Impact of the Pandemic on Tourism – IMF F&D
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- Authors: ADAM BEHSUDI
- Published: December 1, 2020
Scale of the shock to tourism
- Before COVID-19, travel and tourism accounted for 10 percent of global GDP and more than 320 million jobs worldwide.
- International travel growth: 25 million foreign trips in 1950; 1.5 billion in 2019.
- The global pandemic put 100 million jobs at risk.
- Women represent 54 percent of the tourism workforce (UNWTO).
- Tourist arrivals fell globally by more than 65 percent in the first half of 2020, with a near halt since April — compared with 8 percent during the global financial crisis and 17 percent amid the SARS epidemic of 2003 (IMF ongoing research).
- IMF October World Economic Outlook projection: the global economy would contract by 4.4 percent in 2020.
Macroeconomic and employment impacts by region and economy
- Real GDP declines in 2020 for tourism-dependent economies:
- African countries dependent on tourism: shrink by 12 percent.
- Tourism-dependent Caribbean nations: decline will reach 12 percent.
- Pacific island nations such as Fiji: could see real GDP shrink by 21 percent.
- Subnational and sectoral impacts:
- In Hawaii, one in every six jobs vanished by August.
- In Florida, tourism accounts for up to 15 percent of the state’s revenue; officials said it will take up to three years for the industry to recover.
- Among G20 countries:
- Hospitality and travel sectors make up 10 percent of employment and 9.5 percent of GDP on average.
- GDP share reaches 14 percent or more in Italy, Mexico, and Spain.
- A six-month disruption could directly reduce GDP between 2.5 percent and 3.5 percent across all G20 countries (IMF paper).
Fiscal and policy responses to manage the revenue gap
- Examples of fiscal support and adjustments:
- Barbados: IMF augmented its Extended Fund Facility program by about $90 million, or about 2 percent of GDP, to help finance the emerging fiscal deficit caused by plummeting tourism revenues and increased COVID-related expenditures.
- Seychelles: entered crisis from position of fiscal strength but will be challenged to return to medium-term fiscal sustainability without significant support.
- Typical policy measures deployed worldwide:
- Cash transfers, grants, tax relief, payroll support, loan guarantees, halting loan repayments in some cases.
- Targeted support to informal workers concentrated in the tourism sector.
- Private-sector and consultancy recommendations:
- McKinsey & Company analysis of stimulus across 24 economies: $100 billion in direct aid to the tourism industry and $300 billion in aid across other sectors with significant involvement in tourism.
- McKinsey recommends experimenting with financing mechanisms such as revenue-sharing among competing hotels and government-backed equity funds for tourism-related businesses.
Development challenges and medium-term structural considerations
- Tourism as a development pathway:
- In sub-Saharan Africa, tourism-dependent countries averaged real per capita GDP growth of 2.4 percent between 1990 and 2019 — faster than non-tourism-dependent countries in the region (IMF staff).
- Lock-in risk for small and island economies:
- Few alternative sectors exist to which labor and capital can be shifted in many small island nations.
- Example: Seychelles saw increased tuna exports partially offset tourism losses, but these remain a fraction of tourism receipts.
- Barbados is attempting to maintain social spending and reprioritize capital spending to create jobs temporarily in nontourism sectors such as agriculture and infrastructure.
- Project pipeline and investment impacts:
- Caribbean Hotel and Tourism Association projection: as many as 60 percent of the 30,000 new hotel rooms that were in planning or construction throughout the Caribbean will not be completed because of the crisis.
Adaptation, innovation, and scenarios for reopening
- Recovery timelines and demand patterns:
- Tourism receipts worldwide are not expected to recover to 2019 levels until 2023.
- The World Tourism and Travel Council: travel will be “kickstarted by the less risk averse travelers and early adopters,” with leisure travel leading the comeback; business travel could see a permanent shift or phased return.
- Policies and practical measures some countries adopted:
- Admission of tourists from “lower-risk” countries with special quarantine requirements (Thailand, Seychelles).
- Fiji’s “blue lanes” to allow seafaring visitors to quarantine at sea.
- St. Lucia requires a negative COVID-19 test no more than seven days before arrival.
- Australia–New Zealand “travel bubble” eliminating quarantine requirements between them.
- CARICOM “regional travel bubble” eliminating testing and quarantine within the bubble.
- Long-term remote-work visitor permits offered by Barbados, Estonia, Georgia, Antigua and Barbuda, Aruba, and the Cayman Islands, lasting up to 12 months in some places.
- Sectoral modernization and sustainability opportunities:
- UNWTO encourages worker training to build digital skills for big data, data analytics, and artificial intelligence.
- Recovery should be leveraged to improve energy and water efficiency, waste management, and sustainable food sourcing in tourism.
- Private sector and some countries developing global protocols for rapid testing at airports and other measures to boost traveler confidence.
Strategic considerations and outlook
- Uncertainty and policy trade-offs:
- The persistence of the shock and whether it represents a permanent change to tourism demand is still uncertain, requiring innovative structural policies to adapt to the “new normal” (IMF mission chief to Seychelles).
- Policymakers face the challenge of supporting incomes and firms while preserving earlier fiscal and macroeconomic gains.
- Final observational quote on confidence and protocols:
- St. Lucia Prime Minister Allen Chastanet: “The fact is people do not feel comfortable traveling. We have not put in the necessary protocols to give them that comfort.”
Impact of the Pandemic on Tourism – IMF F&D
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