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Economy under lockdown: Lessons for Sri Lanka from foreign countries

28 Apr 2020

By Madhusha Thavapalakumar This year, unlike any other, the word “lockdown” has become a part of the common lexicon, being endured by about one-third of the world population at the moment due to the Covid-19 pandemic. The situation in Sri Lanka has been no different, with virtually the entire population confined to their homes for a month, while those in the Western Province and a few other areas suffer even longer. What’s worse for these citizens is Sri Lanka has been under curfew instead of lockdown.
[caption id="" align="alignnone" width="800"] The deserted Main Street in Pettah during curfew. Photo Lalith Perera[/caption]
While both measures are intended to prevent gatherings and maintain physical (social) distancing, there are differences in the level of flexibility and freedom afforded to citizens.
For example, you would only be permitted to step out of your home during curfew if you have a curfew pass or an equivalent clearance, while in lockdown, people are permitted to step out of the house to source essentials and even to engage in exercise, as long as physical distancing and other conditions are satisfied. However, lockdowns and curfews both affect the economy, and over the past two months, the effect on national economies has been nothing short of devastating. Yet, certain countries are looking into ways of allowing their economies some breathing space, so as not to let it collapse completely due to prolonged inactivity and losses. The Sunday Morning Business took a detailed look at measures adopted in countries under lockdown to keep the economy going, in order to explore the lessons Sri Lanka could take from their strategies, in terms of what to do and also what not to do. India Just five days after Sri Lanka imposed an islandwide curfew, neighbouring India, with a population of 1.3 billion, announced a three-week lockdown on 25 March, which was later extended to 3 May. This is, by far, the widest-spread lockdown the world has ever seen in a country, as even the Chinese, the initial epicentre of the coronavirus, didn’t impose a lockdown of their entire nation. A week into lockdown, the Federation of Indian Chambers of Commerce and Industry, issuing a release, noted that India could be losing about $ 5.2 billion daily due to the lockdown and 40 million jobs are at risk during the period from April to September. A few days after this, Barclays Research, the research platform of Barclays Investment Bank, slashed India’s growth forecast to 0.0% from the earlier projection of 2.5%. It estimated that the economic cost of the lockdown could be about $ 234 billion, up from the previous estimate of $ 220 billion. However, with a view to alleviate the crisis in its $ 2.7 trillion-worth economy despite the ongoing lockdown, the Central Government of India issued a guideline permitting the resumption of business in non-hotspot areas. India’s Ministry of Health and Family Affairs has identified 359 green zone districts with no Covid-19 cases in the past 28 days and business operations in these districts are now permitted. The move is expected to support over 450 million informal sector employees who were financially stranded as they were not allowed to go to work, and also about 800 million people engaged in agricultural activities who were unable to harvest due to restrictions. Accordingly, electricians, IT repairpersons, carpenters, and plumbers; road construction, aquaculture, harvesting, fishing, and building projects; and packaging material production were also granted approval. Furthermore, according to India’s Ministry of Home Affairs, restrictions were also lifted on e-commerce companies, the transportation of goods, and port and cargo operations. Last Monday (20), it was reported that in Uttar Pradesh, 11 industries will restart their operations. These include that of steel, fertilisers, cement, paper, garments, tyre, and chemicals, sugar mills, and refineries. The same day, the Government further eased movement of goods which would permit about 1,000 special economic zones to become operational. It is notable that in March, India’s exports declined by over 34% due to the lockdown. With the easing down of restrictions, according to the Federation of Indian Export Organisations (FIEO), about 80-85% of exporting units in pharmaceuticals, electronics, and chemicals are likely to become operational. Meanwhile, India’s second largest carmaker Hyundai Motor India Ltd. is getting ready to restart its production operations at its plants. India’s largest airline IndiGo is also preparing to start operations from next week onwards. Furthermore, the National Highways Authority of India (NHAI) resumed its toll collection operations from midnight last Sunday (19). Standard Chartered Bank Head of South Asia Economic Research Anubhuti Sahay had told Bloomberg that as the Indian Government has allowed certain economic activities to operate amidst lockdown, the predicted economic hit might not be as bad as initially estimated. Vietnam Vietnam is a Southeast Asian country best known for its beaches, like Sri Lanka. The $ 245 billion economy is the 44th largest in the world in terms of nominal gross domestic product, which is really not similar to ours, as we are far behind Vietnam with GDP of only about $ 89 billion. Even though Vietnam shares part of its borders with China, it has a very minimal number of infected persons. As such, lockdown was initially imposed on 1 April, where people were still allowed to leave their homes to buy food. Before the lockdown, by mid-March, Vietnam banned entry to foreigners, with very few exceptions. On 16 April, several cities came out of lockdown, while 16 cities, still in lockdown, were given more leeway in terms of movement. However, for 12 high-risk cities, the lockdown was extended into