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EXECUTIVE SUMMARY

This UN Advisory Paper: Immediate Socio-Economic Response to COVID-19 in Sri Lanka (henceforth, Advisory Paper) has been developed in accordance with the agreement with the Government of Sri Lanka (henceforth, the Government or GoSL); its purpose is to inform and support a national COVID-19 socio-economic response effort. It complements the Government’s Strategic Preparedness and Response Plan (SPRP) on the direct health response to the pandemic. The Advisory Paper advocates for the following five strategic priorities for immediate socio-economic response, in line with the UN (Global) Framework (launched on 27 April 2020):

1. Health First: Protecting Health Systems and Services during the Crisis
2. People First: Social Protection and Basic Services
3. Economic Recovery: Protecting Jobs, Micro, Small and Medium Sized Enterprises (MSMEs) and Informal Economy Workers
4. Social Cohesion and Community Resilience
5. Macroeconomic Response and Multilateral Cooperation

The Advisory Paper focuses on an immediate socio-economic response to COVID-19 over the next 12 to 18 months. It recommends immediate measures to meet the most pressing socio-economic needs and stem the most exigent socio-economic impacts, and medium and long term measures that connect this response to the 2030 Development Agenda, as well as to policy and institutional measures that would help Sri Lanka remake its society and economy to be future fit—to seize new opportunities and manage emerging risks. The Paper benefits from the UN’s long-standing presence in Sri Lanka, ongoing response efforts in partnership with the GoSL, civil society and private sector, and is informed by international good practice.

The GoSL took early measures to prevent the spread of COVID-19 by instituting curfews and social distancing measures, activating testing and quarantine procedures, delivering food and maintaining essential services, and suspending incoming passenger flights. Sri Lanka has managed its immediate COVID-19 caseload of 1,869 confirmed cases, 736 active cases and 11 deaths to-date (11 June 2020). A potential surge remains a risk as curfews ease. Fatalities from other diseases are continuing amidst the pandemic, and curfews have made accessing essential healthcare more difficult in places, particularly for vulnerable groups with specific healthcare needs. In prioritizing Health First (1) the UN recommends: strengthening health system capacity and preparedness for emergencies; maintaining equitable access to essential health services, particularly for at-risk and vulnerable groups; and developing a comprehensive plan for sustainable mediumterm health financing.

The Government has recognised the vulnerability of Sri Lankan households to the economic fallout by committing Rs. 50 billion (USD 270 million or 0.33% of GDP) in monthly transfers, most with a value of Rs. 5,000 each, to beneficiaries across the country in April and May. The Central Bank of Sri Lanka (CBSL) has supported affected firms in the form of 150 basis points in monetary easing since the start of 2020, with suspensions of loan payments and a concessional refinancing programme of Rs. 50 billion (0.33% of GDP) for activities affected by the pandemic. The Government has also committed 0.1% of GDP for quarantine and containment measures; USD 5 million to the SAARC COVID-19 Emergency Fund; a Petroleum Stabilization Fund (PSF) built utilizing the lower international prices of oil; and a presidential contributory fund that has raised Rs.1.4 billion (USD 7.4 million) to-date.

Sri Lanka’s graduation to upper middle-income status in 2019 has likely been affected by socio-economic impacts of COVID-19. Despite steady progress in poverty reduction (4.1% lived below the national poverty line in 2016), most families still live in some degree of income insecurity. Nearly a million Sri Lankans live within 20% of the national poverty line (i.e. 8.7% of the population). Moreover, living standards remain low, which means that a majority will likely find it challenging to withstand economic shocks on the scale of COVID-19. Income inequality remains stubbornly high; with Gini measurements recording at 0.45 in 2016 (compared to 0.48 in 2012) and the income share of the richest 20% of households remaining little changed at 50.8 (compared to 52.9 in 2012). COVID-19’s impacts are acutely felt by those underserved by ongoing social protection schemes, having further knock-on effects on aggregate demand, and thus the economy.

