Need of the moratorium to emerge from a struggling economy – extension of tourism moratorium

A group of tourists outside the Ramada Colombo last week - Pic by Ruwan Walpola

Tourism is an essential contributor for the success of many economies around the world. Tourism plays an extremely important role in the Sri Lankan economy. There are numerous benefits of tourism on host destinations. Tourism 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 of $ 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, the cottage industries. It empowered the most vulnerable sectors of the society – women and youth. 

The country’s population is greatly dependent upon tourism where the livelihood of approx. 13.75% of the population is directly and indirectly dependent upon the industry. The total employment provided by tourism in Sri Lanka amounts to an approximately 500,000 direct and indirect employments. 

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, taxes, etc., and the contribution of 40% to the TDL to the SLTDA to promote and develop the tourism sector. The private sector additionally spends over Rs. 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.

Total investment in the industry and foreign investment with the entry of International brands is estimated at $ 20 billion and investments in hotels being approximately $ 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 and terrorism, and tsunami. 

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

The world tourism has started its recovery since January 2022, across the globe. A growth of 130% 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 UNWTO. 

But the Sri Lankan tourism industry could not fully revive post-COVID-19 due to the economic crises that has been accelerated with the political volatility. Even though the advisories issued by other countries has been softened, long queues of vehicles at gas stations queuing 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 and fuel, and recurring power-cuts, tourism providers have somehow managed to service their guests amidst all these challenges. Hotels even have received some excellent endorsements from which are true testimonies to their stay in Sri Lanka.

As at May 2022, Sri Lanka has had 378,521 arrivals and receipts of $ 681,000 million. But the month on month visitor levels which were on the rise have been curtailed due to the undue crises created. Therefore, tourism industry has not been able to perform to its full potential 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. The intervention of the Government in 2020 by extending the financial relief packages given in 2019 helped to soften the blow created by the pandemic.

Currently, the concession given on the moratorium has come to an end as at 30 June 2022. Now, the industry is faced with an undue predicament because of the current crises that have arisen, 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 created environment is not conducive to carryout business activities in whatever industry. The volatility in material prices, uncertainty in fuel and power have created a major dilemma that seems to have no solution in the near future. 

The extension of the moratorium is crucial till the situation of the country stabilises to some extent. Having to service the loans in a critical juncture as such where the industry could not sustain its own survival and pay staff salaries, adds insult to the injuries that being borne currently. 

All stakeholders and investors – individual 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 the industry to sustain their survival and to revive this crucial sector. The stipulated total borrowing in 2019 along with the interest as at date is valued at approximately Rs. 500 billion. The total bank exposure in tourism is recorded as approximately 5% from banks’ total credit exposure as per annual report data published as at 31 December 2021. 

The fervent attempts and requests that are being submitted by the industry to the Government is mostly to safeguard the human capital of the industry who will be left unemployed and unable to have a livelihood. This will create an additional burden to the already distressed country with the socio-economic unrest that will be created. 

International Lending Agencies such as ADB have 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 essential that Sri Lanka obtain the IMF agreement which will add confidence on the ability of the industry to payback the borrowings. 

 (The writer is Past President of the Hotels’ Association of Sri Lanka.)