Fiscal implications of vaccinating Sri Lanka against COVID-19

Securing vaccines to curb the spread of COVID-19 has become a priority amongst governments worldwide, as countries seek to finally move beyond the pandemic that has disrupted lives during the past year. Whilst lockdowns and other restrictions have helped curb the spread of the virus, these have come at a considerable opportunity cost, especially in terms of economic activity. Therefore, vaccination appears to be the only sustainable means of returning to normalcy and a well-coordinated and efficient vaccination strategy would undoubtedly expedite that process. The emergence of new variants of COVID-19 has heightened the need for vaccination even further since an immunised population limits the scope for new variants of COVID-19 to emerge.
Global COVID-19 vaccination efforts, however, also require careful government fiscal allocations since a vast majority of vaccines are to be self-financed by governments. In addition to assessing the proportion of vaccines required to achieve herd immunity, developing economies in particular, need to be cognizant of the variety in prices amongst the available vaccine options, freight costs and ancillary costs associated with the storage and deployment of such a mass-scale vaccination initiative. Moreover, developing countries have to contend with potential supply shocks and price changes in the future since developed economies have secured most of the initial supplies directly from vaccine developers and producers.
Similar to other countries, Sri Lanka too, has suffered severely during the past year due to COVID-19. The country, for instance, experienced an economic contraction of 3.6 per cent in 2020 and saw unemployment rates rise to unprecedented levels (Department of Census and Statistics, 2020). The continuous closure of service industries such as the tourism sector, which accounts for 4 per cent of gross domestic product (GDP), continues to burden the country’s economy. Notably, the country is facing these economic challenges alongside an already challenging macroeconomic landscape, highlighted by a record level of foreign debt obligations, a growing fiscal deficit and a rapidly depreciating currency. Each of these challenges creates a greater urgency for Sri Lanka to vaccinate its populace in order to reopen the economy, whilst ensuring that fiscal allocations towards the vaccination effort do not undermine its broader public health investments or its macroeconomic position. Against such a backdrop, this study assesses the fiscal implications of reaching a target of vaccinating 60-80 per cent of Sri Lanka’s population against COVID-19.
The study works with the assumption that 20 per cent of the population will be vaccinated through a combination of COVAX procured vaccines, vaccine grants and grant funding. The cost of vaccinating the remaining 40-60 per cent of the population to reach the 60-80 per cent coverage target will be approximated, and the associated fiscal trade-offs of using government budget for this purpose will be considered. Furthermore, an economic impact analysis will be conducted to simulate the impact of the vaccination strategy on national output and employment.