High fuel and operating costs and an 8% drop in tourist arrivals in 2000, from 436,400 in 1999, forced SriLankan Airlines to announce a voluntary redundancy scheme in June. The Airlines may now shed over 1,500 jobs, nearly 50% of staff. A further 40,000 jobs may be affected in the tourist industry.
Compared to 2000, tourist arrivals improved in 2001. Between January and April, there were 172,000 arrivals, a 7.2% increase compared with the 160,400 visitors for the same period last year and earnings rose by 7.8% to $108.6 million in that period. In June, a record of 28,000 foreigners visited Sri Lanka, up by 30% on last year.
The BBC says that after the airport assault, around 30 tour operators cancelled planned holidays. According to the Tour Operators Association, 80% of bookings were cancelled and some tourist resorts were closing down. A number of countries, including the US, Britain and Australia advised their citizens to postpone their trips or defer all non-essential travel in Sri Lanka.
London insurance underwriters, the War Risk Rating Committee’s declaration that Sri Lanka is a war zone, has led to sharp increase in war risk insurance on shipping and airlines. Some Airlines have scaled down flights into the country. Sri Lankan sea ports handle 1.7 million twenty foot equivalent units of container a year and cargo may now be diverted to other countries in the region.
London’s Economist Intelligence Unit estimated that real GDP growth in 2001 will decelerate to 3.8% from 6% in 2000, while the political unrest will impact on investment. The airport attack will make matters worse. The Sri Lankan government has agreed with the International Monetary Fund (IMF), to increase goods and services tax, reduce fiscal deficit to 8.5% and reduce the national security levy (currently 7.5% on all goods and services), in order to draw the balance of a $253 million stand-by credit facility.
The government has already drawn $131 million and the balance will be released in instalments in August, November 2001 and May 2002. It would be now be difficult for the government to meet the targets set by the IMF. Since the airport attack, the IMF has urged the government to cut public spending and improve tax collection.
The defence expenditure for 2001 was estimated at Rs 75 billion ($830 million), a reduction of 11% from the expenditure of Rs 84 billion in 2000. As a percentage of the GDP, defence expenditure was expected to fall from 5.6% in 2000 to 4.4% in 2001. The war expenditure is now expected to rise dramatically.