EASTER BOMBINGS: SIGNS OF ECONOMIC RECOVERY

MONTHS AFTER THE SHOCKING EVENTS, THE TOURISM SECTOR IS ATTRACTING NEW INVESTMENTS, THE CENTRAL BANK SAID IN A RECENT REPORT

Sri Lanka is reviving from the shocking 2019 Easter Sunday terror attacks. The tourism industry is recovering faster than initially expected and Sri Lanka continues to receive investment proposals for new hotels, the Central Bank said in a recent report.

“Although the Easter Sunday attacks dampened growth in tourism and related sub sectors, these negative effects are expected to be short-lived and the economy is envisaged to regain its growth momentum gradually in the medium term,” it said.

Tourism still generates investor interest.

Twenty-five hotel investment proposals worth $19 million had come after Easter Sunday, “indicating the continued interest of investors on the potential of the tourism industry of Sri Lanka,” the Central Bank said in a November 2019 report ‘Recent Economic Developments: Highlights of 2019 and Prospects for 2020′.

During the first half of the year, the authorities granted investment approvals for 32 new hotel projects worth $26 million from a total of 66 proposals received during this period worth $107 million. Economic growth fell to 2.6% in the first half the year after Islamic State-inspired suicide bombers attacked several churches and Colombo hotels. The slowdown comes off an already disappointing 3.9% growth in the same period a year earlier. Tourism was the worst hit. Arrivals fell 20% from a year earlier to a little under 1.4 million in the first nine months of 2019. Earnings from tourism declined 23% to $2.6 billion. Financial results of listed hotel companies painted a bleak picture.

“We have taken a major financial toll in the short term, and I am doubtful that we will come back to our regular flow of business in the current financial year,” said Hiran Cooray, Chairman of Jetwing Symphony Plc in the September quarter earnings call.

32

New hotel investment proposals approved in 1H2019

20%

The year-on-year decline in tourist arrivals during the first nine months of 2019

$26M

Value of proposed investments for these new hotels

“Focusing on the short-term now seems futile, and it is certainly more fruitful to look at the long-term future of your company and the country at large,” he told shareholders. Jetwing Symphony’s topline declined 18% from a year earlier. Another listed company with considerable investments in the tourism sector, John Keells Group, saw hotel revenues decline by 32%. However, its chairman Krishan Balendra is seeing a turnaround.

“In the aftermath of the attacks, the significant dip witnessed in the tourist arrivals to the country has gradually witnessed an upward momentum, indicating signs of recovery,” he told shareholders in the group’s earnings call. Forward bookings were recovering, and peak season occupancy levels are expected to reach the previous year’s levels. The government introduced a relief package to assist tourism’s recovery including debt moratoriums on both capital and interest, halving a value-added tax to 7% and removing import duties on security-related devices such as metal detectors.

Before Easter, the economy was going slow due to policy uncertainty and a constitutional crisis in October 2018. The Central Bank forecasts 2019 economic growth at 3%, moderately lower than 3.2% in 2018, and 3.4% the year before. Achieving fast growth rates will be challenging. The Central Bank says archaic land policies, stringent labour laws, skills mismatch in the labour market, inadequate access to finance, lack of export diversification, and the high costs of doing business are barriers to faster economic growth. However, the glass is half full.

“With the expected decline in real interest rates, aggregate demand (will) grow along with an expansion in production capacities boosting overall economic growth,” it said.

With the government mostly on track with its fiscal consolidation targets—and the Central Bank introducing flexible exchange rate and inflation targeting—domestic and foreign investor sentiment is likely to improve, leading to increasing investments, the bank said. Ongoing infrastructure projects such as the Colombo Port City, highways and investments in telecommunications and ports would also stimulate faster growth.

International trade will play a cataclysmic role. “The government has already taken steps to strengthen trade linkages with the rest of the world, but these initiatives need to be fast tracked,” the bank said.