial policy implementations.
Nevertheless, the current global economic condition hurled the country into an unforeseen state and greatly affected many businesses and Employment Island wide. The country is also overblown by unstable governance and absence of a budget by the Sri Lankan parliament due to the emergence of a newer governmental power and parliament.
The president along with the Central Bank has introduced financial aid schemes for SMEs, but they are yet to be approved and launched. Many nations facing similar economic oscillations have set in motion grants and funding to help revive their economy. Sri Lanka can also consider these funding schemes and implement a more favorable game plan to hoist the economy.
On the 27th May 2020, a proposal for a recovery aid of €750 billion was set forth to the European parliament by the EU commission as the ‘’Next Generation EU fund’’ on the basis of a Franco-German proposal, as a constituent to boost the Economy. However, this scheme is yet to be approved by the European parliament and the EU member states. Many measures that would be beneficial and supportive to businesses and employees were propounded by the EU commission. VAT, wage subsidies, suspension of payments of corporate taxes and or social contributions were a few factors that would be considered under this proposition. In order to mitigate the economic depreciation and as a factor to fund the healthcare system, the suspension of the ‘’Stability & Growth Pact’’ obligation was approved by the member states and a temporary support to alleviate unemployment in an emergency crisis was also introduced by the member states. This initiative is said to provide €100 billion in total as financial assistance to all member states to recompense the lack of revenue in businesses & employee wages amidst COVID-19. The European Investment Bank (EIB) has introduced a Pan-European guarantee fund in support of financing businesses and SMEs, with an allocation of €200 billion as aid. With the help of the European Stability Mechanism, an intergovernmental organization the European commission is to finance the health expenses of all member states. And also, in order to kick-start the economy the initiation of an ‘’EU Recovery Fund’’ was introduced to fund and support businesses to recover. Nevertheless, the factors that would be considered under this fund are yet to be specified by the European council. The European council has also allocated funds from the EU budget for healthcare systems, SMEs, and labor markets. These funds would be distributed as; €29 billion for EU structural funds, €8 billion of investment liquidity & €37 billion for Coronavirus Response Investment Initiatives.
➔ Altogether, the EU and its member states are mobilizing:
● at least 1% EU GDP in fiscal measures
● at least 10% EU GDP in liquidity support
According to reports published by The National, it is expected that Rome would be apportioned with €82bn in grants and another €90bn in loans. Madrid to receive up to €77bn in grants and over €63bn in loans. These grants would not directly be handed over to the countries. The countries applying for the aid have to outline the aims and submit breakdowns of the reforms and strategies they intend to undertake, in order to attain economic resilience in the coming years. Reports also state that fiscal policy and fiscal responsibility advocate low taxes, reduced government spending and minimal government debt by northern nations in the EU, such as nations like the Netherlands, Sweden, Denmark, and Austria will have to foot the bill for Southern countries like Spain and Italy that are said to be more financially extravagant in terms of economic finances, has become an obstacle in recent negotiations with the EU commission.
There were also certain measures that were introduced to help and support trade amongst EU and other foreign markets. Firstly, a temporary suspension of custom duties and VAT on medical devices which were imported from third countries was enforced. The EU Commission also issued a set of guidelines on the resumption of travel within the Schengen area and also reestablished the EU tourism sector while implementing safety measures to all citizens and workers. Many EU countries are still overcoming the current pandemic. However, with the measures brought forward by the EU Council/Commission there would at least be a positive impact on the European Economy.
In April this year, the Vietnamese Prime Minister approved a ‘’Bailout Package’’ VNĐ62 trillion (US$2.66 billion) to support people affected by the COVID-19 pandemic . This resolution package mainly focuses on employees whose employment contracts were suspended, terminated workers, and individuals who were on unpaid leave for at least one month. They have allocated a sum of VNĐ1.8 million, in which these workers would be given $77 every month until three months, only if unemployed. And organizations who are struggling to pay employees and have only paid 50% of their staff are entitled for a loan with zero interest from the Việt Nam Bank, under this bailout package. Businesses with taxable income of less than VNĐ100 million ($4,288) per year are to receive $43 per month from a total of VNĐ1 million, for a period of only three months (April-June).
And individuals with a meager monthly allowance are said to receive $11 per month until June 2020. The resolution also allows firms that had to lay off workers due to the pandemic would be allowed to suspend all retirement and death fund payments until the end of this year (2020).
Amidst the COVID-19 outbreak, the International Monetary Fund (IMF) approved an emergency loan to all underdeveloped/developed countries, summing up to an amount of around $732 million.
The pandemic affected the economy of the country in three main avenues;
* Decline in domestic activities
* Decline in labor workers at sweatshops and garment factories (80% of the Bangladesh economy relies on garment exports)
* Decline in remittance coming into the country from Bangladeshi’s living overseas, mostly in the Middle-East.
A stimulus package of $600 million is said to be approved by the government in the coming months, to support the daily/monthly wage workers, mostly in the garment sector. And also, a subsidized loan is said to be provided to organizations who have not paid their employees amidst COVID-19. This loan is set to pay wages of employees for three months only.
The country is also providing cash assistance to low-income families displaced by the pandemic. The government is also taking measures to provide the homeless with food and temporary shelter solutions. Elderly widows and disabled citizens are also given cash allowance under the administration of the Bangladesh government.
Now when considering the newer policy implementations and economic revival enactments brought forward by the European Union being a hierarchy and developing countries like Vietnam & Bangladesh, Sri Lankan as a nation should adhere to better policy executions that are more favorable to the citizens of the country.
The ‘’Saubagya Covid – 19 Renaissance Facility’’ enforced by the CBSL (Central Bank of Sri Lanka) and approved by the GoSL was introduced during the first one month of lockdown in order to help businesses with necessary financial assistance. As stated in the Section 2 of the Monetary Board Circular No. 05 of 2020, any business affected by the COVID-19 pandemic provided that the turnover of the business is below Rs. 1 Billion (However, businesses above Rs. 1 Billion turnover will granting if they are in the sectors of tourism, exports and related logistical suppliers) & loans will be granted to facilitate working capital requirements of the eligible businesses. An Interest Rate payable to the PFI of 4% per annum by the Sub-Borrower was approved with a grace period of six months depending on the nature of the activity. This is one the frontliners of the ‘’COVID-19 relief measures’’ brought into force by GoSL.
But, many SMEs faced troubles when applying for the loan with local banks as initially the Central Bank did not have sufficient funds. The delay in providing & approving the loan created more difficulty in terms of operations and employee salaries at many organizations. Even the remuneration of LKR 5,000 for low income families, senior citizens,disabled persons,framers registered under the ‘’FARMER’S INSURANCE SCHEME’’, kidney patients and Samurdhi recipients, initially impacted greatly as a financial assistance to the citizens of the country. But, later many villages faced a difficulty in getting this remuneration approved to them due to many blemishes in the governmental system.
Sri Lanka as a developing nation, should clasp necessary actions to uplift the economy. The government needs to designate better policy makers, acquire consultations assistance for new and better policies by other private firms & research institutions, and be more transparent with its governance and strategic initiatives. And also, surpass more and better relief funds and packages for its citizens taking into consideration that of COVID-19 assistance provided by other countries to its citizens. Even Though, we are a developing nation with not much funding, the country has many ways to progress. But, that requires the ‘’OUR’’ government to consider the People’s needs before their own.
*Amanda Muneesha Vedanayagam – Intern at the European Chamber of Commerce of Sri Lanka