Sri Lanka (Commonwealth) _ The Sri Lankan tourist industry is in a precarious position, with an outstanding debt of Rs. 700 billion, which analysts characterize as ‘unsustainable’ and in need of immediate attention from the government and financial sector.
Sujeewa Mudalige, former Managing Partner at Price Waterhouse Coopers, revealed during a pre-Budget webinar that the debt has more than doubled from Rs. 300 billion in 2018 to Rs. 600 billion the previous year, and is expected to reach Rs. 700 billion this year, potentially escalating to Rs. 1 trillion in the coming years.
Despite industrial borrowing, the culprit is identified as debt buildup, including interest, during the debt moratorium. He stated that the industry has been adversely damaged by the high-interest rates of 2022/23, rendering it unable of servicing loans and penalties.
He stated that the increase was attributable to the buildup of capital and interest payable despite the industry borrowing again during the debt moratorium. He explicitly asserted that tourism debt, like government debt, is unsustainable and hence requires immediate action by all parties.
To address the issue, he proposed the formation of a Task Force comprised of representatives from the government, banks, and the tourist sector. He stated that the Central Bank’s interest policy has harmed various sectors.
The Easter bombing in April 2019 was followed by the COVID epidemic and a political and economic crisis in Sri Lanka’s tourism sector. Mudalige believes that even if Sri Lanka attracts more than 2 million tourists, the tourism business would be unable to pay even the interest.
Former President of The Hotels Association of Sri Lanka (THASL), Anura Lokuhetty, requested President Ranil Wickremesinghe to suspend repayments until mid-next year through Budget 2024, and encouraged banks to create a rescheduled payback plan over ten years.
The sector is unable to service loans at 30% and penalties at 30%. The banks have asked the moratorium’s beneficiaries to begin repaying the whole accrued debt and interest within 60 months.Anura Lokuhetty stated that because the term is just 60 months, Sri Lankan tourism would not be able to collect enough dollars to satisfy monthly bank payments.
Yes, tourism has increased, but the returns are low. Given that the time is just 60 months, we will not even be able to make enough money to fulfill the monthly bank responsibilities. This is not possible for SMEs, which account for more than half of the industry, according to Lokuhetty during the webinar.
He urged President Ranil Wickremesinghe to include a repayment freeze in Budget 2024 and to allow banks to choose a rescheduled payback plan over a 10-year period.Mudalige also endorsed the necessity for a lifeline for Sri Lanka’s tourist sector to guarantee the sector achieves the appropriate outcomes for socioeconomic progress while not negatively impacting the banking sector.
Despite the issues experienced by the tourist, construction, and garment industries, Bingumal Thewarathanthri, President of the Sri Lanka Banks Association, advised against a blanket debt moratorium, instead suggesting a case-by-case approach to assisting afflicted firms.
The tourist industry’s significant debt was revealed during a pre-Budget webinar with stakeholders. Tourism Minister Harin Fernando stressed that Sri Lanka’s 2024 Budget is a paradigm changer, presenting tourism as a driver for economic development.
The Budget has earmarked a hefty Rs. 2.3 billion to develop the tourism sector, with the goal of making Sri Lanka a major worldwide tourist destination. These allocations were not simple ideas, but rather a well-thought-out implementation strategy to catapult Sri Lanka to the top of the vacation destination list,” he added.
Minister Fernando emphasized that the President’s aim of attracting five million visitors by 2030 is dependent on joint efforts at the provincial and municipal levels, and he urged the development of additional attractions and infrastructure.
