Tourism in the Post-Pandemic World Economic Challenges and Opportunities for Asia-Pacific and the Western Hemisphere.

Published by the International Monetary Fund: February 19th 2021.

Summary: This departmental paper analyzes the impact of the COVID-19 pandemic on tourism in the Asia Pacific region, Latin America, and Caribbean countries. Many tourism dependent economies in these regions, including small states in the Pacific and the Caribbean, entered the pandemic with limited fiscal space, inadequate external buffers, and foreign exchange revenues extremely concentrated in tourism. The empirical analysis leverages on an augmented gravity model to draw lessons from past epidemics and finds that the impact of infectious diseases on tourism flows is much greater in developing countries than in advanced economies.

Executive Summary
The COVID-19 pandemic, a global crisis like no other in modern history, has led to a sudden stop in travel and a collapse in economic activity worldwide. A major economic driver, tourism accounts for more than 10 percent of the global economy and in many countries a large share of exports and foreign exchange earnings. The industry is also highly interconnected; multiple sectors are dependent on its performance. The pandemic has had severe repercussions on the complex global tourism supply chain, putting millions of tourism jobs at risk. Informal and migrant workers, particularly women and youth, have suffered disproportionately from diminished employment opportunities and lack of access to social safety nets, leading to increased poverty and slowing progress toward the UN Sustainable Development Goals.
This departmental paper analyzes the impact of the COVID-19 pandemic on tourism in the Asia Pacific region, Latin America, and Caribbean countries. Many tourism dependent economies in these regions, including small states in the Pacific and the Caribbean, entered the pandemic with limited fiscal space, inadequate external buffers, and foreign exchange revenues extremely concentrated in tourism. The empirical analysis leverages on an augmented gravity model to draw lessons from past epidemics and finds that the impact of infectious diseases on tourism flows is much greater in developing countries than in advanced economies. Given the unprecedented nature of the COVID-19 crisis, forward looking model simulation results for tourism dependent economies show scope for a faster recovery, if rapid advancements in vaccine distribution were to bring back travel to pre-pandemic levels, but also significant downside risks from protracted uncertainty and limited vaccine effectiveness and availability, with deep and long-term scarring effects potentially amplifying existing vulnerabilities.
The paper also explores several innovations given the peculiarities of the tourism industry and high degree of pandemic uncertainty. The paper finds vii strong correlation between the spread of COVID-19 and big data high-frequency indicators on travel, which suggests that the quality of healthcare systems will be pivotal in the post-pandemic recovery of the tourism sector. The analytical and modeling techniques leverage the interaction among epidemiology, tourism development models, and macro structural features of tourism dependent economies. The analysis suggests, among other things, the challenges that tourism-based economies could face in leapfrogging from high-density to socially distanced tourism. For some countries, the inherent rigidities of switching from one tourism business model to another, combined with the likely protracted process of building consensus across stakeholders, could amplify the pre pandemic macro and structural vulnerabilities and make the transition to the new normal more challenging.
The paper examines policy options to navigate the post-pandemic world. Although tourism bounced back relative quickly from the impact of past epidemics like SARS, the COVID-19 pandemic could create long-term scarring effects. How tourism recovers will depend on the availability and distribution of an effective vaccine and policy choices made during the pandemic, specifically:
Phase 1, crisis mitigation: In response to the COVID-19 shock, many countries have provided fiscal support to buttress demand for the industry and preserve jobs. Further support may be needed and there is scope for well-designed fiscal stimulus to support the most affected sectors including the poorest households and businesses, while being mindful of available fiscal policy space and debt sustainability concerns.
Phase 2, reopening: As countries reopen their economies and borders, special attention should be devoted to health and hygiene protocols. During this transition phase, domestic tourism is being incentivized in several countries through attractive offers from hotels and tour operators and the tourism sector is being integrated into governments’ re opening strategies. The creation of COVID-free travel bubbles also shows some potential across regions, despite implementation challenges. Targeted policies to address the pandemic impact on youth and women, enhancing access to new opportunities, including through digitalization, can help mitigate the scarring effect in the tourism sector, broaden inclusion, and help lift potential growth. As many firms in the industry, especially small and medium enterprises (SMEs), are at risk of slipping from liquidity stress into insolvency, monitoring and promoting needed restructuring and retooling in a timely manner will be critical to the recovery.
Phase 3, recovery: As the recovery takes hold, a shift to eco-sustainable tourism services with lower density, higher value-added, and greater digitalization may allow countries to reduce the health risks potentially associated with mass travel, foster a greener recovery, as well as diversify their economies to increase their resilience to future shocks. This challenging juncture presents an opportunity to accelerate long term structural transformation, within and beyond the tourism sector, to mitigate the impact on output and jobs and adapt to the post pandemic normal. Harnessing a long-term solution will require global cooperation, starting with the immediate priority of establishing global safety and health protocols as well as making a reliable vaccine widely available.
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Table of Contents
Acknowledgments
Executive Summary Introduction
The Tourism Landscape 

1. Lessons from Past Epidemics 
2. Analyzing Macroeconomic Scenarios Under the New Post-Pandemic World 
3. Policy Options Towards a New Normal 

Conclusion.
Annex 1.Case Studies
Annex 2.Applying A Gravity Model to Predict Post-Pandemic Tourism Flows
Annex 3.Analyzing Macroeconomic Scenarios Using GIMF
Annex 4.Assessing Export Development Potential in Tourism-Dependent Economies
References