An economic catastrophe looms for paradisiacal destinations – Travel

Measures to limit the spread of the coronavirus are taking a heavy toll on the tourism industry. International tourism in particular is dealt a major blow, says Pamela Coke-Hamilton of the UN Conference on Trade and Development (Unctad). For some of the paradise destinations, an economic catastrophe is lurking.

According to figures from the World Tourism Organisation (UNWTO), which is part of the United Nations, the Covid-19 pandemic is becoming a Shrinkage tourism by 20 to 30 percent.

This estimate could still be on the low side, especially for countries that rely heavily on foreign tourists, and in light of the latest data on daily air traffic on a high level. Reject almost 80 percent since January 2020.

19 months recovery time

Although many sectors of the economy are expected to recover once the restrictive measures are lifted, the pandemic is likely to have a lasting impact on international tourism. This is mainly due to lower consumer confidence and the fact that there will probably be restrictions on international transport for some time to be taken.

According to the World Travel and Tourism Council (WTTC) Amounts on the average recovery time at which people return to distant destinations after a virus epidemic, about 19 months.

Vulnerable destinations

The current sudden and profound turnaround for the travel sector is place a major burden on countries that depend on tourism for their economies over expected income in the near future.

For example, there are the Small Island States in Development (SIDS) with tourist attractions such as Cuba, the Bahamas, Cape Verde, Mauritius or Barbados. On average, they rely on 30% of tourism revenues and have little buffer to absorb this kind of economic shock.

For destinations such as the Coral Archipelago the Maldives, Seychelles, Saint Kitts and Nevis and Grenada, also so that their gross domestic product (GDP) is half determined by tourism.

57 small island states

The SIDS – sids’ current list of 57 small island states in the Caribbean, Pacific, Africa, Indian Ocean, Mediterranean and South China Sea – collectively fetch an average of 30 billion dollars a year from tourism.

A 25 percent decline in this revenue will result in a decline in GDP of 7.4 billion U.S. dollars, or 7.3 percent. For some top destinations, such as the Maldives and Seychelles, this decline could rise significantly to 16% of GDP.

The Covid 19 pandemic is likely to lead to record losses for many of these destinations without the alternative sources of revenue needed to repay and import foreign debt.

Economic disaster

In general, countries can withstand economic storms by borrowing additional lysoties or using available foreign-exchange reserves.

However, access to global capital markets is becoming increasingly scarce, especially for small countries such as SIDS, which are often already heavily indebted and can draw their revenues from a few different sectors.

The SIDS’s external debt as a group accounts for an average of 72.4 percent of GDP, while in the Seychelles and the Bahamas it accounts for up to 200 percent. Their reserves are usually also small.

Taking these data into account, it is clear that, without international aid, the economic impact of the pandemic on many of these international destinations will be catastrophic.

Capital requirements

Taking into account the economic impact of falling tourism revenues (assuming a 25 percent decline in tourism and a three-month recovery period for trade), it is possible to make a rough estimate of each country’s immediate financial needs.

Currently, sidS needs USD 5.5 billion to counteract the negative impact of the pandemic on its economies.

The Maldives is the leader, with a demand of 1.2 billion dollars, as they are heavily dependent on tourism revenues, followed by the Bahamas and Jamaica.

Many of the SIDS, such as Jamaica and the Bahamas, also have large foreign debt, which requires additional debt relief.

International reaction

Governments around the world have already announced that they will take fiscal action to mitigate the effects of the pandemic. The international Community has also released money to reduce economic damage in the most vulnerable countries.

The International Monetary Fund (IMF) is providing a 50-billion-dollar fund and will release 10 billion dollars for the weakest members at zero percent interest. Regionally, there are also banks offering special assistance.

The options for the SIDS?

The IMF has just renewed the Catastrophe Containment and Relief Trust (CCRT) to grant short-term debt relief to some of its members.

Some of the SIDS, such as the Comoros, the Comoros and Principe as well as the Solomon Islands, have already applied for and received debt relief. Although many of the SIDS are not among the poorest countries, they are vulnerable, mainly due to the high external debt of many islands.

It is crucial that they can suspend this debt until they are financially willing to meet their debt obligations.

