Tourism vs. Remittances: Impact of Easter Attacks on Sri Lanka’s Foreign Exchange Earnings
Sri Lanka was a few days short of celebrating a decade of peace since the end of the 30-year old separatist conflict, when a series of horrific attacks in three churches and three tourist hotels claimed more than 250 lives and injured another 500 or more innocent people. The terrorists struck at a time when the country was too complacent on national security, and the border control measures were lax. The scheduled on-arrival visa scheme hoped to boost the tourism industry, and allow it to capitalise on Lonely Planet identifying Sri Lanka as the top country to travel to in 2019. At the same time, in terms of emigration, the concentration of Sri Lankan migrants in Middle East (ME) and the growing significance of Sri Lanka’s Eastern Province as a sending region were hardly noticed when international remittances dominated foreign exchange earnings. This blog links the Easter Sunday terrorist blasts to border control and foreign exchange earnings for tourism and remittances.
Tourism and remittances are two of the top contributors to foreign exchange earnings to Sri Lanka. In 2018, remittances were the key foreign exchange earner, bringing home over USD 7 billion, which amounted to 7.9% of GDP. In second place was export earnings from textiles and garments, followed by tourism in third place, accounting for over USD 4 billion in foreign exchange earnings.
As seen in Figure 1, remittances had stabilised in recent years, while 2018 recorded the second consecutive year of negative growth in remittances. Reasons for the decline in remittances include the prevailing geopolitical uncertainties of oil price fluctuations and the sluggish global economic growth in the Middle East, the region hosting the bulk of the temporary migrant workers from Sri Lanka, decline in departures for foreign employment due to improvements in the domestic labour market opportunities, and government regulatory efforts to curb migration for specific occupations and skills categories.
At the same time, earnings from tourism increased by 11.6% in 2018. This growth in tourism income was fostered by the highest ever growth in annual tourist arrivals, which recorded a 10.3% increase to reach 2.3 billion arrivals in 2018. Many factors, such as endorsements and accolades from reputed international tourism organisations, aggressive promotion campaigns, increase in investment in the tourism industry, relatively free movement across the border, and better connectivity through air and sea routes, contributed to this impressive performance in Sri Lanka’s tourism industry. The sector was poised to grow further, reaching out to the remaining untapped segments of the global tourism market.
Impact on Foreign Exchange Earnings
The locations of the attacks on Easter Sunday are eerily connected to foreign exchange earnings. The blasts at the three tourist hotels in Colombo killed both local and foreign patrons; these were prominent, luxury hotels, frequented by the wealthy travelers to Sri Lanka. Although bombs went off only in three hotels, the entire tourism industry was dealt a severe blow, as ‘more than any other economic activity, the success or failure of a tourism destination depends on being able to provide a safe and secure environment for visitors’. The Easter attacks severely compromised the promise of the safety of tourists. Despite the remarkable resilience of the sector, international support, and various proposed government initiatives, such as a relief package, the prospects for the tourism industry remain bleak in the short run.
Ironically, the immediate prospects for remittances are more favourable, as these are a common source of transfers, which are well-targeted and speedily-disbursed, to enable smoothing of consumption during times of financial difficulty. In addition to the cost of sudden funerals and treatment for the injured, the aftermath of attacks has left many areas with little civilian movement and minimal economic activity. As such, similar to Sri Lanka’s experience in surge of remittances following the Boxing Day Tsunami in 2004, (though not in same scale), extra remittances are likely to flow in, to support the kith and kin of Sri Lankan-origin migrants, who were affected by the tragedy.
Specifically, two of the targeted churches were in areas known to be home to many migrants and remittance receipts. Zion Church is in Batticaloa, in the Eastern Province, which accounted of 17 % of annual departures from Sri Lanka in 2017. Forthcoming research based on latest (2016) micro data from the Household Income and Expenditure Survey shows that Batticaloa disctrict has the highest proportion of households with international migrants. For example, 17.78% households in Batticaloa have a migrant overseas, while 21% of households in the district receives international remittances. Similarly, the attack in Katuwapitiya is not too far from the area known as ‘Little Italy’ in Wennappuwa, named due to the resemblance to Italian architecture, financed with remittances originating from Italy.
Short and Medium Term
As such, taking into account the locations immediately affected by the devastation and its ripple effects, a short to medium term impact on foreign exchange earnings is likely to be experienced in Sri Lanka. The tourism industry, despite once being well-positioned to continue its upward trend in foreign exchange earnings, is now likely to experience a temporary downfall, while international remittances, which was experiencing an incipient downward trend, is likely to experience a temporary upturn in the aftermath of these attacks. If the security situation improves, the rebuilding efforts would help the tourism sector to pick up in the medium term. On the contrary, regardless of the change in security context, migration to and from Sri Lanka is likely to undergo greater scrutiny. In the future inward migrants’ activities would be closely monitored to limit their activities to those authorised under the respective visas. At the same time, appropriate measures ought to be introduced to address the growing concern of unfavourable social remittances in the form of Muslim extremism originating from ME region, fueling global terrorism in Sri Lanka. As such, in the medium term, the elevated scrutiny of out migration from Eastern province and to the ME in general are likely to resulting in a decline in departures and associated remittances, resulting in a decline in remittances.
*This article first appeared in Asia Dialogue on 22 May 2019.