The United Nations Predicts Billions Of Dollars In Tourism Losses For Small Island Developing States

Government imposed border closures and restrictions in movement, fuelled by the COVID-19 pandemic, have effectively brought the global tourism industry to a screeching halt.

Globally, the predicted decline in international tourist arrivals for 2020 has been conservatively predicted at between 20 and 30 per cent (World Trade Organisation). For Small Island Developing States (SIDS), that are typically limited in resources, reliant on tourism earnings to generate much needed foreign exchange and highly vulnerable to external shocks, the implications are far reaching and potentially disastrous.

Pamela Coke-Hamilton, Director of the Division on International Trade and Commodities at the United Nations Conference on Trade and Development reveals “On average, the tourism sector accounts for almost 30 per cent of the GDP of the SIDS,” generating approximately $30 billion per year. “This share is over 50 per cent for the Maldives, Seychelles, St. Kitts and Nevis, and Grenada. A decline in tourism receipts by 25 per cent will result in a $7.4 billion or 7.3 per cent fall in GDP.”

The pandemic is also expected to have a longer lasting effect on global tourism than on other economic sectors. In the context of previous viral epidemics, the average recovery time for visitors to a destination was about 19 months.

Further, given SIDs’ increasingly limited access to international markets and decreased global financial support, this pandemic could result in a socio-economic domino affect among the world’s most vulnerable countries.

According to the UN Office Of The High Representative For The Least Developed Countries, Landlocked Developing Countries And Small Island Developing States (UN-OHRLLS), “The lack of domestic financial resources, high debt levels and fragile health systems presents an urgent challenge. What has emerged as a health crisis in the short term may well have far reaching impacts on education, human rights, food security and economic development in the long-term.”

In this interview, Pamela Coke-Hamilton and I discuss the global downturn of tourism on the economies of Small Island Developing States within the context of COVID-19, and explore the various means of mitigating these impacts.

Daphne Ewing-Chow: The World Tourism Organisation (UNWTO) estimates that international tourist arrivals could decline by 20 to 30 percent in 2020 due to COVID-19. This estimate seems conservative.

Pamela Coke-Hamilton: Frankly I think the estimate may actually be conservative. Some economists and tourism officials have indicated that the decline could be as high as 60 percent particularly in light of the extension of limitations on travel through the summer period. The International Air Transport Association (IATA) reported 80 percent fall in flights worldwide while the World Travel & Tourism Council (WTTC) calculates that up to 75 million jobs in tourism and travel are currently at risk.

This is especially alarming for small island developing states (SIDS). The tourism sector is a significant driver of GDP and supports many other sectors indirectly such as food and beverage, entertainment, ground transportation, artisans and more. It accounts for a significant percentage of employment and foreign exchange earnings. As a result, the COVID-19 pandemic has shattered the economic progress many SIDS have made in recent years and far surpasses the impact of the 2008 financial crisis. This reality would explain the reticence of many tourism dependent countries to initiate a closure of their borders even after it became clear that cruise lines were becoming the petri dish for the spread of infections.

Daphne Ewing-Chow: Is external debt a viable instrument to weather what appears to be a financial free fall?

Pamela Coke-Hamilton: There are a few financial instruments available for economies including taking on additional debt through loans or using foreign reserves. However, these are not necessarily viable options for many SIDS given the extreme level of indebtedness faced by many of these countries.

Many SIDS have low levels of foreign reserves with import coverage of a few months. Using these precious foreign reserves will no doubt place SIDS in an even more vulnerable position.

Assuming additional debt will be a crippling blow to the vast majority of SIDS who are also Middle Income Countries (MICS) and are therefore not eligible for most concessional financing. In fact, the recent announcement by the IMF of a suspension of debt payments included only one Caribbean SIDS which was Haiti, as the latter is the only LDC (least developed country) in the hemisphere. There are several factors that restrict access and availability in global capital markets for SIDS. Many SIDS already have high levels of external debt. As a group, the external debt accounts for 72.4 per cent of GDP on average, reaching as much as 200 per cent in the Bahamas and Seychelles. Further, many SIDS experience low levels of economic diversification, relying on a narrow resource base and concentrated in a few sectors.

We need approaches that are more flexible and sensitive to the needs of SIDS. Cooperation and consensus at the multilateral level will be critical in creating a space in the global economic system for SIDS to survive.

Daphne Ewing-Chow: How can we estimate each country’s immediate financial needs that would offset the damage of the pandemic?

Pamela Coke-Hamilton: We estimated the immediate financial needs by looking at the economic impact of reduced tourism revenues (assuming a 25 per cent decline in tourism receipts) and restore the minimum level of import coverage (3 months).

For many SIDS, the COVID-19 pandemic will result in record amounts of revenue losses. This will significantly constrain SIDS ability to to service external debt and pay for imports.

Daphne Ewing-Chow: If one was to apply this calculation, how much would be required to alleviate the financial impact to SIDS of the predicted tourism downturn?

Pamela Coke-Hamilton: UNCTAD estimates that SIDS may need at least $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.

This is a high figure, but when we consider the importance of the tourism sector for many SIDS, it should not come as a surprise.

Daphne Ewing-Chow: What is currently being done to alleviate these pressures?

Pamela Coke-Hamilton: We have seen several actions taken at the national, regional and international levels which can help support SIDS to recover from the pandemic.

Some SIDS have introduced measures to mitigate the negative economic effects of the pandemic. Some have also taken steps to support the tourism and transport sectors especially, as seen in Cabo Verde and Tonga.

International financial institutions such as the International Monetary Fund (IMF) have allocated funds to serve the most vulnerable economies. They also have earmarked monies to serve its poorest members with zero interest rate.

The IMF recently revamped the Catastrophe Containment and Relief Trust (CCRT) to offer short-term debt relief to some of its members. Some SIDS have already requested and obtained debt relief such as Comoros, São Tomé and Príncipe, and the Solomon Islands. This can be a viable option for other SIDS to pursue.

If SIDS are to have a fighting chance to recover, access to funding at zero interest rates and suspension of existing debt payments can provide the fiscal breathing room they need to weather the crisis and begin recovery. It can provide SIDS with greater control over their economic future and prepare better for external shocks.

Daphne Ewing-Chow: Are there any other points of consideration for SIDS as they chart recovery paths for their economies?

Pamela Coke-Hamilton: External shocks such as COVID-19 lay bare the inherent vulnerabilities of SIDS.

It is important to consider the gendered impact of the crisis. In the Caribbean, for example, women make up a significant portion of the labour force in the tourism sector. As unemployment numbers may grow, there are indirect costs associated with the disruptions to school and family life. Support systems must be put in place to ensure resilience at an individual level.

Many SIDS also have a high rate of non-communicable diseases (NCDs) which place much of the population in the high-risk category for COVID-19. This in turn places healthcare systems under even more strain as they grapple with the rate of infection. Adjustments must be made to bolster healthcare systems and reduce the rate of at-risk patients in the future.

We should also bear in mind that many Caribbean SIDS are still reeling from the 2019 hurricane season which caused extensive damage and placed their economies under significant financial strain. As we enter the 2020 hurricane season, international support will be instrumental in their recovery.