Sri Lanka may be back on the tourism map but its recovery is fragile

livemint.com:

Sri Lanka’s bustling Colombo airport is busier than it has been in the past few years. Last year, the country welcomed 1.5 million tourists, a fifth of them from India. Long-stay Russians number 300,000 and have transformed some of the country’s southern resort towns, not always for the better.

An airport might seem a peculiar barometer by which to gauge the recovery of a developing economy, but as a small, open economy trying to claw its way back to economic stability, it is a reasonable one. Tourism contributed $2.1 billion to the Sri Lankan economy in 2023, almost double the 2022 level. What Cambridge historian Sujit Sivasundaram characterizes as oceanic countries of the Pacific and Indian Ocean often share this dependence on tourism.

Sri Lanka’s dependence is more acute; along with textiles and tea, tourism is a principal money spinner for the economy and one with the most upside, as last year’s dramatic increase indicates. But Sri Lanka, which is undergoing an International Monetary Fund (IMF) restructuring of its large foreign debt, is also an emblematic case of a different sort. Ordinarily, a sharp currency devaluation would boost exports in a big way.

But in today’s global economy of slowing developed-world demand, global value chains and lean inventory management, buyers in the West are likely to continue favouring countries such as Bangladesh for garment production, for instance, because its factories are embedded in their supply chains and are deemed more efficient. To some extent, Bangladesh and Vietnam are therefore immune to a competing nation’s lower labour costs via the currency weakness Sri Lanka has had. When I think about it—and I do think about it as a well-wisher of Sri Lanka as well as of India’s