Macro Analysis /
Sri Lanka

Sri Lanka: Third wave fears to dampen economic momentum

  • COVID-19 cases rise post-Sinhalese and Tamil New Year; higher testing a positive

  • Hospital/ICU bed capacity a crucial factor; process underway to increase capacity

  • Services sector to be most impacted; minimal impact on agri

Asia Securities
29 April 2021
Published byAsia Securities

COVID-19 cases rise post-Sinhalese and Tamil New Year; higher testing a positive

The post-Sinhalese and Tamil New Year season saw a sharp rise in COVID-19 positive cases locally, as signs of a mutated variant of the virus was detected in Sri Lanka. Recent findings indicate that this possibly new variant is airborne resulting in a higher level of precaution needed to be taken in comparison to the variants seen last year. This has resulted in an increase in testing to 12,000 – 15,000 tests per day compared with ~5,000/day previously, which is a key positive. We note that the current system of testing limits maximum capacity to 15,000/day. Against this backdrop, it is evident that the overall level of uncertainty has heightened as cases surge.

Hospital/ICU bed capacity a crucial factor; process underway to increase capacity

In our view, a key factor to further lockdowns is the availability of hospital and ICU beds. According to the Primary Health Care, Epidemics and COVID-19 Disease Control Minister, the sharp rise in daily cases has resulted in ICUs rapidly reaching full capacity, while steps are being taken to increase the number of beds in ICUs to address the situation. Furthermore, the Medical Supplies division is currently in process to increase the number of hospital beds with high-flow oxygen devices, which is likely to lead to lower ICU admissions.

Services sector to be most impacted; minimal impact on agri

With most government and private sector organisations moving back into partial work from home options, combined with school closures in key provinces, we expect a negative multiplier effect on mostly the Services sector. We expect sub-sectors like 1) Financial Services, 2) IT and 3) Telecommunications to experience an increase in activity. We see a prolonged negative impact on Tourism and related activities, specially stemming from the recent travel advisory notifications issued by the UK and US. With a rise in global COVID-19 positive cases, we expect other countries also to restrict travel in the near term. As such, we maintain our view of a very gradual recovery in tourism activity through 2021.