An economy between Easter ’19 and Covid-19

By Madhusha Thavapalakumar

After achieving record-high levels in export revenue, foreign direct investment (FDI), and tourism arrivals in 2018, Sri Lanka set ambitious targets for 2019 and had big plans to become a global tourism hotspot, especially after being crowned the top country to visit in 2019 by the world-renowned Lonely Planet magazine.

Caught between a terrorist attack and a global pandemic, the Sri Lankan economy has endured one of its darkest periods.

However, all these plans and economic activities were catastrophically disrupted that fateful Easter Sunday of April 2019, when co-ordinated terrorist attacks were carried out in several cities around the country, shattering the decade-old peace experienced since the end of the civil war in 2009. The series of attacks on three hotels and three churches in Colombo, Negombo, and Batticaloa cost over 250 lives consisting of both international tourists and locals, while over 500 were injured. The incident compelled the Sri Lankan Government to revise its tourism arrival and FDI targets, which in turn had negative impacts on the country’s Gross Domestic Product (GDP) and growth rate.

Sri Lanka’s economy started gradually recovering from the Easter Sunday incident, and even managed to prevent currency over-depreciation in 2019 compared to the previous year; considering the recovery path down which Sri Lanka was headed, the newly elected Government in late 2019 set increased targets for 2020 with the hope of achieving similar or better economic performance than 2018.

Unfortunately however, the prevailing coronavirus (Covid-19) pandemic and the countrywide curfew imposed due to the virus spreading locally, is expected to leave a massive scar on Sri Lanka’s economy once again, little less than a year since the Easter incident.

How has the economy coped, being sandwiched between two such devastating situations? The Sunday Morning Business decided to take a look.


A foremost and significant impact due to the Easter incident was experienced in the tourism sector. After achieving 2.3 million tourist arrivals and recording $ 4.3. billion tourist earnings in 2018, Sri Lanka wanted to surpass these records and achieve 2.5 million tourist arrivals and $ 5 billion tourist earnings in 2019. These targets came amidst Lonely Planet’s ranking of Sri Lanka as the top destination to visit in the year 2019.

In order to achieve this target, Sri Lanka planned on introducing a free visa on arrival programme for a period of six months starting 1 May 2019 for 39 countries. However, following the Easter Sunday attacks, the programme was suspended considering the potential for misuse of the facility and threats to national security.

Tourist arrivals saw a dramatic plunge of over 70% after the attacks, forcing authorities to revise tourism targets for 2019. In August that year, the Sri Lanka Tourism Development Authority (SLTDA) revised arrival targets to 2.1 million with the implementation of the free visa on arrival programme for a period of six months for 48 countries. Nevertheless, this target was once again revised to 1.9 million in October and the tourism earnings target was revised to $ 3.5 billion.

According to data from the SLTDA, Sri Lanka managed to achieve the 1.9 million revised arrival target in 2019, which was contributed mainly by India, the UK, Russia, and China. It is also notable that since June, tourist arrivals were seen gradually recovering for 2019.

With optimism for a greater year ahead and further recovery in tourist arrivals, Sri Lanka set a target of four million tourist arrivals for 2020. However, amidst crippled international tourism, particularly in the Asian region due to the coronavirus outbreak and its global spread, in early March this year, Sri Lanka revised this target to 2.3 million, the SLTDA informed The Sunday Morning Business.

Since this revision was made prior to Covid-19 spreading in Sri Lanka and the closure of the Bandaranaike International Airport, Katunayake (BIA) to halt passenger arrivals, it is unknown whether this revised target will be revised yet again.

It is also unknown whether the long-awaited global advertising campaign for Sri Lanka Tourism that is planned to be launched in September this year will be delayed due to the global situation. The campaign, which has been in the pipeline for five to seven years under two governments, has been desperately awaited by the industry, particularly following the Easter Sunday attacks.


While the impact on Sri Lanka’s exports may not be as much as that of the tourism sector as a result of the Easter Sunday incidents, it faced short-term issues due to the temporary curfews imposed after the attacks. As noted by exporters at that point, a few days of curfew and additional checkpoints temporarily delayed their access to the necessary raw materials while it also delayed exports reaching ports on time. However, this situation returned to normal within a very short span of time.

Exports are the main foreign exchange earner for Sri Lanka and it achieved $ 15.9 billion in exports in 2018. This increased slightly to $ 16.14 billion last year. The Export Development Board (EDB) set an ambitious goal of $ 18.5 billion in exports for 2020, with multiple trade promotional campaigns planned both overseas and within the country.