May. Due to the economic hit triggered by Covid-19, late last month, the Vietnamese Ministry of Planning and Investment predicted that Vietnam’s economic growth rate would slow down to around 6%, from 7% last year, if the pandemic is not fully contained. Meanwhile, the Asian Development Bank (ADB)’s prediction is that the economic growth rate would slow down to 4.8%. On 8 April, Fitch Ratings revised their outlook on Vietnam’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to Stable, from Positive, and has affirmed the rating at BB. As one of the fastest growing economies of Asia, in response, Vietnam took serious measures. Vietnam’s Central Bank cut policy rates by 0.5-1%, and lowered interest rate caps on deposits of less than six months and on short-term lending to prioritised sectors. Furthermore, Vietnam seems to be attracting Japanese and American companies and manufacturing facilities that are moving out from China, the initial epicentre of the coronavirus outbreak. In early March, the Government unveiled a $ 10.8 million credit relief package of debt restructuring and lowered interest rates and fees. Vietnam also managed to increase its exports to China in the first quarter of this year. The Ministry of Industry and Trade imposed tariffs on exporters of products originating from China and Indonesia, ranging from $ 124 per tonne, in order to protect locally manufactured products. The tariff would be in effect from 25 March for 120 days. Meanwhile, Vietnam eased aggressive travel restrictions for employees of Samsung Electronics. Samsung is one of the top foreign companies in Vietnam, contributing about a quarter of the country’s exports. It is learnt that Samsung in Vietnam handles more than half of their world output. In addition, last week, Vietnam’s stock market was on its path to revival as liquidity received huge support in the form of market confidence along with positive trading of global markets. The World Bank, in their East Asia and Pacific Economic Update April 2020, stated that the Vietnamese economy is resilient to external shocks in the first few months of 2020, despite the ongoing turbulence in their financial markets. The World Bank further added that Vietnam is strongly positioned to benefit from its free trade agreements that were due to come into force. AHK World Business Outlook 2020, released by the Association of German Chambers of Industry and Commerce, last week, noted that German enterprises are optimistic about the medium-term recovery of the Vietnamese economy. The US The new “epicentre” of the virus – the US – is on top of the worst-affected countries list with over 45,000 deaths and infected people numbering close to a million. The country, with a population of over 328 million and 50 states, still isn’t under nationwide lockdown. Only a few states and cities are in lockdown and even in most of those cities, people are seen protesting against the lockdown citing hindrances to their daily lives and businesses. It is observed that US President is in support of these protests as he too isn’t a fan of lockdowns due to the massive impact it would have on the US economy – despite advice to the contrary from health experts and authorities. However, the pandemic is expected to hit the US economy worse than the Eurozone and China. The Paycheck Protection Programme (PPP), introduced to help businesses keep their workforce employed during the coronavirus crisis, was exhausted in less than two weeks as $ 349 billion had been claimed by around 1.6 million small business owners. Over 22 million Americans have filed unemployment claims in a period of just four weeks. Barclays Capital’s global forecast stated US economic output could contract by 6.4% while the Eurozone economies contract by 5.5%. Furthermore, it noted that the contraction could lay off 22 million jobs. To facilitate the reopening of businesses even in other states, US President Donald Trump has unveiled a guideline, called “Opening Up America Again”, which outlines three phases for states to gradually ease their lockdowns. Due to continuous pressure from protestors, the Governor of Georgina eased lockdown restrictions in his state, allowing gyms, hair salons, tattoo parlours, bowling alleys, dine-in restaurants, private social clubs, and even cinemas to open, in addition to essential services. Texas allowed retail businesses to open on 17 April. Boeing and Doosan Bobcat, a US heavy equipment manufacturer, resumed production last Monday. Last week, Boeing said it was putting about 27,000 people back to work building passenger jets at its Seattle-area plants. Doosan Bobcat announced the return of about 2,200 workers at three factories around the state. The Federal Reserve stated that it will buy bonds and mortgage-backed securities “in the amounts needed” to keep markets working smoothly. Meanwhile, 10 US states which were responsible for about 38% of economic output are co-ordinating plans separately from the White House to reopen businesses shut by the coronavirus. However, experts say the US economy is unlikely to recover at the speed it plunged due to Covid-19. Italy Italy, a European country with a population of about 60 million and an economy worth $ 2 trillion, is among the top five countries worst hit by Covid-19; it has shattered the Italian economy and the lives of people in a way that might take years to recover. Italy initially imposed a national lockdown on 12 March, at the peak of Covid-19 within their territory. The lockdown was further extended into April and then slowly extended further until 3 May. Due to the lockdown, economists have forecast a growth rate contraction of 2%, while Italy’s Treasury expects the economy to contract by 8% this year. On 14 April, despite the lockdown, a decree issued by the Italian Prime Minister gave a list of businesses approval to resume operations. Accordingly, Italy began reopening bookshops and clothes stores for