The pandemic damaged the international trading business. Sri Lanka is for its Tea (Ceylon), which accounts for about 10% of its total export, and textile and fabric products’ exports account for more than 40% of its total export. Export takes also a huge amount of total national income, though net export keeps negative over years. The country is highly vulnerable to changes in international business and policies. The Pandemic resulted in unprecedented damages to the whole economy. A brief path is shown in the following.
- Pandemic blocked Export. The conflict between Ukraine and Russia increased the commodity price, which was highly reliable for Sri Lanka. Therefore, export decreased by decreasing quantity and import increased by increasing price, so the gap enlarged.
- A falling down in Net Export made GDP decrease and Foreign Exchange Reserve Decrease.
- Travelling industry was also blocked. National income from travelling decreased from more than 4 billion dollar to about 0.5 billion dollar.
- Without enough Foreign Exchange Reserves, the FX rate became uncontrollable. LKR kept decreasing, and the government could not do a lot, because there is no space to buying back LKR.
In sum, the sources of national income is so simple that is easy to be affected by negative impulses.
In addition, changes in fiscal policy, tax cutting, in 2019 made the government unaffordable to government spending. The gov had to print money, which resulted in inflation and no real term increase. The fiscal policy negatively enhanced the difficulty of Sri Lanka.
What could individuals do in the recession.
Nothing!