However, even before the first Sri Lankan Covid-19 patient was diagnosed in the country, on 5 March 2020, EDB Chairman Prabhash Subasinghe predicted a 25% drop in export earnings in the second quarter, which would amount to about a $ 750 million drop in the initial target. He attributed this loss mainly to the delay in getting raw material from China, as China was the epicentre of the Covid-19 outbreak at that point.

Exactly a month from the first revision, the EDB revised its export targets for 2020 by slashing $ 7.75 billion from its initial plan of $ 18.5 billion. This is due to the uncertainty in Sri Lanka’s main export markets due to the Covid-19 pandemic and difficulty in securing raw materials from the usual markets or finding new raw material markets.

According to the EDB, the only products that have a market potential are medical equipment, face masks, disinfectants, and pharmaceuticals. However, the EDB believes that exports will bounce back soon, similar to tourism, unlike other sectors.

As reported by The Sunday Morning Business in December last year, negotiations pertaining to Sri Lanka’s proposed free trade agreements (FTAs), including the Sri Lanka-Thailand FTA and the Economic and Technology Co-operation Agreement (ETCA) with India, are highly unlikely to resume before the general election. Now, given the fact that the general election was postponed and counterpart economies too are struggling to battle Covid-19, FTAs are also likely to face further delays.


FDIs are another main source of foreign exchange earnings in addition to exports, tourism, and worker remittances. Sri Lanka managed to attract $ 2.1 billion in FDI into the country, the highest ever, in 2018. Following this, the Board of Investment (BOI) aimed to bring in $ 3 billion in FDI in 2019.

A month after the Easter attack last year, citing reduced investor confidence driven by the Easter incident, then Minister of Development Strategies and International Trade Malik Samarawickrama noted that $ 3 billion was hard to achieve. Even though the Minister did not disclose a revised target, the BOI in November cut the target by half, bringing it down to $ 1.5 billion.

Even though two refinery deals were signed in 2019 for the value of about $ 27 billion, the projects will take another four to five years to implement, meaning delays in Sri Lanka receiving the full FDI. As of December 2019, according to the Central Bank of Sri Lanka (CBSL)’s External Sector Performance report, Sri Lanka achieved only $ 772 million in FDI in 2019.

The BOI set a target of $ 2 billion in FDIs this year, a little less than the 2018 achievement. It is learnt that so far, the highest FDI figure received this year is $ 250 million for the construction of a commercial tower. However, it is highly likely, although yet to be disclosed, that there will be a significant reduction in the initial target due to the Covid-19 pandemic and disruptions in the global economy.

Workers’ remittances

Sri Lanka’s economy depends on foreign workers’ remittances more than it does on tourism, with over 1.9 million Sri Lankans working overseas. In 2018, Sri Lanka received about $ 7 billion in workers’ remittances, which is far higher than tourism exchange earnings and even earnings from apparel exports, which is the country’s top product in the export basket. Foreign workers’ remittances amounted to 7.9% of GDP that year.

In March last year, a month before the Easter Sunday incident, workers’ remittances into the country were recorded at $ 571 million, which saw a decline in April, recording $ 554 million. However, this increased to $ 562 million the following month. On a cumulative basis, workers’ remittances recorded a decline of 4.3%, amounting to $ 6.717 billion in 2019.

A study done by the Institute of Policy Studies (IPS) stated the following in explanation of this increment in remittances after the Easter incident: “Remittances are a common source of transfers, which are well targeted and speedily disbursed, to enable smoothing of consumption during times of financial difficulty.”

According to the latest figures of the external sector released by the CBSL, workers’ remittances in January 2020 were $ 581 million, compared to $ 545 million a year prior. However, the Covid-19 pandemic is expected to severely hit workers’ remittances as almost all the countries with Sri Lankan migrant labour are in lockdown, forcing people to either stay at home or work from home.

A study done on the Covid-19 outbreak impact on Sri Lanka by PricewaterhouseCoopers (PwC) stated that the receipt of remittances will be affected due to the global economic downturn and lower oil prices, since approximately about half of all remittances originate from the Middle Eastern region and over 20% from Europe.

Foreign reserves

Foreign exchange reserves are assets held on reserve by a central bank in foreign currencies. Forex earnings from tourism, exports, FDIs, and workers’ remittances mainly contribute to the reserves. These reserves are used to back liabilities and influence monetary policy.

Along with the proceeds of the International Sovereign Bonds (ISBs), as at end-March 2019, gross official reserves were estimated at $ 7.6 billion, equivalent to 4.3 months of imports. As at end-May 2019, gross official reserves depleted to $ 6.7 billion. The reduction came due to reduced inflows of tourism earnings. However, as of end-December, reserves stood at $ 7.6 billion, similar to March the same year.

