Priyanga Dunusinghe

Abstract

The COVID-19 pandemic has affected every aspect of people’s economic life across the globe. Most countries put in place restrictions to prevent the spread of the pandemic. The pandemic brought about financial, technological and policy shocks. This paper aims at assessing the impact of COVID-19 on Sri Lanka’s exports. The first part of the paper discusses Sri Lanka’s recent export performance while the second section aims at quantifying the impact based on a novel approach proposed in the recent literature. Specifically, this study employs the traditional gravity model framework in quantifying the determinants of Sri Lanka’s exports and utilizes the estimated coefficients along with the GDP forecasts in assessing the impact of COVID-19 on exports. It is expected that COVID-19 induced supply and demand shocks are duly absorbed into the GDP forecasts. Our analysis found that the pandemic severely affected Sri Lanka’s exports, compared to most of its competitors, largely due to Sri Lanka’s heavy concentration on a few ‘non-essential’ products and a few regions which were gravely exposed to the pandemic. Nevertheless, Sri Lanka’s traditional agriculture exports were marginally affected by the pandemic. The determinants of exports clearly indicate that economic performance and trade and investment freedoms in partner countries are crucial to the success of Sri Lanka’s exports. When compared to the realized export data for 2020, our assessment did a reasonable approximation on the impact of COVID-19 on exports. The assessment for 2021 suggests that it is highly unlikely that Sri Lanka’s total exports reach its pre-pandemic level. Sri Lanka needs to adopt proactive measures in revitalizing the export sector so that Sri Lanka is not at a disadvantage when the global economy emerges from the pandemic in the near future. Nevertheless, it is highly unlikely that the pre-pandemic competitive edge remains intact in the post-pandemic era.

Keywords: COVID-19, exports, gravity model framework, impact analysis, Sri Lanka