Emerging tourism-dependent economies that were already struggling before the pandemic with strained finances and inflated debt are bearing the cost of their second consecutive collapse of the summer season as the spread of the coronavirus pushes visitors away.
In the first five months of this year, global international arrivals were on average 85% lower than the pre-pandemic total of 540 million in 2019, according to data released in July by the United Nations World Tourism Organization. This is even worse than at the same time last year, when arrivals were on average 65% down year-over-year.
Asia-Pacific was particularly hard hit, with arrivals down 95% from 2019 levels – in large part due to the continued absence of Chinese travelers. On the other hand, the return of American tourists lessened the blow to the Caribbean.
The drop in tourism revenues in much of the emerging world comes as governments’ debts rise as they struggle to meet the costs of the pandemic. The average public debt of large emerging economies rose from 52.2% of gross domestic product to 60.5% in 2020, according to the Institute of International Finance, the largest increase on record.
The damage was not evenly distributed. Some economies have entered the pandemic in better shape than others and are better able to weather the storm.
IMF chief economist Gita Gopinath warned earlier this year that economic performance “diverges dangerously between and within countries, as economies with slower vaccine deployment, more limited political support and dependency increased tourism are less well “.
The countries most at risk, said David Rogovic, senior analyst at Moody’s Investors Service in New York, were âthe smallest and least diversified economies that entered the pandemic with weak fiscal conditions. Places like the Bahamas, Maldives and Fiji are heavily dependent on tourism and have suffered a major shock. “
Luiz Eduardo Peixoto, emerging markets economist at BNP Paribas in London, said this year so far has been worse than expected last year.
âLast year it was assumed that in 2021 we would see a rebound,â he said. “But the fall [in numbers] last year was close to the most pessimistic scenario [forecast] by the UNWTO because we have not recovered [northern hemisphere] winter, quite the contrary. This year, things do not turn out as expected.
He cited as causes the slow rollout of vaccines in many developing countries and the spread of new variants of the virus, which have thwarted countries’ plans to ease border restrictions.
For example, China has maintained strict limits on inbound and outbound travel since the start of the pandemic, depriving Southeast Asian destinations of their biggest source of visitors.
Thailand generated 20% of GDP and tourism jobs in 2019, according to Moody’s. Its attempts to open tourist bubbles for visitors vaccinated this summer got off to a chaotic start, with visitors testing positive for the virus despite entry checks.
However, the collapse in tourism did not tip its public finances into crisis, Moody’s noted. This is because strength in other sectors of the economy, such as manufacturing and other parts of the service sector, offset the shock to tourism. Other well-diversified Asian economies such as the Philippines and Cambodia are in a similar position.
But diversification is less likely for small island economies, especially where declining tourism revenues have exacerbated pre-existing problems.
The Bahamas, whose credit rating had already been downgraded several times over the past decade due to its growing debt load, are among those countries. When the pandemic hit, Moody’s downgraded it again in June of last year, by two notches, and kept it on a negative outlook for possible further downgrade.
Fiji and the Maldives face similar challenges due to rising debts and difficulty refinancing them from a limited number of international lenders, Moody’s warned.
The only bright spark is local tourism, is that countries with a sizable middle class are taking advantage of the fact that vacationers choose to stay at home this year.
BNP’s Peixoto notes that the capacity of scheduled airlines for the third quarter of this year in Russia and China is higher than it was in the same period of 2019, thanks to a sharp increase in domestic travel.
Countries like Brazil, the Philippines, Argentina and Mexico are also benefiting.
“We saw this for a few quarters last year, that Brazilians who usually went abroad stayed in the country and generated more income at home,” he said. “In Russia, it contributes to inflationary pressures.”
It may not replace foreign exchange earnings for those countries, he added, but it keeps hotels and other businesses open and workers employed.
UNWTO data shows a hint of recovery in May, when international arrivals reached 82% below their pre-pandemic level, up from 86% in April.
Most of the recovery is in advanced economies, however, leaving little positive news for tourism-dependent countries in the developing world. The reopening of the sector in the most affected regions is indefinitely suspended.
âFor them, it will be difficult to argue for significant cuts in travel restrictions this year,â said Peixoto. And therefore, “we do not see a significant recovery in foreign tourism for emerging markets this year.”