The Impact of Exchange Rate Fluctuation on Tourist Arrivals of Sri Lanka

This study analyses the impact of exchange rate fluctuations on tourist arrivals to Sri Lanka using time series data from 1960 to 2023. Independent variables include the annual average exchange rates of the US Dollar, the British Pound, Japanese Yen (JPY) and Indian Rupee and a “Dummy” variable indicating the economic policy change in 1977 (0 for inward policy before 1977 and 1 for outward policy after 1977). These currencies were selected based on recent report by the Central Bank of Sri Lanka that highlighted the significant fluctuations in exchange rates against the Sri Lankan Rupee (LKR). The results showed no statistically significant association between these exchange rates and tourist arrivals, with high p-values (above 0.05) and very low R-squared values, suggesting that exchange rate fluctuations do not have a significant impact on tourist arrivals to Sri Lanka. The dummy variables also showed no significant effect, indicating that the policy change did not affect tourist numbers. Augmented Dickey-Fuller test confirmed that the original time series data was not stationary but became stationary after the first differentiation. Multiple regression analysis of the differentiated data, variance inflation factors (VIFs) and tolerances did not indicate multicollinearity between the independent variables. Based on these findings, several recommendations are proposed to improve Sri Lanka's tourism sector. Diversifying marketing strategies through digital marketing and social media can promote the country's cultural heritage and attractions. Significant investment in tourism infrastructure such as transport networks and accommodation are essential to enhance the tourist experience. Ensuring geopolitical stability and robust security measures will boost tourist confidence. Developing niche tourism segments such as ecotourism and adventure tourism will cater to specific interests while simplified visa policies and improved air connectivity will increase accessibility. Finally, staying on top of global tourism trends and adapting strategies accordingly will help Sri Lanka maintain its competitiveness as a tourist destination. These strategies are aimed at promoting tourism sector growth regardless of exchange rate fluctuations and ensuring the sustainable development of tourism in Sri Lanka.