Sri Lanka’s Tourism Surge Fails To Boost Foreign Exchange Earnings As Key Issues Plague The Industry And Undermine Economic Growth

Published on November 22, 2025

Sri Lanka’s tourism industry is facing a paradox: while the number of international visitors continues to rise, the country’s foreign exchange earnings from tourism are stagnating. Despite the growth in arrivals, official revenue figures show a decline, primarily due to the shift towards informal accommodations and online booking platforms, which bypass the local banking system. Additionally, unregulated foreign businesses operating in the tourism sector further undermine the country’s economic gains, leaving Sri Lanka struggling to fully capitalize on its tourism boom.

Tourism Growth in Sri Lanka Struggles to Reflect in Economic Gains

Sri Lanka’s tourism sector is experiencing a paradox: an increase in international visitors, yet foreign exchange earnings from tourism are failing to meet expectations. Despite the growing number of tourists flocking to the island, official revenue figures show a stark contrast, raising concerns over the economic impact of the sector and how the country can better capture the benefits of its booming tourism market.

Recent reports indicate a rise in tourist arrivals, but tourism revenue has shown a decline in comparison to the same period last year. According to experts, this discrepancy points to underlying inefficiencies and missed opportunities within the industry, particularly in how tourism earnings are being tracked and captured within the country’s formal economy.

One of the major factors contributing to this issue is the shift toward informal accommodation options by many travelers. A significant portion of tourists are opting for informal stays, avoiding the official accommodation sector. This trend, while appealing to budget-conscious travelers, is leading to a notable shortfall in revenue for Sri Lanka’s economy. Official accommodations in Sri Lanka come with a hefty price tag due to the country’s 18% VAT, service charges, and other levies, which can drive the overall cost up to approximately 34.4%. This makes the formal sector a less attractive option for travelers, especially when cheaper alternatives are available.

The gap in revenue from the tourism sector has also been compounded by the increasing popularity of online travel bookings, particularly those that involve international platforms. Tourists often book their accommodations, meals, and packages online, with payments processed abroad. This leaves a substantial portion of the tourism revenue outside the reach of Sri Lanka’s formal banking system. While foreign currencies flow into the island nation through tourism, much of this money is being funneled out before it can benefit the local economy. The lack of transparency in tracking tourist expenditures, especially when pre-paid online packages dominate, presents a challenge for measuring the true economic impact of tourism.

In addition to these challenges, the tourism industry in Sri Lanka faces a rising concern over the presence of foreigners operating businesses without the proper legal framework. Foreign nationals are reportedly coming to the country on tourist visas and running businesses, particularly in the southern parts of the island. These operations often occur outside regulatory oversight, which some critics describe as a form of “mafia-like” business activity that bypasses local laws and deprives Sri Lankan entrepreneurs of opportunities.

This growing issue of unregulated foreign operations has led to calls for stricter monitoring of the industry. One proposed solution is the introduction of a “Golden Visa” system, which would require foreign investors to commit to a minimum investment in the country before they can operate businesses legally. This move aims to regulate the influx of foreign entrepreneurs and ensure that their contributions are directed toward legitimate and sustainable business operations that benefit the local economy.

The introduction of a Golden Visa system would allow Sri Lanka to attract foreign investment while maintaining strict oversight. By mandating a minimum investment threshold between 100,000 and 200,000 USD, the government would be able to ensure that foreign businesses contribute positively to the local economy. This initiative would also help shift the tourism industry towards more transparent, formal, and sustainable growth.

As Sri Lanka continues to attract international tourists, the need for regulatory reform and better tracking of tourism-related transactions becomes more urgent. Addressing these issues could help unlock the full potential of the country’s tourism sector, ensuring that the economic benefits reach local businesses, communities, and the national economy. By creating a more balanced and accountable tourism landscape, Sri Lanka has the opportunity to capitalize on its increasing popularity as a travel destination, turning visitor numbers into tangible economic growth.

Sri Lanka’s tourism industry faces significant challenges in capturing the full economic potential of its growing visitor numbers. Key reforms, such as a shift towards more transparent financial tracking and the regulation of foreign business operations, are essential to ensure that the tourism sector contributes more effectively to the country’s economic development. The introduction of a Golden Visa system could provide a much-needed solution, ensuring that foreign investments are channeled into legitimate and beneficial tourism ventures that serve both tourists and the local population alike.