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Pandemic to affect spending power of consumers – ICRA Lanka

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“We expect the demand for services to gradually pick up over the course of the next few months and help to recover consumer spending.”

The case numbers of the Delta-variant are receding in many countries including in Sri Lanka, and in about another six months, 75% of the world’s population is projected to be fully vaccinated strengthening global immunity level. Many experts feel transitioning to an endemic is a realistic endpoint for the current pandemic.

Endemic means the governments will have to deal with COVID in a more localised fashion while the public will have to continue with the current pandemic-induced lifestyles to some degree.

One of the most crucial factors for economic recovery as it stands is the revival of tourism. Tourism has displayed a faster rebound and ability to generate jobs rapidly as demonstrated in the past.

Domestic tourism can pick up faster but what is critical for the economy is inbound tourism. Sri Lanka is still in the red or amber list of several key tourist source markets such as the UK and Germany.

Revival of inbound tourism is pretty much predicated on how soon these travel advisories/restrictions will be lifted. In any case, it is likely that the tourism industry might not see its former arrival numbers immediately.

What we are likely to see is a much more restricted form of tourism for some time. It is too early to predict the extent of the recovery of tourism in 2022 at this moment, but even a partial recovery would help to ease the balance of payment pressure and reduce unemployment.

Trajectory of domestic inflation in the post-pandemic era will most likely be determined by the path of global commodity prices as well as how soon the global supply chain disruptions are going to fade. The CBSL has pledged to maintain inflation at mid-single digit level and continue its intervention in the forex market to stabilise exchange rate in its Six-Month Road Map.

“Given the limited forex reserves in hand, achieving the above is going to be very challenging. Therefore, we expect tighter monetary policy moving forward.”

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