Sustaining Tourism in a Struggling Economy

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Past President of The Hotels’ Association of Sri Lanka

Tourism is an essential contributor for the success of many economies around the world. It plays an extremely important role in the Sri Lankan economy. There are numerous benefits of tourism on host destinations. It boosts the revenue of the economy, creates thousands of jobs, develops the infrastructures of a country, and plants a sense of cultural exchange between foreigners and citizens.

In 2018, Sri Lanka Tourism generated receipts worth USD 4.5 billion. It was the number two net foreign exchange earner of the country. The multiplier effect of tourism, contributed towards the development of many other sectors and industries such as agriculture, fisheries and the cottage industries. It empowered the most vulnerable sectors of the society – women and youth.

The livelihood of approximately 13.75 per cent of the population is directly and indirectly dependent on the tourism industry. The total employment provided by tourism in Sri Lanka amounts to an approximately 500,000 direct and indirect employment.

The total room strength in the formal sector of the island is 38,000. It is estimated that the informal sector of the tourism industry is as big as the formal sector in the country.

The industry also contributes to the Government in terms of levies, license fees and taxes and the contribution of 40 per cent Tourism Development Levy (TDL) to the Sri Lanka Tourism Development Authority (SLTDA) to promote and develop the Tourism sector. The private sector additionally spends over LKR 2 billion per annum to only promote Sri Lanka to overseas markets in terms of advertising, brochure exposure, trade fair participation, direct promotions and physical sales calling.

The total investment in the industry and foreign investment with the entry of International brands is estimated at USD 20 billion and investments in hotels being approximately USD 15 billion.

Even though Sri Lanka is blessed with all the natural vistas and the natural resources that provide an ideal platform for Tourism, the Industry of the island nation boasts of a history which has been battered and bruised repeatedly.

Sri Lanka Tourism is a resilient industry which survived a 30-year civil unrest, terrorism, and tsunami.

The industry was booming in 2018, but with the Easter Sunday attacks it took a downturn. With the outbreak of Covid-19 the industry became a virtual standstill when it was heading towards a recovery from 2019.

Tourism across the globe started its recovery since January 2022. A growth of 130 per cent was recorded in January 2022 compared to January 2021 in tourist arrivals; equals to the year round increase in arrivals reported in 2021 as per The World Tourism Organization (UNWTO).

But the Sri Lankan Tourism industry could not fully revive post-Covid-19, due to the economic crises that has been exacerbated by political volatility. Even though the advisories issued by other countries have been softened, long queues of vehicles at fuel stations queueing up for days to get fuel which is a scarce commodity at the moment, adds up to the uncertainty in the traveller, planning a visit to the country. 

With the current economic circumstances of the country the need to create a conducive environment for visitor-travel is very high as Tourism is the fastest route available to overcome the current crises. A steady influx of tourists would certainly help the country to recovery from its disaster-hit economy and its foreign exchange struggles; as tourism is to a play a critical role in the resurrection of the country’s distressed circumstances.

Amidst the shortages of gas, fuel and recurring power-cuts Tourism providers have somehow managed to service their guests amidst these challenges. Hotels have even  received some excellent endorsements which are true testimonies from their guests and tourists.

As at May 2022, Sri Lanka has had 378,521 arrivals and receipts amounting to USD 681,000 million. But the month -on-month visitor-levels which were on the rise have been curtailed due to the crises. Therefore, the tourism industry has not been able to perform to its full potential so as to replenish the much-needed foreign exchange reserves.

International travel being completely grounded in 2020 with the outbreak of Covid-19, tourism took a major blow having absolutely no turnover to sustain its survival. However, the intervention of the Government in 2020 by extending financial relief packages in 2019, helped to soften its impact.

Currently, the concession given on the moratorium has come to an end as at 30 June 2022. Now, the industry is faced with a serious predicament because of the current crises, where it is difficult to operate the establishments to provide services to the guests.

However, the industry was surviving with the revenue generated through domestic travellers amidst the obstacles.  And kept the establishments afloat to pay the staff salaries and to keep the village economy intact. The current fuel shortages have now deprived the industry from generating whatever small revenue through the avenues that were available.

The unfavourable environment that has been created is not conducive to carryout business activities in any industry. The volatility in material prices, uncertainty in fuel and power supplies have led to a major dilemma with no potential solution in sight.

The extension of the moratorium is crucial till the situation of the country stabilizes, to some extent. Having to service the loans at a critical juncture where the industry cannot sustain its own survival and in a helpless position of not being able to pay staff salaries, adds insult to injury.

All stakeholders and investors-individuals or organisations have pledged their properties and obtained loans which they are now finding it difficult to service due to no fault on their part. 

Extending the moratorium for a further period of six months will give the much-needed relief to sustain and revive this crucial sector. The stipulated total borrowing in 2019 along with the interest as at date is valued at approximately LKR 500 billion. The total bank exposure in tourism is recorded as approximately five per cent from banks’ total credit exposure as per the annual report/data published as at 31 December 2021.

The fervent efforts and requests by the industry to the government is primarily to safeguard the human capital of the industry who will be left unemployed and unable to have a livelihood. This will be an additional burden to the already distressed nation and further aggravate the socio-economic unrest.

International Lending Agencies such as ADB has already been approached to obtain financial assistance to relieve the burden currently borne by the industry.  Whilst they are keen to help the Tourism industry, it is of paramount importance that Sri Lanka secures a financial support package from the IMF, which will add confidence on the industry’s ability to repay debts.

(Anura Lokuhetty is a Past President of The Hotels’ Association of Sri Lanka)

By Anura Lokuhetty