Treat Covid-19 as an endemic to revive tourism 

  • ICRA Lanka proposes Govt. should implement localised measures

ICRA Lanka in its October 2021 Insights predicted that the Sri Lankan Government will have to start addressing Covid-19 as endemic rather than a pandemic to revive tourism and implement measures to deal with Covid-19 in a more localised fashion, while the public will have to continue with the current pandemic-induced lifestyles to some degree.

According to ICRA Lanka, with the number of positive cases reported by the Delta variant wave receding globally and with 75% of the world population projected to be fully vaccinated within the next six months, the current pandemic is on the path to transitioning into an endemic.
This line of thinking is echoed by a consortium of researchers advising the US Centre for Disease Control and Prevention (CDC), which has stated that the worst of the pandemic may be over.

Few countries such as Malaysia, Indonesia, Thailand, and Singapore have either declared or are planning to declare Covid-19 as an endemic. And in September, Norway joined a small but growing number of countries, including Denmark and Britain, to lift all domestic restrictions. In contrast, countries that follow the “Zero-Covid-19” strategy are facing public pressure to adapt and recently, New Zealand, which had gained notoriety for its strict stance against Covid-19, decided to abandon such a policy.

According to ICRA Lanka, if Sri Lanka transitions as above and addresses Covid-19 as an endemic, it would facilitate the revival of the tourism sector which will prove to be pivotal in the country’s economic recovery.

The Sri Lankan economy suffered its worst recession in 2020 and the services sector was the hardest hit as tourism came to an abrupt stop. Meanwhile, the complete loss of tourism receipts pushed the country to a balance of payment crisis.

According to ICRA Lanka, the Sri Lankan tourism sector has previously displayed the ability to rebound fast and to generate jobs rapidly after a catastrophe, as was demonstrated in 2001 following the Liberation Tigers of Tamil Eelam (LTTE) suicide attack on the Bandaranaike International Airport.

At the time, tourism plummeted by nearly 16% and over 10,000 tourism-related jobs were lost. However, once the ceasefire commenced in the following year, arrivals rose by over 70% and over 21,000 new tourism jobs were subsequently created.

Therefore, by dealing with Covid-19 in a more localised fashion as an endemic, the country can facilitate the resurgence of its tourism industry.

Domestic tourism is expected to pick up faster and will depend on how soon these travel advisories/restrictions will be lifted.

The most pivotal factor in the resurgence of the tourism sector will be the growth of inbound tourism. However, Sri Lanka is still in the red or amber list of several key tourist source markets such as the UK and Germany.

According to ICRA Lanka, “it is likely that the tourism industry might not see its former arrival numbers immediately. What we are likely to see is a much more restricted form of tourism for some time. It is too early to predict the extent of the recovery of tourism in 2022 at this moment, but even a partial recovery would help to ease the balance of payment pressure and reduce unemployment”.

ICRA Lanka acknowledged that the shift to endemic Covid-19 will lead to heightened expenditure on public health. The Government may have to bear considerable cost year long due to relatively higher utilisation of public health facilities, containment measures, vaccination programmes including booster shots, partial lockdowns, and so on.

“Rs. 12.4 billion has been allocated to the State Ministry of Primary Healthcare, Epidemics, and Covid Disease Control under the 2022 Appropriations Bill. The extent to which the additional expenses by the shift to endemic Covid-19 will strain the budget deficit depends on how the Government is going to finance them,” added ICRA.

During the first wave of the Covid-19 crisis in 2020, unemployment reached a 10-year high of 5.8% and continues to hover at around 5.7% as of 1Q2021. There is fear that the economic consequences of Covid-19 could result in permanently higher unemployment and lower wage levels in the economy which would in turn affect the spending power of consumers over the long run.

Weak consumer spending was observed due to travel restrictions, social distancing, and lockdowns. With the lifting of Covid-19 restrictions, demand for services is expected to pick up over the next few months, but recovery of consumer spending to pre-Covid-19 levels is expected to take longer.

According to ICRA Lanka, in addition to willingness to spend, ability to spend will also determine how fast consumer spending is going to rebound.

Explaining further, they stated: “Private sector wages decelerated initially as employers were struggling to stay afloat. Latest data show private wages grew on average over 7% a month (YoY) from May to July this year, but as the base effect wears off, it will probably moderate. Therefore, consumer spending is expected to be subdued in the medium term.

When considering energy consumption, industrial electricity usage has remained on par with the pre-crisis level since July of last year, indicating the industrial sector is operating with near capacity. Hence, the transition to endemic Covid-19 will lead to periods of high overall energy consumption with occasional dips as a consequence of localised prevention measures in the post-pandemic era. Thereby, this will lead to high levels of fuel imports which in turn shall worsen the balance of payments crisis of the country.

ICRA Lanka further provided that the domestic inflation will be largely determined by the trajectory of global commodity prices and how long the existing global supply chain disruptions persist. The transition to endemic Covid-19 is not expected to guarantee smoother supply chains.

Brief but frequent supply chain disruptions and pent-up demand in developed economies are expected to play a role in short-term commodity inflation pressures.

ICRA Lanka further provided that in an endemic scenario, frequent but irregular economic cycles in sync with virus flare-ups within Sri Lanka as well as in major trading partners are to be expected.

They further provided: “We expect major central banks around the world to start tightening after the Fed in the 2H 2022. This would leave the CBSL (Central Bank of Sri Lanka) with little room for monetary loosening in the medium term.”

Therefore, in such a scenario from a monetary policy standpoint, the revival of tourism and the extent of such revival and the channelling of remittances through formal channels would prove to be critical factors.