By Roneshi Hettihewage

As one of the largest sectors in International Trade, amounting to USD 5.81 trillion in 2021 of global gross domestic product (GDP) and supporting millions of jobs worldwide, tourism contributes immensely towards developed and developing nations. This includes Sri Lanka, an island nation situated in the Indian Ocean that is widely known to be a great tourist destination. The international trading system extensively affects international tourism, helping tourists travel across borders and providing goods and services essential for international tourism. Within the World Trade Organization (WTO), tourism commitments have been undertaken by over 133 WTO members, more than in any other service sector. This indicates that most WTO members desire to expand their tourism sector and increase inward foreign direct investment (FDI) as part of their efforts to promote economic growth. This article will provide an overview of the relationship between international trade and tourism and explain its important role in Sri Lanka.

International Trade and Tourism

As seen in a study by Garidzirai, an increase in the number of tourists increases the flow of goods and services from one country to another, whilst the flow of goods and services increases the number of tourists. Such a relationship can be seen in the number of international tourists that visited the host countries during the World Cups and Olympic Games in 2010, 2014, 2016, and 2018. What remains remarkable is that international trade also increased significantly during these years. Therefore, tourism is most likely a potential catalyst of international trade. Further results from his study showcase tourism as a pivotal factor contributing to foreign trade. The researcher claims that an increase in the number of international tourists increases the consumption of goods and services, thereby increasing the number of exports in a local country.

Impact on Sri Lanka

Tourism has traditionally been the third largest foreign exchange earner in Sri Lanka, and it remains to be a significant income generator for the country. In the Travel & Tourism Competitiveness Report 2021 of the World Economic Forum, Sri Lanka was ranked 74th out of 141 countries, and investment in the tourism sector was estimated at USD 134 million. However, the effects of the COVID-19 pandemic and the ongoing economic crisis crippled the sector from 2020 onward. In 2018, Sri Lanka’s tourism sector peaked, with a record of 2.5 million tourist arrivals bringing the tourism receipts up to USD 5.61 billion. The onset of the pandemic also led to a 50% revenue drop in 2020 and a consequent fall in tourist numbers, as per the Sri Lanka Tourism Development Authority (SLTDA).  Adding to the woes, the loss of tourists from China and European countries, some of the biggest markets for Sri Lanka’s already distressed tourism sector, came as a major blow. In 2021, there were approximately only 194 500 tourist arrivals, a 92% reduction.

Figure 1: International Tourist Arrivals in Sri Lanka

Graph SOURCE: International Tourism and Covid-19 Tracker (UNWTO)

Tourism as a Saving Grace for Sri Lanka’s Economy in 2023?  

Sri Lanka Tourism is looking at attracting 1.5 million tourist arrivals for 2023, which is a highly optimistic target. It is a key industry that the government is relying upon in terms of generating income to recover from the ongoing economic downfall the country has been facing. The SLTDA Chairman has stated that tourism revenue in 2022 was USD 1.2 billion and is hopeful of achieving a revenue of USD 2.8 billion revenue in 2023. Tourism offers both investment and trade opportunities and would likely play a crucial role in restoring the country’s current economic atmosphere. This can be achieved by attracting foreign exchange earnings and accompanying the economy’s growth rate in the upcoming years. In order to aid further economic development in Sri Lanka, the tourism sector will be expected to revive its prosperity, which in the past had been a source of much glory for the Sri Lankan economy.

The views and opinions expressed in articles submitted to the Comparative Advantage Blog are those of the author and do not necessarily reflect the views of The Moot Court Bench



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