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Wednesday June 7th, 2023

Sri Lanka’s tourism push struggles amid internal, external concerns

In August most beaches in the West and South coasts are caught in Monsoon rains. The East is sunny.

ECONOMYNEXT – Sri Lanka’s tourism revival is facing a challenge in bringing in more high spending foreign visitors due to increasing protests locally while monetary tightening, impacts of Russian invasion into Ukraine, and rising inflation globally.

The move is likely to slow the island nation’s recovery from the unprecedented economic crisis as it is unlikely to achieve its expected revised down tourism revenue target of $1.5 billion.

The number of arrivals suffered in September and fell to as low as 29,000, its lowest in 11 months. The tourism authorities have cited “bad publicity” about Sri Lanka in the international media including global reportage of fuel and food scarcity as the key reason for the drop.

Monthly arrivals to the Indian Ocean island nation plummeted in September to around 29,000 from as high as 106,000 in March this year mainly due to the economic crisis which later turned into a political crisis and forced then president, prime minister and the government to resign amid public protests.

In October, however, the arrivals rebound by 41 percent from the previous month to 42,000.

The industry was hopeful of cashing in on winter holiday makers during the three months from November and marketing the country as an economical holiday destination amid growing commodity prices in the West after the Ukraine war.

The plan was to attract long-haul travelers with sharp depreciation of the rupee causing foreigners to spend more.

However, a growing crisis globally will pinch on the island’s tourism sector despite the vigorous efforts the industry has taken to come out of the economic and political crisis this year, industry analysts say.

The tourism authorities’ attempts to promote Sri Lanka among foreigners including in India, Europe, and the United States have yet to see some significant returns.

“Sri Lanka had the Russian airlines issues, the protests in the country and the travel advisory placed on it. But it has fought against all that,” Priyantha Fernando, Chairman of Sri Lanka Tourism Development Authority told EconomyNext, referring to Russian Aeroflot’s decision to suspend Sri Lankan operation over a legal battle.

“However we cannot do anything about the external issues. There are long queues forming in European
and Western countries too,” he said referring to gas and fuel queues.

“Those factors cannot be controlled.”

“Cautiously optimistic”

Global tourism industry has grown by 60 percent in the first seven months of this year compared to the previous year, according to a recently published United Nations World Tourism Organization (UNWTO) report.

However, it is only “cautiously optimistic” as the global economic environment still has not recovered.

The UNWTO cautions that the combination of tightening monetary policies in all major economies to curb rising inflation, increasing energy and food prices, and the growing prospects of a global recession as indicated by the World Bank, are major threats to the recovery of international tourism through the remainder of 2022 and 2023.”

“The uncertain economic environment seems to have nonetheless reversed prospects for a return to
pre-pandemic levels in the near term,” UNWTO said.

“Rising inflation and the spike in oil prices results in higher transport and accommodation costs, while
putting consumer purchasing power and savings under pressure.”

Locally, Sri Lanka is threatened by reemerging protests against increasing taxes, and long delayed reforms, which have become mandatory for an International Monetary Fund (IMF) loan to move away from economic crisis. The IMF backing is now seen as a must for other countries and multilateral creditors to support the island nation to face the economic crisis.

The government has aimed at a revised down $1.8 billion foreign inflow from tourism this year in October after aiming at $2.5 billion in March. However, industry officials now say, they can only reach less than $1,5 billion revenue in 2022.

Sri Lanka so far has generated 568,258 travelers for the first 10-months.

After Russia recommenced flights to Sri Lanka in October, four months after suspending the operations following a legal spat, Russian tourist numbers have started to rise compared to the previous months.

Many airlines have now resumed flights to Sri Lanka including Russia-based Aeroflot and AZUR as well as Air France in the last one month.

“There’s a slight pick up (hotel booking) with some Indian traffic and Sri Lankan expatriates at the moment. But we believe the actual pick up will start from January next year,” Sanath Ukwatte, immediate-past President of the Hotels Association of Sri Lanka.

However, industry experts say Indian tourists usually do not spend much like European tourists, which is the island nation’s key market.

Russia and its neighborhood countries show better arrivals, but they mainly go to resorts, instead of city hotels where the bulk of hotel rooms are available.

“Hotel bookings are averaging around 30% and we hope it to increase to about 40% by December, it is still way below our pre-covid levels,” Ukwatte said. (Colombo/Nov04/2022)

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  1. Piyanjali says:

    In Sri Lanka Tourism there is no proper mechanism to investigate complains of tourist who faced trouble in Sri Lanka. There are many cheatings and crimes happened against tourist.

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Your email address will not be published. Required fields are marked *

  1. Piyanjali says:

    In Sri Lanka Tourism there is no proper mechanism to investigate complains of tourist who faced trouble in Sri Lanka. There are many cheatings and crimes happened against tourist.