young children earlier this month with strict social distancing guidelines. Amidst deaths reported in hundreds on a daily basis, design brands in Italy are set to reopen factories and outlets this week while certain factories have already started manufacturing. The Italian Government was also said to be preparing a five-point plan on how to reopen businesses. Furthermore, Italy proposed to the European Commission, under the Temporary Framework, a guarantee scheme for new working capital and investment loans granted by banks in order to support companies affected by the coronavirus outbreak. The Commission approved an Italian aid scheme worth € 200 million to support the economy in the context of the coronavirus outbreak. The UK The UK, an economy worth $ 2.8 trillion, is also massively hit by Covid-19. The country with a population of over 66 million people recorded about 17,000 coronavirus deaths as of early last week. The UK introduced a countrywide lockdown initially on 23 March. It was further extended for three weeks in 16 April. In late March, Fitch Ratings downgraded the UK’s Long-Term Issuer Default Ratings (IDRs) to “AA–“ from “AA”. The outlook is Negative. The revision has been due to weakened public finances caused by the impact of the Covid-19 outbreak. On 26 March, the international ratings agency S&P Global warned that the coronavirus pandemic will push Britain and the euro area into recession this year with their economies expected to shrink by as much as 2%. Despite the lockdown, the British Government is planning on several measures to handle the unemployment crisis that is raising its head amongst the spread of Covid-19 within their country. Canadian plane manufacturer Bombardier is aiming for a return to work at its Belfast sites in the UK on 4 May, with some operations potentially resuming as early as this week. British clothing retailer Next is reopening its online business this week. Furthermore, the British Government is planning to introduce a traffic light system to resume operations despite lockdown. According to the system, schools could start returning within three weeks. Meanwhile, clothing shops and garden centres could be among the “non-essential” stores given a “green light” to reopen with precautions to protect customers. Rail services would be brought up to normal levels, with commuters probably urged to wear facemasks. A second “amber” stage later in the summer would see more of the economy revived, with all employees told to go back to work and some social gatherings allowed. However, the British Treasury has predicted it might take years for the British economy to return to normal.   Germany Germany is a Western European country with a population of about 83 million. Germany’s GDP stood at $ 3.9 trillion in 2018. Even though Germany is not affected as badly as the British due to Covid-19, it reported 5,500 deaths due to the virus as of Friday (24). Germany imposed lockdown a month ago, which is slowly easing at the moment. Due to economic activities coming to a near standstill in the initial few weeks into lockdown, the German Council of Economic Experts expects a 4.2% slump in the annual growth rate. Furthermore, think tanks predicted over 100,000 job cuts in the German auto industry alone. However, to keep the economy going despite the lockdown, shops with a size of up to 800 square metres received permission to reopen from 20 April 2020. The same applied to car dealerships, bookshops, and bicycle stores, irrespective of size. The Deutsche Bundesbank, the central bank of the Federal Republic of Germany, in its regular monthly report stated that Germany would recover slowly after a severe recession. It said: “Substantial restrictions are likely to remain until a medical solution such as a vaccination is available. For this reason, a rapid and strong economic recovery currently seems unlikely.”   Global impact Despite all these damage-control measures by governments, the global economy is set to bleed unlike it has ever before. On Thursday (23), Fitch Ratings massively slashed its global growth forecast, saying the world economy is set to contract by a hefty 3.9% in 2020. Fitch noted that several major economies have extended lockdowns to eight to nine weeks, which is in contrast to the previous estimation of around five weeks. An extra month of lockdown will reduce the annual flow of income by around 200 basis points, Fitch said. Fitch published these insights describing the coronavirus-induced recession as “unparalleled”. It said the sharp downward revision is driven by a massive decline in Asian economies, led by China and India, which are slated to post sub-1% growth this year. “The world GDP is now expected to fall by 3.9% in 2020, a recession of unprecedented depth in the post-war period,” Fitch Chief Economist Brian Coulton noted. “This is twice as large as the decline anticipated in our early April forecast and would be twice as severe as the 2009 recession.

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Discover Kapruka, the leading online shopping platform in Sri Lanka, where you can conveniently send Gifts and Flowers to your loved ones for any event. Explore a wide range of popular Shopping Categories on Kapruka, including Toys, Groceries, Electronics, Birthday Cakes, Fruits, Chocolates, Automobile, Mother and Baby Products, Clothing, and Fashion. Additionally, Kapruka offers unique online services like Money Remittance, Astrology, Medicine Delivery, and access to over 700 Top Brands. Also If you’re interested in selling with Kapruka, Partner Central by Kapruka is the best solution to start with. Moreover, through Kapruka Global Shop, you can also enjoy the convenience of purchasing products from renowned platforms like Amazon and eBay and have them delivered to Sri Lanka.Send love straight to their heart this Valentine's with our thoughtful gifts!


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