Impact of Tourism Foreign Direct Investment on Economic growth in Sri Lanka.

Tourism is a large industry interconnected with all other sectors in the country, and it supports to meet of national economic and human development in the country. Traditionally, tourism was placed below other industries in Sri Lanka. In contrast, today, a " silent but significant revaluation" is taking place, Tourism industry is a key that accelerates economic growth by generating a large number of jobs - including the younger generation, contributing to the GDP (Gross Domestic Product) of the country, helping to keep the inflation less than 9 and foreign exchange rate lower or constant. Tourism makes a significant impact on the interest rates of a country as well.

But after a series of back-to-back crises over the last few years, Sri Lanka’s tourism-dependent economy has faced a complete collapse due to external and internal shocks such as economic crisis and political tension, the Easter Sunday attack in 2019, and COVID Pandemic. Due to these factors, tourism earnings contributed to the GDP from 5,6% to 0.8% within two years. Sri Lanka fell back on its foreign exchange reserves to pay off government debt, shrinking its reserves from $6.9 billion in 2018 to $2.2 billion this year, according to an IMF briefing. And Sri Lanka's total foreign debt stands at $51 billion. So the present situation of the financial crisis in Sri Lanka the government has slapped a ban on the import of 300 consumer items, because of a foreign currency shortage. This affected hotels, restaurants and many other facilities relating to the hospitality industry.

https://www.youtube.com/watch?v=yJxLPM_hLx8

FDI (Foreign Direct Investment) is one of the routes earning foreign exchange rapidly, Tourism FDI has been broadly accepted as an economic growth element in most developing countries. As an example port city is one of the major projects in Sri Lanka, which creates tourism foreign direct investments. For example, during the construction period, they expect apartments and houses to be sold to foreigners. During the operation stage, a lot of companies will generate export revenues. Meanwhile boosting FDI on star hotels, integrated resorts, restaurants, shops, and pleasure activities at the port city make foreign receipts inflow which will further improve the Balance of Payment in the country.

^{_{Assumptions on construction parameters for hospitality segment on construction stage of port city}}

^{Summary of the estimated government revenue of the port city}

https://www.portcitycolombo.lk/downloads/port-city-colombo-economic-impact-assessment-report.pdf

A recent example of tourism FDI is the leasing of the Uchchamunai peninsula for 30 years to a Switzerland-based company for establishing an eco-friendly hotel project. The project’s worth is US$ 417.5 million. it is being aimed at driving much-needed Foreign Direct Investments (FDIs) to the country and financial benefits and empowerment for local people.

^{Uchchamunai island in Kalpitiya}

Foreign Direct Investment (FDI) has been used by developing countries as a tool to solve their economic problems in the recent past.  Sri Lanka is no exception to this practice.  The above FDI is some example of Sri Lanka's economic development.  Multiple regression models were used to estimate the effect of FDI on economic growth.  Empirical evidence shows that FDI positively and statistically affects the economic growth of Sri Lanka. 

Visit the links below for more :

https://www.dailynews.lk/2022/08/02/features/284210/colombo-port-city-panacea-economic-development

https://www.worldbank.org/en/news/feature/2021/06/10/foreign-investment-can-help-sri-lanka-build-back-better

https://www.investmentmonitor.ai/analysis/why-is-sri-lanka-in-crisis-and-can-fdi-save-the-day

https://www.outlookindia.com/topic/sri-lanka-economic-crisis