Sri Lanka’s shares slip on profit taking and selling pressure

ECONOMYNEXT – Sri Lanka’s shares closed lower on Wednesday after four consecutive gains in previous sessions spiraled into selling interest and profit taking, an analyst said.

The main All Share Price Index was down 0.28 percent or 24.39 points to 8,722.06, this is the lowest the index has been since May 02, while the most liquid index S&P SL20 was down 0.40 percent or 9.92 points to 2,468.44.

“The market was gaining in the previous sessions and there is selling and profit taking present today, due to continuously being on green,” an analyst said.

In the previous sessions the market was seeing gains, due to lowered policy rates and low inflation stimulating buying interest and driving the sentiment up, an analyst said.

Sri Lanka’s inflation in the 12-months to May 2023 has eased to 25.2 percent from 35.3 percent a month earlier according to a revised Colombo Consumer Price Index calculated by the state statistics office.

The central bank cut the key policy rates by 250 basis points to spur a faltering economic growth as inflation was decelerating faster than it projected.

“There are gradual improvements in the market sentiment, with positive sentiments coming in from lowered policy rates and inflation,” an analyst said.

The market generated foreign inflows of 12 million rupees and received a net foreign inflow of 18 million rupees, due to low share prices and discounted shares followed by a dividend announcement.

The market generated a revenue of 554 million rupees, this is the lowest the turnover has been since May 10, while the daily turnover average was 1 billion rupees. From the total generated revenue, the banking sector contributed 120 million rupees, Diversified Banks contributed 115 million rupees and the Capital Goods Industry generated 78 million rupees.

Top losers during trade were Sampath Bank, Commercial Bank and Aitken Spence. (Colombo/June06/2023)

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Sri Lanka Treasuries yields plunge, 12-month down 318bp

ECONOMYNEXT – Sri Lanka’s Treasuries yields plunged across maturities at Wednesday’s auction with the 12-month yield falling 318 basis points, in one of the biggest one day falls, data from the state debt office showed.

The 3-month yield fell 244 basis points to 23.21 percent.

The 6-mont yield fell 339 basis points to 21.90 percent, along with the 12 months to 19.10 percent.

The short-term yield curve is inverted.

The central bank last week cut its policy rate 250 basis points in a signaling move but is not printing money to enforce the rate cut.

The debt office sold all 140 billion rupees of offered securities. (Colombo/June07/2023)

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Sri Lanka forex reserves rise US$722mn in May 2023

ECONOMYNEXT – Sri Lanka’s foreign reserves grew 722 million US dollars to 3,483 million US dollars in May 2023 from 2,761 million US dollars in April, official data showed amid weak credit and better inflows.

Sri Lanka lost almost all its reserve in over two years as the central bank sold reserves and printed money to keep rates down (sterilized reserves sales) including borrowed dollars from India.

Gross official reserves fell to a low of 1,705 million US dollars in September 2022.

Sri Lanka’s central bank hiked rates in April 2022 to slow credit and also stopped printing money after it ran out of borrowed Asian Clearing Union dollars from India.

Sri Lanka’s gross official reserves are made up of both monetary reserves of the central bank and any balances of the Treasury account from loans or grants it gets.

The central bank’s net foreign reserves are still negative after busting up borrowed reserves to suppress rates. By April (before the collection of reserves in May) the central bank’s net reserves were negative by 3.7 billion US dollars.

In May alone 662 million US dollars were bought from the market, Central Bank Governor Nandalal Weerasinghe said.


No pre-determined level to stop Sri Lanka rupee appreciation: CB Governor

Borrowing dollars through swaps and busting them up, was invented by the US Federal Reserve as it was printing money and breaking the Bretton Woods system in the early 1970s.

Sri Lanka received a 350 million US dollar tranche from the Asian Development Bank and 331 million US dollars from the IMF to the Treasury for budget support.

The loans can be sold to the central bank by the government to generate rupees and spend. However, since credit is weak, not all the inflows go out of the country particularly as the central bank is conducting deflationary open market operations on a net basis.

By allowing the rupee to appreciate unlike in previous episodes of recovery in an IMF program, after a bout of money printing, the central bank is bringing down inflation – in some cases absolute prices – and restoring confidence and easing the ‘pain’ of ‘monetary policy’ or stimulus.


Why is Sri Lanka’s rupee appreciating?

Though exports are falling, tourism revenues are also picking up.

The budget support loans, tourism receipts less the reserve collected will widen the trade deficit. Building foreign reserves involves lending money to the US or other western nations and is similar to repaying foreign debt. (Colombo/June07/2023)

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