ECONOMYNEXT – Sri Lanka may not be able to extend a debt moratorium for hotels and travel companies given during a Coronavirus crisis as concerns emerge over the stability of banks, tourism Minister Harin Fernando said.

“When a paper to extend the tourism sector loan moratorium was brought to the cabinet, the Prime Minister’s advice was to take case by case as we cannot give a blanket approval anymore,” Tourism Minister Harin Fernando told reporters on July 07.

“Because we have a threat of risk to the banks as well.”

The loan moratorium extended to the tourism sector by the State Banks came to an on June 30.

The cabinet of ministers on June 08 had initially approved to extend the tourism sector loan moratorium till the end of the year, a statement said at the time.

The leisure industry has “appealed to everybody possible” M. Shantikumar President of The Hotels Association of Sri Lanka told Economy Next on June 30.

“Up to now we have got no positive answer and in the absence of not getting the loan moratorium extension most of the hotels will close down.”

Sri Lanka’s central bank had printed money for two years to suppress interest rates and created the worst currency crisis in its history with the rupee falling from 200 to 370 to the US dollar in a botched float with a surrender requirement so far this year.

Interest rates have since been raised to kill domestic demand and stabilize the rupee. The higher rates and currency collapse lead to more bad loans as consumption falls, which tends to lead to economy-wide bad loans.

The industry has no cash flow to make any arrangements to pay loans and their priority is to pay salaries, which the industry is already finding it difficult to do, Shanthikumar said.

At least 80 percent of the industry will not be able to pay the loan or the interest, he said.

There is an estimated 500 billion rupees of tourism sector loans, industry officials say.

Minister Fernando said several discussions have been held with the Central Bank Governor and heads of banks.

“What I realized is that there are certain people in the industry who have taken these loans for the completion of hotels, and some have taken even before the Easter Sunday attacks in 2019,” Fernand

“Therefore, it has been a long time and the banks want to meet the beneficiaries one-on-one and reevaluate case by case and sort out this moratorium without giving a blanket cover.”

Discussions and the Prime Minister and President are looking for the best way out of it, he said.

Sri Lanka gave a moratorium on tourist hotels during the Coronavirus crisis. Tourism is also one of the few sectors that can survive when a currency collapses.

However due to persisting forex shortages from a broken peg, Sri Lanka has been unable to import fuel, and the country has also been hit by power cuts. (Colombo/Jul06/2022)