The way out of the bleak economic outlook resulting from Covid, experts tell us, is to put ourselves in a gloomy mood and prepare for calamity.
They first said that we are quickly becoming a Myanmar, a military state, but when that prognosis started to be considered ludicrous, they have now changed their tactics to say that we are on the verge of becoming a Lebanon.
We are undoubtedly facing an economic crisis which is mainly linked to Covid and the resulting global and local slump. But, we are not far, far from the desperate situation in which Lebanon finds itself.
It is a country that has virtually no sources of income. There is therefore no point in dwelling on the fictitious comparison of Lebanon which is good for fools and their colleagues.
The way out of the current economic crisis is not to repeat doomsday scenarios or wrap ourselves in a shroud of disaster.
That’s the last thing a V-shaped pickup requires. Why aim for a V-shaped pickup, one might ask? This is because such a rebound is very much within the realm of the possible.
There are very simple reasons for V-shaped success, which experts are too blind to see. On the one hand, it has already been predicted that Asia will lead the world in the post-Covid resurgence. We are geographically in the middle of Asia.
Then, of course, we should take note of the other prediction which is that China will lead the post-Covid global economic recovery. China is predicted to eventually overtake the United States as the world’s largest economy in 2021.
The prognosis is good, everywhere in Asia. India is set to record the highest GDP growth in 2021 among the world’s major economies, and you read that right. That being the case in our immediate neighborhood and with China in the lead, are we, relatively small as we are, supposed to curl up and be left behind?
Our own V-shaped recovery would occur if we had the faith that we could produce and innovate to get out of the current crisis. It is true that unpopular decisions should be taken, as the new Minister of Finance Basil Rajapaksa has said.
But these aren’t necessarily the unpopular decisions that some pro-neoliberal allied opposition experts have in mind. There are a variety of decisions that would be considered sweeping and innovative, and of course, these would be unpopular among many who would expect the government to do the conventional thing, like bite the bullet.
Doomsday prophets would or should remember that the economies that have recovered the best from Covid so far were the ones that gave their systems a generous boost. The stronger the stimulus, the stronger the economic recovery.
The problem with Sri Lanka is that we don’t have the kind of resource base that would allow us to afford a significant stimulus.
But the answer is not to do the opposite of a stimulus and starve the economy through over-taxation and the like. It is true that something has to give way, and in some areas of the economy we could see contractions – and there would for example be restrictions on certain imports.
You can’t do a European-type stimulus, that’s fine, but you can at best simulate a stimulus.
When you can’t do the real thing, sometimes a little bit of pretending helps. We must give the people the idea that this is not the time to hide under a rock, lest the sky collapse. The economy would thrive on the chances that entrepreneurs would take.
The economic shock induced by Covid-19 was supposed to be a supply shock and not a demand shock, by all calculations. This is a supply shock because due to Covid there is either no production or there is severely reduced production which means the result is a shortage of the supply of goods.
However, there is nothing to stimulate the supply curve and increase output, so it is a negative supply shock as opposed to a positive shock. With a negative supply shock, there is a shortage of supply, which causes prices to soar.
The answer is of course to send people back to work. It’s imperative. The vaccines would help. The point is, whatever experts say, the pandemic has caused both a supply shock and a demand shock. The economy needs to be normalized, but that’s easier said than done, which is why a stimulus is imperative. However, a stimulus may not work in a country like ours the same way it works in a developed country.
Interest rate cuts, for example, should also adjust to inflation, otherwise there will be capital flight from our shores and other repercussions. Rating downgrades could follow.
Although necessary adjustments can be made, the perception should never be about unhappiness. This country does not have many pre-existing vulnerabilities. The health sector is functioning well despite recent strikes etc which are not the norm. This helps keep the population healthy and productive, regardless, and also contributes to the success of immunization programs.
The country needs to guard against a K-shaped recovery. K-shaped ‘bounces’ are where on the chart certain sectors of the economy are flourishing, with the chart rising, while other sectors are flourishing. remain behind with a downward trend. Hence the K shape.
Obviously, part of this K-shaped trend in our potential recovery cannot be avoided. For example, the recovery of the tourism and hospitality sectors will inevitably be slower than in the area of ââcommodity exports, for example.
But a K-shaped rebound would leave too many vulnerable sectors of the economy behind and should be avoided at all costs. But if the experts are to be listened to and we dramatically raise interest rates and remove all of the stimulus features from the economy, we will end up with an L-shaped recovery.
This is due to the sudden plunge we have experienced with Covid and the recession from which there is hardly any recovery.
This will not happen if we have the right policies in place, and for now the country must aim for a V-shaped recovery and nothing less. If certain adjustments were to be made, there is no doubt that they would be.
We are starting to come out of this hole, we will not stay there forever as some suggest.
As the economy suffers from Covid, pundits from the opposition and its allies are trying to establish that this slump came out of nowhere due to the abandonment of their so-called economic policies.
Maybe they can peddle this hilarious fiction, but people aren’t about to respond to any of these partisan narratives.
The people would bear the burden of a V-shaped recovery, even if the opposition wants to make them pawns in a game of politically motivated inaction and non-cooperation. People have not lost their minds. The very opposition that gives advice on the economy these days, along with its cronies, ruined the economy for five years when there was no pandemic and no adverse global economic circumstances to contend with under them. surveillance.
Even if Covid was the reason for the current slump, things would have been better if the opposition had not previously devastated the economy.
No one wants to listen to their expert types anymore, whether they were formerly from the Central Bank – or whatever bunker or bunk bed they’ve surfaced from. The job at hand doesn’t need Cassandra’s distraction, and no one would mind.
Predictors of doom might refuse to cross that bridge to recovery with the rest of us if they want to, that’s fine, because no one really wants them on board when there’s work to be done and miles to go before sleeping.