As Sri Lanka marks five years since its first Covid-19 lockdowns in March 2020, it’s an opportune moment to reflect on the profound economic and social impacts the pandemic has had on developing economies worldwide. The Covid-19 crisis was not merely a health emergency but a multidimensional shock that exposed structural vulnerabilities, accelerated existing trends, and forced a rethinking of development priorities. This article examines some key lessons from the pandemic for inclusive growth imperatives in developing economies like Sri Lanka.
Vulnerability of developing economies
Covid-19 mercilessly exposed the fragility of developing economies. Countries like Sri Lanka, heavily dependent on tourism, exports (to a narrow set of Western economies), and worker remittances, suffered disproportionately when global travel halted, supply chains broke down, and migrant workers lost their jobs. The pandemic demonstrated that economic diversification is not just a growth strategy but a survival imperative.
Sri Lanka’s experience was particularly instructive. The country’s tourism sector, which accounted for approximately 5% of GDP pre-pandemic, virtually collapsed overnight. Export-oriented industries like garments faced order cancellations and disrupted supply chains. Meanwhile, the informal sector, which employs a significant portion of the workforce, had limited access to social protection mechanisms.
This vulnerability was compounded by pre-existing challenges. Many developing economies entered the pandemic with already constrained fiscal space, high debt levels, and limited monetary policy options. The crisis revealed that economic resilience requires not just growth but fundamentally sound macroeconomic foundations.
Digital transformation
Perhaps the most transformative lesson from Covid-19 was the acceleration of digital adoption. When physical contact became dangerous, digital technologies became lifelines. Countries with stronger digital infrastructure and higher digital literacy demonstrated greater resilience.
In Sri Lanka, digital payment systems saw unprecedented growth during the pandemic. E-commerce platforms emerged as essential channels for businesses to reach consumers. Telemedicine services expanded, and educational institutions moved online, albeit with varying degrees of success.
However, the digital transition also highlighted the acute digital divide. Many in rural areas, lower-income groups, and older populations struggled to access or navigate digital services. Even as teaching went online, many in poorer households were excluded – they lacked the devices, the money to afford mobile data, or simply did not have network coverage in their area. Import restrictions on laptops and mobile phones to Sri Lanka, and the depreciation of the Sri Lankan Rupee, made devices harder to purchase and less affordable since late 2020.
For developing economies, the lesson is clear: digital infrastructure is as essential as physical infrastructure. Investments in connectivity, digital skills development, and supportive regulatory frameworks are not optional but necessary components of resilience and growth strategies. But also, considerations around device and data affordability is equally important.
Reimagining social protection systems
The pandemic brutally exposed gaps in social protection systems across developing economies. Many countries struggled to identify and reach vulnerable populations quickly enough. Ad hoc relief measures, while necessary, often proved administratively challenging, fiscally unsustainable, and lacked meaningful impact for those who needed help.
Sri Lanka implemented several relief measures, including cash transfers and food assistance. However, these were grossly inadequate and many were left behind. It highlighted the need for more comprehensive, shock-responsive, and meaningful social protection systems. The crisis demonstrated that social protection is not merely a humanitarian concern but an economic stabilizer that maintains consumption and prevents long-term scarring. As Perera (2024) writes, investing in ‘transformative social protection’ is needed.
Looking forward, developing economies need to build adaptive social protection systems that can expand during crises and contract during normal times. This requires investments in:
1. Comprehensive social registries with accurate data on vulnerable populations and mechanisms to dynamically identify newly vulnerable groups
2. Digital payment infrastructure to enable rapid disbursement
3. Go beyond targeted cash transfers to more universal schemes as well as holistic programmes that address nutrition, schooling, women’s health, etc.
4. Sustainable financing mechanisms that don’t compromise long-term fiscal stability
Healthcare system strengthening
Covid-19 made painfully clear that health and economic outcomes are inextricably linked. Countries with stronger healthcare systems were better able to manage the pandemic while minimizing economic disruption. Sri Lanka’s relatively robust public healthcare system helped contain the initial waves of the pandemic more effectively than many comparable economies. However, the crisis revealed gaps in emergency preparedness, critical care capacity, health information systems, and support for mental health.
For developing economies, the lesson is that investments in healthcare are investments in economic resilience. Strong primary healthcare systems, disease surveillance capabilities, emergency response mechanisms, and domestic pharmaceutical production capacity are not luxuries but foundations for sustainable development.
Rethinking global integration and supply chains
The pandemic disrupted global supply chains and exposed the risks of excessive dependence on single sources for critical goods. Many countries, including Sri Lanka, faced shortages of essential medical supplies and struggled with export market access.
This has prompted a rethinking of global integration strategies. While global trade remains vital for developing economies, the crisis highlighted the importance of:
1. Regional integration and supply chain diversification
2. Building domestic production capacity for essential goods
3. Developing strategic reserves of critical supplies
4. Creating more resilient logistics networks
For Sri Lanka and similar economies, this doesn’t mean retreating from global markets but pursuing smarter, more resilient forms of integration that balance efficiency with security.
Sustainable public finance and debt management
The pandemic forced unprecedented fiscal responses worldwide. Developing economies increased spending on healthcare and social protection while experiencing revenue shortfalls due to economic contraction.
Sri Lanka’s experience is particularly instructive. The pandemic exacerbated pre-existing fiscal challenges, contributing to a severe economic crisis that culminated in a sovereign default in 2022. This underscores that fiscal space is not just an abstract concept but a concrete determinant of crisis response capacity.
Moving forward, developing economies must focus on:
1. Building fiscal buffers during good times
2. Improving tax administration and expanding the tax base
3. Enhancing debt management capacity
4. Increasing spending efficiency and targeting
5. Strengthening fiscal institutions and transparency
Inclusive growth and building forward differently
Perhaps the most important lesson is that inclusive growth is not just a moral imperative but a practical resilience strategy. Countries with high inequality, limited social mobility, and concentrated economic power proved more vulnerable to the pandemic’s economic shocks.
The pandemic’s disproportionate impact on women, youth, informal workers, and marginalized communities highlighted that growth patterns matter as much as growth rates. Recovery strategies must deliberately address these inequalities through investments in human capital, removal of barriers to economic participation, and policies that ensure the benefits of growth are widely shared.
As Sri Lanka and other developing economies mark five years since the onset of the Covid-19 pandemic, the imperative is not simply to recover but to “build forward differently.” This means taking the lessons of the crisis and using them to reshape development strategies toward more resilient, inclusive, and sustainable outcomes.
This requires policy coherence across multiple domains: fiscal policy, monetary policy, social policy, industrial policy, and global engagement. It demands investments in both physical and digital infrastructure, human capital, and institutional capacity. And it necessitates a social contract that balances the needs of all stakeholders in pursuit of shared prosperity.
The writer is Director of Centre for a Smart Future (www.csf-asia.org), an interdisciplinary public policy think tank. Views expressed here are strictly the author’s own.
