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Sri Lanka Economic Crisis: Lucrative Tourism Industry Bears Major Brunt

Sri Lanka Economic Crisis: Lucrative Tourism Industry Bears Major Brunt

Tourism accounts for about 5 per cent of Sri Lanka's Gross Domestic Product (GDP), with Britain, India, and China being the main markets. Sri Lanka is facing its worst foreign exchange crisis after the COVID-19 pandemic hit the island nation's earnings from tourism and remittances

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Sri Lanka Crisis Photo: AP/Eranga Jayawardena

Sri Lanka, a popular destination for holidaymakers, should be teeming with tourists at this time of year. Instead, an unprecedented economic crisis and political turmoil have all but wreaked its tourism with about 40 per cent of the pre-bookings being canceled recently.

Tourism accounts for about 5 per cent of Sri Lanka's Gross Domestic Product (GDP), with Britain, India, and China being the main markets. Sri Lanka is facing its worst foreign exchange crisis after the COVID-19 pandemic hit the island nation's earnings from tourism and remittances.

According to the Sri Lanka Tourism Development Authority (SLTDA), the number of tourist arrivals decreased by 60 per cent in June. Director General of SLTDA Dhammika Wijesinghe said the situation had arisen due to the unprecedented economic crisis.

As per SLTDA data, 106,500 tourists arrived in March 2022, but the number dwindled to 32,856 in June.

Wijesinghe said July and August are the best months for tourism in Sri Lanka.

“During those two months, tourists mainly visit the East. They also tend to visit Kandy in August for the perahera (a Buddhist festival). However, given the fuel shortages traveling in Sri Lanka is a difficult task. About 40 per cent of the pre-bookings have been canceled by foreign tourists,” he said.

Tourist coach operators claim that they were forced to drastically increase their fares due to the prevailing fuel shortage which has adversely affected tourism because those who visit Sri Lanka informed others of the situation in the country.

Namalsiri Kottawa, a tourist coach operator, told the ‘The Island’ newspaper that tourists could not even find their way from the hotel to the nearest town.

“The minister of energy says that fuel is available to tourist coaches. However, it is not so. Either you spend a week at a gas station to get 15 to 20 litres of fuel or you buy from the black market. Both are not viable options,” he was quoted as saying in the report on Friday.

A series of back-to-back crises over the last few years, including the coronavirus pandemic and the 2019 Easter Sunday terror attacks, has brought Sri Lanka’s tourist-dependent economy to a halt as the country shut its borders and imposed lockdowns and curfews.

Tourism earned Sri Lanka $4.4 billion and contributed 5.6 per cent to GDP in 2018, but this dropped to just 0.8 per cent in 2020.

The government was left with a large deficit. Sri Lanka fell back on its foreign exchange reserves to pay off government debt, shrinking its reserves from $6.9 billion in 2018 to $2.2 billion this year, according to an IMF briefing.

"Our economy has faced a complete collapse," Prime Minister Raniil Wickremesinghe told Sri Lanka's Parliament last month, adding the government was seeking help from its global partners and the International Monetary Fund (IMF) to stabilize the economy.

This year, Sri Lankans have been grappling with long power cuts, shortages of fuel and gas and soaring prices of food. The government imposed curfews and declared a state of emergency in April, and again in May and July amid unrest over the economic crisis.

The country of 22 million people is facing an unprecedented economic turmoil, the worst in seven decades, leaving millions struggling to buy food, medicine, fuel, and other essentials.

Schools have been suspended and fuel has been limited to essential services. Patients are unable to travel to hospitals due to the fuel shortage and food prices are soaring. Trains have reduced in frequency, forcing travelers to squeeze into compartments and even sit precariously on top of them as they commute to work.

In several major cities, including Colombo, hundreds are forced to stand in line for hours to buy fuel, sometimes clashing with police and the military as they wait.

The country, with an acute foreign currency crisis that resulted in foreign debt default, had announced in April that it is suspending nearly $7 billion foreign debt repayment due for this year out of about $25 billion due through 2026. Sri Lanka's total foreign debt stands at $51 billion. 

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