The reserve positions for the months of February and March 2020 are yet to be released by the CBSL. However, as of end-January, reserves were recorded as $ 7.5 billion.

Employment rate

While the employment rate did not face any major direct impacts following the Easter Sunday incidents due to civilian life returning to normal in a couple of weeks, the Covid-19 pandemic is certainly expected to have a significant impact on the employment rate.

Many leading conglomerates, including Brandix Lanka Ltd., announced job cuts of non-permanent staff to mitigate the impact of Covid-19 on their companies’ financial performance. Furthermore, the apparel industry, which employees over 990,000, is expected to lay off about 30% of its workers amidst the pandemic.

“With the economy coming to a near standstill, enterprises that are dependent on export revenue and simultaneously managing debt are going to be vulnerable. Longer term impact will be felt by indebted companies or those with poor cash flows, those unable to remain open or afford salaries to retain employees,” the study done by PwC stated.

Bonds and shares

Surprisingly, even after the Easter Sunday incident, the Colombo Stock Exchange (CSE) witnessed a net foreign inflow of Rs. 10 million for April 2019, while government securities witnessed $ 29 million compared to $ 122 million the previous year.

By the end of 2019, amidst the presidential election in November, the total net foreign outflow from stocks and government securities from 1 January to 20 December 2019 was Rs. 72 billion. However, net foreign outflows in 2019 were far less than that of 2018, despite the economic impact of the Easter Sunday attacks in April.

Meanwhile, Sri Lanka’s equity and bond markets saw a net foreign outflow of over Rs. 17.5 billion during the first two months of this year. CBSL data showed that the bond market saw an outflow of around Rs. 68.6 billion so far during this year up to 9 April, a little less than last year’s total net foreign outflow from bond and equity markets, thus demonstrating the gravity of the Covid-19 impact.

While bonds bleed significantly, the CSE will remain closed until curfew is lifted. A week before the Government announced “work from home” days for both the private and public sectors, regular trading at the CSE was halted for 30 minutes on three days after the S&P SL20 Index fell by 5% on each day.

GDP growth

During the first quarter of 2018, Sri Lanka’s economy grew by 4%, which then gradually declined in the next three quarters of the year as it was recorded at 3.9%, 3.5%, and 1.8%, respectively.

Early last year, with high hopes for 2019, the CBSL predicted 4% growth that year. Even though the economy grew by 3.7% in the first quarter, second-quarter growth reflected the impact of the Easter Sunday attacks, as it was recorded at just 1.5%.

Following the attacks, then State Minister of Finance Eran Wickramaratne said 2019 growth would be around 3%, which was lower than projections by the International Monetary Fund (IMF) and Asian Development Bank (ADB). The IMF’s 2019 growth forecast for Sri Lanka was 3.5%, while that of the ADB was 3.6%.

Third-quarter economic growth picked up to 1.5% in 2019. In September, the IMF said it had cut its forecast for Sri Lanka’s 2019 economic growth to 2.7% from 3.5%. As estimated by the Department of Census and Statistics (DCS), annual GDP growth was 2.3% in 2019, well short of the IMF’s revised predictions.

However, with fresh targets under the newly elected Government, Sri Lanka predicted the economy would grow by 3.5% in 2020. However, in the wake of Covid-19, the World Bank, in a forecast issued for South Asia, stated that Sri Lanka’s economy will grow at a negative rate of 3%, to 0.5% this year.

Meanwhile, the ADB in its latest report, Asian Development Outlook (ADO) 2020 released early this month, projected Sri Lanka’s economic growth to fall to 2.2% in 2020, which is 0.1% less than the growth rate recorded in 2019. However, the ADB projects the economy to recover moderately to 3.5% in 2021.

The comparison

As Sri Lanka still endures long-term impacts of the Easter Sunday incidents, economic indicators were fairly improving, and in 2020, the Government wanted to achieve the numbers it achieved in 2018, a year before the Easter Sunday incidents.

While major blows from the Easter incidents were mainly on several selected sectors and were limited only to Sri Lanka, impacts of the Covid-19 pandemic are widespread and are being endured by over 200 countries around the world, with over two million infected patients and hundreds of cities in lockdown.

As predicted by the World Bank, South Asian regional growth will fall to a range between 1.8-2.8% in 2020, down from 6.3% projected six months ago, while it might take years for economies to return to normal, according to international economists.