Where health and nutrition services are being redirected to meet emergency needs, or where curfews and social distancing measures are disrupting people’s access to their delivery, this is impacting vulnerable groups that depend on them. School closures are depriving education and social development opportunities for 4.2 million students8, and highlighting gaps between those able and unable to access remote learning opportunities. Women are shouldering additional caregiver responsibilities during curfews. They are facing higher risks of sexual and gender-based violence (SGBV), with the national hotline on domestic violence recording 463 cases in March-April 2020 compared to 123 cases in February-March 2020. In prioritizing People First (2) the UN recommends scaling-up and expanding social protection; maintaining essential food and nutrition services; securing sustained learning for all children and adolescents; supporting the continuity of social services and access to shelters; supporting survivors of SGBV; and ensuring continuity and quality of water and sanitation services.

Measures to reduce the transmission of COVID-19 are translating into real income shocks for Sri Lankan firms and households. More than 58.7% of the country’s labour force are informal economy workers10, and seriously impacted by job and income losses and in turn, by their lack of access to social protection benefits and income replacement options. MSMEs, accounting for 99.8% of enterprises and employing 27% of the total labour force, are worst-hit with less reserves and limited access to relief and formal-sector credit.

The World Bank estimates a 19% drop in migrant remittances for 2020 depriving one in every eleven Sri Lankan households of a direct contribution to household income. In this situation, both low and middleincome earners are likely to experience economic shocks, with knock-on impacts on household food security and indebtedness. Women represent a large percentage of frontline and essential workers dealing with the pandemic; are highly represented in some sectors most impacted by the crisis (e.g. apparels, MSMEs), and bear a disproportionate burden in the care economy. Traditionally, women-operated businesses have more limited savings, assets, access to formal-sector credit, and business development opportunities. In prioritizing Economic Recovery (3) the UN recommends: protecting workers from COVID-19 related health risks in the workplace; protecting jobs and incomes and stimulating employment; and ensuring continuity and resilience of businesses, especially of MSMEs, with a special focus on vulnerable workers.

On the one hand, the crisis has generated shared interests between different groups, strengthened the social contract, and improved social cohesion, as demonstrated by examples of social solidarity and community initiative from around the country. At the same time, incidences of stigmatization, exclusion and hatespeech stand to counter these positive narratives. The effects of disasters and climate change remain a largely unmitigated threat to health, food security and livelihoods, particularly for the poor, which COVID-19 further compounds. The frequency and variability of extreme weather conditions poses risks to livelihoods and access to services, compounding vulnerabilities and further challenging the pandemic response. The immediacy of responding to COVID-19’s impacts needs to be consolidated to include all of government and all of society (communities, civil society, the private sector, worker’s organizations, the media, and development partners) in the recovery process. In prioritizing Social Cohesion and Community Resilience (4) the UN recommends: improving community resilience, participation and equitable service delivery; promoting social dialogue, advocacy and citizens’ engagement; and protecting fundamental freedoms and the Rule of Law.

As a small, open economy, Sri Lanka is not immune to the multidimensional macro-economic shocks of the pandemic. The CBSL forecasts the Sri Lankan economy to grow at a rate of 1.5% in 2020, down from an earlier forecast of 3.5%. Estimates from development partners predict growth contractions in 2020 followed by modest recovery in 2021. OECD forecasts that the global economy will contract 6% in 2020, and 7.6% if there is a second wave of COVID-19 infections. A socio-economic response that meets the needs of those affected will entail large-scale fiscal outlays, within an already constrained fiscal environment. In prioritizing Macro-economic Response and Multi-lateral Collaboration (5) the UN recommends: assessing immediate and long-term fiscal financing options; and undertaking immediate measures and long-term reforms for sustainably financing Sri Lanka’s recovery and development plans, leveraging on broader financing solutions.

The Advisory Paper recommends the following principles to guide the immediate socio-economic response:

• Leaving No One Behind: The socio-economic response should be guided by the SDG principle to ‘Leave No One Behind’, ensuring that the most vulnerable don’t fall through the cracks after the relief-phase and that socio-economic inequalities are reduced between provinces, communities and population groups.

• ‘Build Forward’: The socio-economic response should aim to be ‘future fit’: strengthening capacities of institutions and communities to perform better, cope with future shocks, and seize new economic and governance opportunities. The national response should effectively link to the 2030 Development Agenda, be well-situated within national development planning and implementation frameworks, and contribute to advancing innovation, resilience and social cohesion.

• ‘Whole of Government’ and ‘Whole of Society’: The socio-economic response should be action-oriented and dynamic, integrated and well-coordinated across ‘whole of government’; and inclusive of ‘whole of society’.