COVID-caused drop in travel to hit tourism-reliant countries, current acc situation: IMF

The precipitous drop in tourism due to the Coronavirus pandemic will have an outsized impact on countries that rely on foreign travelers — with potentially large-scale effects on their economies’ national accounts, the International Monetary Fund has said.

Since COVID-19 emerged in China's Wuhan in late December last year, governments worldwide have been forced to lockdown their countries and put curbs on international air travel to contain the spread of the highly contagious disease. 

According to the IMF's recently released 2020 External Sector Report, Costa Rica, Greece, Morocco, Portugal, and Thailand could be among the hardest hit with losses in tourism proceeds exceeding 3 per cent of GDP.

During the first four months of 2020, international tourism arrivals were about 50 per cent lower than over the same period in 2019, with deeper declines for related indicators, such as international flight arrivals and hotel reservations, the reports say. The projected direct impact on tourism trade balances in 2020 will depend critically on the pace of tourism recovery, which is highly uncertain.

A recent study (UN World Tourism Organization 2020) includes a scenario involving a gradual lifting of travel restrictions starting in September. This scenario implies tourism receipts 73 per cent below their 2019 levels, with a direct impact on tourism trade balances ranging from –6 per cent of GDP to 2 per cent of GDP.

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The chart calculates direct tourism impacts on imports, exports, and current account balances under a scenario that envisions gradual reopenings in September but a drop of about 70 per cent in tourism receipts and international tourist arrivals in 2020.

A country’s current account balance is a measure of its total transactions—which includes but is not limited to trade in goods and services—with the rest of the world. For some economies, a drop in tourism (which is considered an export) could have an impact on overall current account balances.

For example, in Thailand, a decrease in tourism due to COVID-19 could bring the country’s overall exports down by 8 percentage points of GDP and have a direct net impact of about 6 percentage points of GDP on its current account balance in 2020. That could erode part of the 7 per cent overall current account surplus the country had in 2019.

The outlook for smaller, tourism-dependent nations is even starker. This chart and the External Sector Report focus on medium to large economies, but, under the same scenario, some smaller states especially reliant on tourism could see a dramatically larger direct impact on their trade and current account balances.

Still, the IMF said, the overall effect a decline in tourism will have on current account balances may be less than these projected direct impacts foretell. Smaller, tourism-dependent countries and even larger economies with a large tourism industry (like India) may see offsetting indirect effects. For example, smaller nations with less domestic resources often rely on more imports to support their tourism industries. A drop in tourism exports and the economic activity that it drives, both directly and indirectly, will lead to a corresponding drop in imports—lessening the overall impact on the current account balance.

"Much is still unknown about the pace of tourism recovery in 2020. Peoples’ desire and ability to travel abroad may continue to face headwinds going into 2021 due to the ongoing pandemic, leaving an uncertain outlook for tourism industries in economies both big and small," the IMF said.

(AP Photo for representation)

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