Chance for new direction

Virtually every country in the world is smarting from the economic fallout of COVID-19 and Sri Lanka with its weak public finances and high debt is set to fare worse than average unless innovative and proactive steps are taken by policymakers. However, experts are also hopeful that countries could use this chance to restructure their economies and direct them differently.

A United Nations Development Programme (UNDP) report titled ‘Position Note on the Social and Economic Impacts of COVID-19 on the Asia Pacific’ highlights the need for governments to spend more to equip their public health services and expand social welfare nets. 

For this they will obviously have to create fiscal space—raise revenues and avoid wasteful spending—to channel more resources to public health, economic stimulus and the social safety net. That means governments need to revise their priorities reflected in budget revenue, spending and financing. By doing so, they can contain increases in fiscal deficits and surges in public debt.

Governments should use stimulus funds and incentives for populations that need them the most. This would mean channelling sizeable parts of such stimulus packages to small and informal businesses, the vulnerable and poor, and avoid the use of stimulus funds and incentives that enrich the well-off. There also has to be much transparency infused into this process so that stimulus can tracked and encouraged to reach the most deserving or needy. Companies that were badly managed before the COVID-19 crisis should not use the stimulus and remove themselves from accountability; this should not be allowed.

By coordinating globally, countries can address so-called ‘fiscal termites’—longstanding problems that undermine national budgets such as tax competition, tax evasion via tax havens and transfer pricing, and fossil fuel subsidies. They should tax the digital economy. Global coordination is also needed to facilitate debt relief to heavily-indebted countries, Small Island Developing States (SIDS) and Least Developed Countries (LDCs).

Sri Lanka has already looked at support from bilateral and multilateral agencies but there has so far been no movement on improving safeguards against tax evasion or other forms of corruption. Legislation to recover assets that may have been taken outside the country for example, which were initiated under the former Government are all but forgotten. 

Governments should make it easier to conduct business by improving public services and making them accessible through digital technology. They should support small, medium-sized and informal enterprises that may struggle more to deal with the virus fallout. 

Governments could take this opportunity to build a new, just and fair social contract between governments and people. They can work to bridge the digital divide and foster digital economies, governments should create legal and regulatory foundations, and invest in a new public good—digital connectivity for all.

There is also the opportunity to promote sustainable, low-carbon development to preserve and sustain the environment. Countries can invest in building local, more sustainable and resilient supply chains, and foster circular and sharing economies. The silver lining in economies contracting is that emissions are likely to have their sharpest drop in decades. The world can use this chance to capitalise on the thinking differently and in doing so build a better and more invasive future.