COVID-19: IMPACT ON TOURISM INDUSTRY OF NEPAL

Shreezal G.C. Rohan Byanjankar

June 25, 2020

 

COVID-19 and tourism industry have sturdy association, but such a relationship is deep negative. With the outbreak of the COVID pandemic, countries banned the movement of people as preventive measures to curb the spread of the virus. Transportations, hotels, and restaurants are the worst-hit sectors by COVID-19 and these sectors are directly linked with the tourism industry. The Great Global Lockdown completely halted the movement of people. Consequently, the labor-intensive tourism industry collapsed utterly with the wake of the pandemic. UNTWO (2020) estimates a loss of 850 million to 1.1 billion international tourists, loss of USD 910 billion to USD 1.2 trillion in export revenues from tourism, and 100 to 120 million jobs at risk.

The tourism industry is one of the influential industries. According to the World Travel and Tourism Council (2019), the tourism sector accounted for 10.4 percent of global GDP and 319 million jobs to 10 percent of total employment. Domestic tourism accounted for 71.2 percent of all tourism spending in 2018 and had the strongest growth in developing countries (WTTC, 2019). Tourism income accounts for 28.3 percent of global services exports and 6.8 percent of total export. Likewise, tourism is one of the most thriving and fast-growing service sectors in Nepal which contributes about 6.7% of the GDP (WWTC, 2019). This includes both direct and indirect contribution of tourism to GDP. In terms of employment, the tourism industry in Nepal provides total employment to 700 thousand people with 500 thousand direct jobs.

Nepal held the “Visit Nepal 2011” campaign and aimed to attract 1 million tourists, however, about six hundred sixty-four thousand tourists visited Nepal in 2010/11. Following the massive earthquake in 2015, tourist arrival fell by 15 percent on an average in FY2014/15 and FY2015/16. However, tourist arrival continued to grab growth momentum in FY2016/17 with a rise in tourist arrival by whooping 51 percent. With the growth of 12.6 percent and 22.7 percent growth in tourist arrivals in FY2017/18 and FY2018/19, Nepal experienced a boost in the tourism business.

The COVID-19 has been proven fatal to the world’s tourism sector, including Nepal. The tourist arrivals in Nepal fell by almost 73 percent in March 2020. On year-on-year analysis, tourist arrival in FY2019/20 is expected to fall by 31.6 percent (Nepal Rastra Bank, 2020). The tourism-based sectors such as hotels and restaurants and transportation are expected to hit hard by this pandemic. Similarly, the Central Bureau of Statistics (2020) projects a contraction in gross value addition of hotel and restaurant sector and transportation sector by 16.30 percent by 2.45 percent respectively. In 2020, the visit Nepal campaign was aimed at bringing 2 million tourists in the country by the end of the year. But the campaign was called off at the end of March due to the massive outbreak of the coronavirus.

The tourism sector in Nepal provides direct employment to about 500 thousand and provides indirect employment to about 200 thousand people. With a total of 700 thousand total employment, the tourism sector employs about 9.8 percent of total employment. A significant share (42 percent) of these jobs are for the female and more than 60 percent of unskilled people work in tourism. A study reveals that the elasticity of international tourist arrival to direct employment and total employment stands at 0.54 and 0.57 respectively (Parajuli and poudel, 2020). Concerning these elasticities, 31.63 percent contraction in international tourist arrivals translates to a 17.08 percent decline in direct employment, and 18.03 percent fall in total employment. Thus, the tourism sector is likely to lose 85 thousand direct jobs and 36 thousand indirect jobs amounting to a total job loss of 121 thousand.

Apart from the loss of gross value addition and loss of employment, the collapse of the tourism sector hurts the banking sector too. Bank and financial institutions (BFIs) have disbursed about 4.52 percent of total loan to the sector, directly and indirectly, related to tourism, which amounts to Rs. 146.58 billion. The accrued interest on such loans will amount between Rs. 10 billion and Rs. 12 billion if interest payment is deferred for a year, which is about 27 percent of combined profits of banking and financial institutions.

Tourism sector might take several years to return to the pre-COVID trend. Despite the dismal circumstances, the tourism sector, which is one of the most lucrative sectors, must adopt the path of recovery. Nepal government has announced several fiscal packages for tourism sectors such as tax rebates and interest subsidy to airlines, travel agencies, trekking agencies, and promotion of domestic tourism. Nepal Rastra Bank shall also announce monetary packages for tourism sectors such as provisions to defer interest payment, loan repayment based on cash flow, and refinance facility for productive sectors at a 2 percent interest rate. However, the tourism sector will take time to get revived due to disruption in aviation and hospitality industries. The COVID-19 pandemic needs to end and travel restrictions need to be waived completely for any tourism activities to take place in the future.

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