This can help mitigate the impact of external shocks such as Covid-19 and provide them with the necessary financial resources to plan the next steps for their economic development.

Measures to limit the spread of the coronavirus are taking a heavy toll on the tourism industry. International tourism in particular is dealt a major blow, says Pamela Coke-Hamilton of the UN Conference on Trade and Development (Unctad). For some of the paradise destinations, an economic catastrophe is lurking. According to figures from the World Tourism Organization (UNWTO), which is part of the United Nations, the Covid 19 pandemic will lead to a 20 to 30 percent reduction in tourism by 2020. This estimate may still be on the low side, especially for countries that rely heavily on foreign tourists, and given the recent data on daily air traffic show a decline of almost 80% since January 2020.19 months recovery periodAlthough many sectors of the economy are expected to recover once the restrictive measures are lifted, the pandemic is likely to have a longer lasting effect on international tourism. This is mainly due to lower consumer confidence and the fact that there will probably be restrictions on international transport for some time to be taken. According to the World Travel and Tourism Council (WTTC), the average recovery time for people returning to their destination after a viral epidemic is about 19 months. Vulnerable destinationsThe current sudden and profound turnaround in the travel sector is putting a heavy burden on countries that depend on tourism for their economies over expected income in the near future. For example, there are the Small Island States in Development (SIDS) with tourist attractions such as Cuba, the Bahamas, Cape Verde, Mauritius or Barbados. On average, they rely on 30% of tourism revenues and have little buffer to absorb this kind of economic shock. For destinations such as the Coral Archipelago of the Maldives, Seychelles, Saint Kitts and Nevis and Grenada, their gross domestic product (GDP) is determined by tourism.57 small island statesThe SIDS – the current list of SIDS counts 57 small island states in the Caribbean, Pacific, Africa, the Indian Ocean, the Mediterranean and the South China Sea – together bring in an average of 30 billion dollars per year from tourism. A 25 percent decline in this revenue will result in a decline in GDP of 7.4 billion U.S. dollars, or 7.3 percent. For some top destinations, such as the Maldives and Seychelles, this decline could rise significantly to 16% of GDP. The Covid 19 pandemic is likely to lead to record losses for many of these destinations without the alternative sources of revenue needed to repay and import foreign debt. Economic catastrophe in general, countries can withstand economic storms by borrowing additional loans or using available foreign-exchange reserves. However, access to global capital markets is becoming increasingly scarce, especially for small countries such as SIDS, which are often already heavily indebted, and their revenues from a few sectors. The external debt of SIDS as a group is72.4 percent of GDP, up to 200 percent in the Seychelles and the Bahamas. Their reserves are usually also small. Taking these data into account, it is clear that, without international aid, the economic impact of the pandemic on many of these international destinations will be catastrophic. Capital needsTaking into account the economic impact of lower tourism revenues (assuming a 25 percent decline in tourism and a three-month recovery period for trade), it is possible to make a rough estimate of each country’s immediate financial needs. Currently, sidS needs USD 5.5 billion to counteract the negative impact of the pandemic on its economies. The Maldives is the front-runner, with a need of USD 1.2 billion for its heavy reliance on tourism revenues, followed by the Bahamas and Jamaica. Many of the SIDS, such as Jamaica and the Bahamas, also have large foreign debt, which requires additional debt relief programs. International responseGlobal governments have already announced that they will take fiscal measures to mitigate the effects of the pandemic. The international community has also released money to mitigate the economic damage in the most vulnerable countries. The International Monetary Fund (IMF) is providing a 50-billion-dollar fund and will release 10 billion dollars for the weakest members at zero percent interest. Regionally, there are also banks offering special assistance. The options for the SIDS? The IMF has just renewed the Catastrophe Containment and Relief Trust (CCRT) to grant short-term debt relief to some of its members. Some of the SIDS, such as the Comoros, the Comoros and Principe as well as the Solomon Islands, have already applied for and received debt relief. Although many of the SIDS are not among the poorest countries, they are vulnerable, mainly due to the high external debt of many islands. It is crucial that they can suspend this debt until they are financially willing to meet their debt obligations. This can help mitigate the impact of external shocks such as Covid-19 and provide them with the necessary financial resources to plan the next steps for their economic development.