Deploy robust policies to deal with economic uncertainties - IPS | Daily News

Deploy robust policies to deal with economic uncertainties - IPS

With  Sri Lanka’s recent surge in coronavirus (COVID-19) infections, the  Institute of Policy Studies of Sri Lanka (IPS) said that robust policies  to deal with the related economic uncertainties can help to contain the  fallout without major run long costs for the Sri Lankan economy. These  involve short-term emergency actions and more medium-term stabilisation  measures.

“With  global hyper-connectedness at an all-time high, the rapid transmission  of COVID-19 across borders is no surprise. In most countries, the  instinctive response has been to retreat inwards and act alone.”

The  vacuum in global leadership to address the health and economic fallout  of COVID-19 is not helpful. All available estimates suggest that the  world economy will experience its worst-ever downturn since the Second  World War.

Unlike  other major shocks in recent history, COVID-19 is both a supply and  demand shock, with the economic effects from reduced spending expected  to be larger than those coming from supply chain and labour market  disruptions.

Sri  Lanka earned international plaudits for its handling of COVID-19. The  recent spurt in infections must not be allowed to compromise the head  start, which together with an assured period of political stability, can  encourage more investment, create jobs, and boost growth.

Thus,  although as elsewhere, an economic contraction in 2020 seems almost  inevitable, a sharp V-shaped recovery thereafter is also a very real  possibility. In the IPS State of the  Economy 2020 report it says that so far, the crisis-fighting economic  stimulus package leans lopsidedly on monetary policy.

 Credit  growth to the private sector remains sluggish at 5.2% as of August  2020; this is to be expected with depressed labour markets and lower  household spending as they smoothen consumption behaviour owing to  economic uncertainty.

While  the government has shown creditable political determination to curb  spending, Sri Lanka can no longer be a low tax and low spend economy. As  its population ages and growth in the labour force slows, Sri Lanka  must rely on a skilled workforce and adequate infrastructure to compete  with technology-driven growth as an aspiring upper-middle-income  country.

Beyond  the short-term, restricting trade is also self-defeating. While curbs  on motor vehicle imports to deter non-essential expenditures at this  point are reasonable, external sector pressures will need to be  addressed directly over time.

For  Sri Lanka, a high 68% of the workforce in informal employment and only  29% of the country’s workforce covered by social protection, elevate the  risks of widening existing income disparities.

Only  23% of Sri Lankan households own either a desktop or a laptop computer,  limiting options to work from home or access alternative means of  education. Thus, enacting an  effective economic recovery is vital to swiftly close the gap between  pre and post-COVID-19 output losses – and hence, of incomes and  standards of living.