Loss from VAT, NBT to reach Rs.26bn by year end: CBSL

In an assessment of the damage caused to the economy as a result of the Easter Sunday attacks, the Central Bank of Sri Lanka (CBSL) put the revenue loss from VAT and NBT alone at approximately Rs.26 billion for the remaining period of the year. The CBSL said pending economic activities would slacken thereby affecting revenue collection.

In an internal, classified document which Daily Mirror has seen, the CBSL said tourism that cushioned the negative impact of the trade deficit of the balance of payment would be hit hard.

“For instance, there was an exodus of tourists out of Sri Lanka recording an unprecedented number of departures at 16,127 on April 21 and 22, as against the arrivals before the bombings on April 20 and 21 at 11,210. Tourist arrivals have been reducing steeply while departures increasing. The terror attacks occurred at a time when Sri Lankan tourism was at a critical juncture of evolution. The potential of the tourism sector to grow to be a vibrant and sustainable industry that contributes to the GDP while creating long-lasting career opportunities will be severely affected,” the report said.

The potential reduction in tourist arrivals will have an impact on the return on investment (ROI) of the large investments in the industry which will have an impact of loan repayment capacity of the investors. The possible reduction in hotel occupancy will also have an impact on direct and indirect employment.

In general, the trend is such that tourist arrivals in the months of May and June are lower. Therefore, it is likely that earnings in the tourism sector will plummet significantly.

On foreign direct investment (FDI), the CBSL said prospective investors who had been positively considering Sri Lanka as a potential investment destination may reassess their stance which in turn might potentially delay inward FDI. For instance, the Silver Park Refinery Project approved to be set up at Mirijjawila Zone in Hambantota of which the lease agreement was scheduled to be signed on April 24 had been postponed.

Chinese investors who were scheduled to visit the country on April 22 for a joint venture with Rigid Tyres have postponed their visit. Due to the fact that hotels were hit, short to near-term hotel related investments and reinvestments will experience delays as investors will fear or be apprehensive of ROI due to falling numbers or cancellations. Completion of the remaining parts of these hotels as well as persuading for reinvestments will be extremely difficult with such bitter experiences.

Due to the aforementioned circumstances, it would be hard to achieve the forecast FDI for 2019. Security concerns in any developing country increase the risk factor of the said country as an investment destination. Potential disruptions to daily life or business as usual make investors wary of such a location, where they will prefer "safer" alternatives.

The CBSL advises the government to take apt measures to normalise the situation, mitigate the security risk and strengthen intelligence services to stifle the negative impact. The CBSL also wants the government to take immediate action through diplomatic channels to get travel advisories withdrawn. Image and rebuilding should be undertaken to re-establish Sri Lanka as a peaceful country or destination to invest and do business, conduct promotional programmes to attract backpackers and introduce special packages for tourists. Possible measures should be introduced to expedite economic activities and take additional measures to safeguard government revenue and impose an expenditure cut from capital expenditure. (Sandun A. Jayasekera)