Impact of COVID-19 on tourism in
Small Island Developing States
By Pamela Coke-Hamilton
Pamela Coke-Hamilton,
director, Division on International
Trade and Commodities,
UN Conference on Trade &
Development (UNCTAD)
GENEVA, May 4, 2020
(IPS) — The COVID-19 pandemic
and the measures put
in place to contain its diffusion
are taking a heavy toll on the
tourism sector. According to
the United Nations World Tourism
Organization (UNWTO),
the COVID-19 pandemic will
result in a contraction of the
tourism sector by 20% to 30%
in 2020.
This estimate is likely to be
conservative for countries relying
on foreign tourists, as the
recent data on daily air traffic
indicate a drop of almost 80%
since January 2020.
While many economic sectors
are expected to recover
once restrictive measures are
lifted, the pandemic will probably
have a longer lasting effect
on international tourism. This
is largely due to reduced consumer
confidence and the likelihood
of longer restrictions on
the international movement of
people.
According to the World
Travel and Tourism Council
(WTTC), in previous viral epidemics
the average recovery
time for visitors to a destination
was about 19 months.
Highly vulnerable
countries
The sudden, deep and likely
prolonged downturn in the
travel and tourism sector has
made countries that rely heavily
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on foreign tourism very concerned
about their finances.
Among these, small island
developing states (SIDS) are
most vulnerable not only
because they are highly
dependent on tourism, but
also because any shock of such
magnitude is difficult to manage
for small economies.
Coronavirus (COVID-19) :
News, Analysis and Resources.
Credit: UNCTAD
On average, the tourism sector
accounts for almost 30%
of the gross domestic product
(GDP) of the SIDS, according
to WTTC data. This share is
over 50% for the Maldives, Seychelles,
St. Kitts and Nevis and
Grenada.
Overall, travel and tourism
in the SIDS generates approximately
$30 billion per year. A
decline in tourism receipts by
25% will result in a $7.4 billion
or 7.3% fall in GDP. The drop
could be significantly greater
in some of the SIDS, reaching
16% in the Maldives and Seychelles.
It is expected that for many
SIDS, the COVID-19 pandemic
will directly result in record
amounts of revenue losses
without the alternative sources
of foreign exchange revenues
necessary to service external
debt and pay for imports.
Devastating economic consequences
In general, countries may
be able to weather economic
storms by relying on additional
debt or using available foreign
reserves.
However, access to global
capital markets is increasingly
tight, more so for small countries
such as SIDS, which are
often highly indebted and not
well diversified.
The external debt of the
SIDS as a group accounts for
72.percent of their GDP on
average, reaching up to 200
percent in the Seychelles and
the Bahamas.
Foreign reserves are also
generally low, with many of
the SIDS possessing only the
reserves sufficient for a few
months of imports. Given
these statistics, it is evident
that without international
assistance, the economic consequences
of the pandemic will
be devastating for many of the
SIDS.
Immediate financial needs
By considering the economic
impact of reduced tourism
revenues (assuming a 25%
decline in tourism receipts
and restoring the minimum
level of import coverage (three
months), it is possible to provide
a rough estimate of each
country’s immediate financial
needs to offset the damage of
the pandemic.
Currently, the SIDS would
need about $5.5 billion to counteract
the adverse effects of the
pandemic on their economies.
The Maldives stands out with
a need of $1.2 billion due to its
reliance on tourism revenues,
followed by the Bahamas and
Jamaica.
Many of the SIDS, like
Jamaica and the Bahamas, also
face high external debt burdens
which require complementary
external debt suspension or
relief programmes.
International response
While governments all over
the world have announced fiscal
measures totalling $8 trillion
to combat the pandemic,
the international community
has also mobilized funds
through international financial
institutions to counteract
the economic crisis in the most
vulnerable countries.
The International Monetary
Fund (IMF) created a $50 billion
fund through its rapiddisbursing
emergency financing
facilities for low-income
and emerging market countries.
It has earmarked $10 billion
to serve its poorest members
with a zero-interest rate.
Regional banks have also created
response facilities aimed
at financially supporting their
members.
What options are
available for SIDS?
The IMF has just revamped
the Catastrophe Containment
and Relief Trust (CCRT) to offer
short term debt reliefs to some
of its members.
While some SIDS such as
Comoros, São Tomé and Príncipe,
and the Solomon Islands
have already requested and
obtained debt relief, there is
room for more SIDS to take
advantage of this option. While
many of the SIDS are not
among the poorest countries,
they are vulnerable. This is further
compounded by high levels
of external debt many SIDS
experience.
It is critical that SIDS have
access to funding at zero interest
rates and can suspend existing
debt payments until they
are financially ready to service
their external debt obligations.
Ultimately, this can help
blunt the impact of external
shocks such as COVID-19 and
equip them with the necessary
financial resources to plan
their next steps for their economic
development.
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An undersea restaurant in the Maldives, a Small Island Developing State (SIDS).
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