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Abu Dhabi, UAEMonday 1 March 2021

Small islands' economies to shrink as tourism declines amid Covid-19 pandemic

Maldives, Bahamas, Belize, St. Vincent and the Grenadines and Montenegro are the most exposed to a drop in visitors, Moody's says

The Maldives will open to travellers in July, with no quarantine rules. 
The Maldives will open to travellers in July, with no quarantine rules. 

Countries that are highly reliant on tourism will face the greatest pressures on their economies as the Covid-19 pandemic reduces tourist arrivals, according to Moody's Investors Service.

The decline in tourism-related revenue and export earnings will weaken the fiscal balance of tourism-dependent economies, especially those with limited resources to absorb the shock, Moody's said in a report on June 22.

"The shock to the tourism sector will matter most for those sovereigns with weak credit fundamentals combined with an elevated susceptibility to event risk," David Rogovic, Moody's vice president, said.

The credit rating agency expects tourist arrivals to decline between 35 per cent to 50 per cent for most countries, with only a partial recovery expected in 2021.

Overall, the Maldives, Bahamas, Belize, St. Vincent and the Grenadines and Montenegro are the most exposed to a coronavirus-induced decline in tourism, Mr Rogovic said.

Globally, the tourism sector has been among the worst affected by the coronavirus pandemic that prompted governments to shut borders and suspend air travel. After several months of unprecedented closures, the sector is slowly and cautiously beginning to restart in some countries. These governments have gradually eased travel restrictions, restored some international flights and imposed hygiene or safety measures.

Fewer tourist arrivals will directly reduce export earnings and weaken the current accounts of tourism-reliant countries, Moody's said.

Countries with structurally large current account deficits and where tourism represents the main source of foreign currency earnings are the most vulnerable.

In most cases, lower foreign exchange outflows amid lower oil prices, the high import content of tourism and lower domestic demand will not offset lower export earnings, the agency said.

A decline in visitors, which is a major source of tax revenue for tourism-dependent governments, will lead to a deterioration in fiscal balances and a rise in debt burdens for most of these sovereigns, the report said.

"The extent of credit pressures stemming from an erosion in fiscal strength will depend on the ability of governments to limit the deterioration in debt metrics in the short term and stabilise and reverse debt ratios over the medium term," Moody's said.

Despite larger primary deficits, most of these countries will see an improvement in fiscal balances that will stabilise debt as growth rebounds in 2021 and borrowing costs remain low.

However, reducing debt burdens significantly would need sustained levels of high growth and substantial tightening of deficits, the report said.

Tourism is a major lifeline for millions of workers and a backbone of many economies.

In April, a busy season due to Easter holidays, the introduction of travel restrictions led to a fall of 97 per cent in international tourist arrivals, according to the United Nations World Tourism Organisation (UNWTO). This followed a 55 per cent decline in March.

Between January and April 2020, international tourist arrivals declined by 44 per cent, translating into a loss of about $195 billion (Dh716bn) in international tourism receipts, the UN body said.

The UNWTO identified three scenarios for global tourism in 2020, which point to potential declines in overall international tourist numbers of 58 per cent to 78 per cent, depending on whether travel restrictions lift in July, September or December.

Overall in 2020, the UNWTO projects 850 million to 1.1 billion fewer international tourist arrivals, leading to a loss of $910bn to $1.2 trillion in export revenues from tourism.

This puts 100 to 120 million direct tourism jobs at risk, the UN organisation said.

Earlier this week Saudi Arabia said it will inject 15bn Saudi riyals (Dh14.7bn/$4bn) into the country’s tourism sector through a new fund.

Dubai, where tourism contributes about 11.5 per cent of GDP according to government figures, said it will allow foreign visitors to return from July 7. The emirate had begun limiting non-essential arrivals from March to curb the spread of the coronavirus.

Published: June 23, 2020 12:44 PM

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