No country has been spared from the COVID-19 pandemic. It is an exogenous global shock that continues to disrupt the world, socially, medically, and economically. Especially affected are those countries where administrators failed to take logical, cost-effective, and decisive public health principles-based disease control actions and/or taking wrong actions. The former includes, preventing importing COVID-19 [...]

Business Times

COVID-19 Pandemic: Fiscal collapse and adapting disastrous policies


No country has been spared from the COVID-19 pandemic. It is an exogenous global shock that continues to disrupt the world, socially, medically, and economically. Especially affected are those countries where administrators failed to take logical, cost-effective, and decisive public health principles-based disease control actions and/or taking wrong actions. The former includes, preventing importing COVID-19 through disembarking persons from ports of entry, strict adherence to social distance, enforcing the use of face masks in public, enforcing population vitamin D sufficiency, and adhering to common sense personal hygiene. Adherent to each of the mentioned are essential to control the viral spread; these are not mutually exclusive.

File picture of innovative wash basins sold during the COVID-19 pandemic.

Overcoming COVID-19

More than 75 per cent of the viral spread continues to occur through airborne mechanisms. Nevertheless, in part because of the misleading claims by the WHO, many countries failed to implement effective public health measures to minimise this risk. In addition to the mentioned above, the most effective way to prevent contracting and complications from COVID-19 is by strengthening the immune systems (an internal body shield against the virus), using natural means.

The latter includes daily safe sun exposure and the provision of vitamin D supplements to the populous to improve their innate immunity. This approach would have been not only more effective but also cost million times less than enforcing curfews. These protective effects of boosting the immunity of the populous can be reinforced by the consumption of appropriate quantities of zinc, magnesium, and other healthy micronutrients.

Shrinking economies and loss of jobs:

During the first five months of 2020, the COVID pandemic virtually halted international trade and travel, and disrupted supply chains and macro- and macro-economic activities. However, the worse is not yet over and people have to adjust to the new norm of lifestyle and economy. As a result of lockdowns and curfews, foreign reserves dwindled, national budget deficits widen, and over 60 per cent of adults lost their livelihood, and some governments found it is hard to pay their “servants.”

Overcoming budget deficits

A sustainable budget deficit is generally defined as being less than 5 per cent of the gross domestic product (GDP) of a given country. As the budget deficit increases and currency reserves are depleted, instability grows in the economy, despite the money supply and resultant liquidity trap. Excess liquidity and stagnation are further constrained by structural issues and low interest rates that discourage saving. This is compounded by reductions of treasury bill and bond rates and further depreciation of the currency. Consequently, countries such as Sri Lanka resorted to an easy path of printing money, “quantitative easing” (QE; or monitorisation), in the absence of linking to a hard reserve, such as gold.

In the absence of a rapid infusion of an immense amount of currency into the economy, the QE may not necessarily cause hyperinflation but neither stimulate it. For example, it is unlikely to cause hyperinflation when the money sits in banks and lending institutions and people are not using them rapidly. However, when the money is rapidly injected into the economy and used by people in the presence of increasing budget deficits, QE can lead to hyperinflation (Macroeconomic Policy: Demystifying Monetary and Fiscal Policy, Springer Press, Edition 3).

Monitorisation to pay salaries

In recent subprime crises caused by the lack of full utilisation, massive QE particularly in industrialized countries, such as the US and UK, did not bring about hyperinflation. When printed money was injected into circulation and the central administrations relied on monitorisation for paying government “servants,” such as military personnel, teachers, other govt. employees, and suppliers, and subsidizing agriculture, hyperinflation is likely to arise; this creates a vicious cycle further threatening the economy. Similar adverse cycles were seen in Greece and several South American countries in recent years, where some counties went bankrupt.

Sri Lanka is in debt by several trillions of rupees. In addition, it has to pay interest payments of several hundred millions of dollars on a regular basis. Estimates suggest that it will take two generations to pay the current debt, assuming no more loans are taken. Obtaining further loans from any country will only lead to “national assets trap,” unwise and unethical.

Further increasing the debt burden for generations to come is not the way forward. Instead, to overcome the current economic calamity, it is necessary to implement a strategic austerity plan and markedly reduce the governmental expenses. Borrowing at a high interest rate nor printing money is the solution.


Contrary to previous experiences, the current low interest rates have not stimulated the growth or capital investment, in part because of low investor and consumer confidence. Typically, two-thirds of the investment choices in the stock market and new projects are driven by liquidity creation based on solid theory and figures. The remainder is driven by emotional and behavioural processes. However, when industries, investors, and consumers alike, do not have the confidence on haphazard economic and monetary policies of a country, they are reluctant to spend on capital expenditure. This worsens the economic stagnation and the outcome can get worse.

However, during the COVID-19 crisis, initial financial decisions (e.g., selling stocks), nearly 100 per cent of the decisions were emotional driven because of fear of the unknown and the resulting panic. It is envisaged that companies that had solid finances and strong track records before this crisis will survive, and some of the others are likely to disappear.

The relative reliability and macroeconomic discipline of the US, tighter legislation, stronger financial institutions, and consistent non-political, unpressurised central bank policies continue to back the US dollar and maintain its strength despite QE. Countries that printed large amounts of currency in the absence of hard reserves may add to the current macroeconomic chaos that will worsen in the months to come. For example, the subprime crisis of 2007–2010 (also, the Great Recession) were caused by endemic internal failures within the economy. This led to the bursting of economic bubbles, such as the stock market, dotcoms, and housing, which caused hard landings of the economy, instead of the beneficial soft landing.

In comparison, the financial crisis in early 2020 was caused by an exogenous shock that came from outside the economy: COVID-19. To face that, most countries decreased their economic activities by shutting down human interactions and activities; this was done mainly to enable healthcare institutions to have the ability to handle patient loads. However, lockdowns and curfews markedly harmed the economies with job losses and disrupted the livelihood of millions of people.


The exogenous economic shock and supply chain disruptions created following COVID-19 was exacerbated by unnecessary, over-shutdowns and prolonged military-style curfews that had little benefit in controlling the pandemic. Enforcing curfew, drastically increased the unemployment, destroyed the livelihood of two-thirds of adult population, and dragged the economy with it. Those who engineered and forced curfews must be held accountable for massive destruction in the country.

Matters became worse due to refusal by the administrators consulting experts in relevant fields (due to ego, control, and for political reasons), a lack of empathy, and inhumane and inefficient ways people were quarantined. Such petite-minded approaches designed for personal gain not only worsened the economic collapse but also harmed people which should not be allowed to repeat.

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