The COVID-19 pandemic created an unprecedented economic and labour market crisis around the world, mostly as a consequence of lockdown and other containment measures to stem the spread of the virus. Despite some signs of positive trends, the labour market recovery in most developing countries stalled in 2021. While these countries had also implemented stimulus packages and specific interventions to support businesses and workers during the crisis, their ability to respond in 2021 and at the start of 2022 has been much more constrained due to limited fiscal space, debt sustainability challenges and pressures from rising inflation.

While Sri Lanka had a similar experience to most developing countries in effects of the shock on the labour market during the crisis, it was facing considerable macroeconomic imbalances and structural weaknesses prior to the onset of the pandemic. In addition to the negative impact of the COVID-19 crisis, it was highly vulnerable to the Ukrainian crisis, which has led to a new “triple crisis” in terms of increasing difficulties in accessing financing, along with rising prices of food and fuel that are hitting developing countries. As a consequence of an intersection of global and domestic shocks, Sri Lanka is now in a full-blown balance of payments and debt crisis, which has already severely impacted economic activity and the labour market.

This paper by Ramani Gunatilaka, PhD and Prof Sunil Chandrasiri reviews the pre-COVID-19 trends and challenges in Sri Lanka, before turning to the impact of the COVID-19 crisis on the economy and labour market over 2020-21. It also analyses the various dimensions of the current phase of the crisis in terms of key issues and its likely impact on the labour market. Finally, the paper presents a policy framework to underpin human centred recovery efforts with a view to promoting more inclusive and sustainable growth and the creation of decent and productive employment in Sri Lanka.