Impacts Of Covid-19 On Sri Lankan Households: Welfare Effects & Mitigating Policies
By Asankha Pallegedara –MAY 13, 2020
Dr. 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.
