Sri Lanka’s fragile economy depends on tourism and now it could get worse

Nearly 10 years after the end of a brutal civil war, Sri Lanka was recently named as one of the top tourist destinations for 2019 by Lonely Planet.

The tragic and deadly events of this weekend, which left more than 300 people dead and 500 injured, could have a significant impact on the tourist-dependent economy.

“Already notable to intrepid travellers for its mix of religions and cultures, its timeless temples, its rich and accessible wildlife, its growing surf scene and its people who defy all odds by their welcome and friendliness after decades of civil conflict, this is a country revived,” said the Lonely Planet guide, before the attacks that ripped through several tourist resorts in the island of 21.4 million people.

In 2009 the 26-year conflict between the majority Sinhalese and minority Tamil ethnic groups came to an end.

In 2009, 447,890 tourists visited Sri Lanka, but that number rose to a record 2.3 million tourists in 2018. Tourism brings more than $3 billion to the Sri Lankan economy.

The scale of the Easter Sunday attack could inflict significant pain on the fragile economy.

According to the World Bank, Sri Lanka is significantly reliant on tourism receipts to counteract weakened remittances and high interest payments on foreign loans.

The tourism industry is labour-intensive and, as a result, has a high impact on lowering the unemployment rate. The attacks could have a significant knock-on effect on unemployment as hotels and resorts lower expectations for tourism demand.

According to data from the World Travel and Tourism Council, the tourism industry, as well as being one of the largest parts of the economy, also employs more than one million people.

Tourists visiting Sri Lanka bring with them much needed hard currency which the country desperately needs to pay off its debts, much of it owed to China.

Nations around the world could now likely revise their travel advisories for Sri Lanka which will have a ripple effect on travel agencies and insurance premiums. It can take several years for a country to be removed from such a negative designation.

According to Prime Minister Ranil Wickremesinghe: "There will be a downward trend...tourism will get affected. There may be fund outflows."

The Sri Lankan government has struggled amid lower economic growth to balance its budget deficit. The government spent more than 4.8 percent of GDP on debt repayments and 1.5 percent and 1.9 percent on health and education respectively. The recent attacks will likely exasperate the economic fallout.