Ukraine crisis defeats Sri Lanka’s tea and tourism recovery strategy

Sri Lanka faces an escalating debt crisis after Russia’s invasion of Ukraine destroyed two of its biggest tourism markets, with analysts warning that the conflict’s economic slowdown has increased possibility of default.

The South Asian island nation for months has struggled with power cuts and power shortages as dwindling foreign exchange reserves have made it difficult for it to import oil and other necessities. It has one estimated 7 billion dollars foreign debt and interest payment this year.

The government of President Gotabaya Rajapaksa has argued that a renaissance in tourism and export will help Sri Lanka replenish its foreign currency reserves and navigate the crisis.

Two countries are important to this strategy: Russia and Ukraine, which are the first and third largest tourist markets this year, respectively. Russia is also the second largest market for Sri Lankan tea, the country’s main export.

Murtaza Jafferjee, president of the Advocata Research Institute, argues that disruptions to trade and tourism, coupled with a rise in global oil prices, have dealt a fatal blow to this strategy. “The economic crisis has completely blown up leading to this [war], “I said. This “has now extinguished all hope”.

Sri Lanka, Asia’s largest issuer of high-yield bonds, has about $45 billion in long-term debt and several ratings downgrades, after tax cuts and the collapse of the tourism industry because of Covid-19 , making it impossible for the country to refinance. It now risks joining countries like Zambia and Belize in default during the pandemic.

Colombo had $1.8 billion in foreign currency liabilities for both February and March and usable reserves of less than $1 billion, according to estimates by analysts of bank data. central goods.

The fallout from the conflict is an unwelcome twist, with authorities increasingly reliant on tourists from Russia and Ukraine as traffic from India and Western Europe is disrupted due to Covid-19 travel restrictions.

Sri Lankan tea growers worry about the impact of a weaker ruble in Russia, a large tea market
Sri Lankan tea growers worry about the effect of a weaker ruble in Russia, a major tea market © Bloomberg

About 20,000 Russians and Ukrainians visited Sri Lanka in January, accounting for more than a quarter of visitors, according to the Sri Lanka Tourism Development Authority. In January 2018, they accounted for less than 10%.

While Ukrainian airspace is closed, industry participants are concerned that economic disruptions could also affect visits from Russia.

M Shanthikumar, who runs the Sri Lanka Hotel Association, said: “Ukrainian and Russian tourists arrive in significant numbers as arrivals from other countries decrease. “Their absence now due to the war could cause a serious slump again.”

Jayampathy Molligoda, Chairman of the Sri Lanka Tea Board, added that a protracted conflict would have a “serious” impact on the tea trade if the ruble weakens and Russian banks can not use Swift system.

The economic crisis has become increasingly painful for Sri Lankans, with hour-long power cuts and rampant inflation prompting the central bank to raise interest rates last week.

According to Reuters.

But many investors believe that Sri Lanka’s inability to repay its debt is only a matter of time. $1 billion worth of government bonds are due in July, while analysts estimate Sri Lanka owes India up to $1 billion this month on deferred payments through the European Clearing House. ASIAN.

For hundreds of Ukrainian tourists stranded in Sri Lanka, their vacation has turned into a nightmare.

Dmytro Cherednyk and Oleksandra Kovalova, a couple in their 20s visiting the southern beach resorts of Sri Lanka, watched helplessly as their family fled to Kyiv. “I hope this ends soon so we can return to our families,” Cherednyk said.

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