By Uditha Jayasinghe

COLOMBO, Aug 26 (Reuters) - Tourists have long flocked to Sri Lanka for its pristine beaches, wildlife safaris and ancient Buddhist sites. Now, its first Marxist president is betting on casinos to attract high-rollers from India and China and usher in the next wave of foreign inflows.

The success of the casino strategy is crucial for President Anura Kumara Dissanayake, who completes one year in office next month and has vowed to improve the lives of ordinary Sri Lankans after the devastating economic collapse of 2022 and 2023.

Sri Lanka had a handful of small casinos but earlier this month, Dissanayake inaugurated a $1.2 billion City of Dreams casino complex in Colombo, a joint venture between John Keells Holdings JKH.CM and Macau-based Melco Resorts & Entertainment MPEy.F.

The launch of South Asia's first integrated resort was headlined by Bollywood heartthrob Hrithik Roshan, who danced to hit Hindi songs in front of a packed house.

Dissanayake has also got legislation passed in parliament to regulate gambling including in casinos, reflecting the importance he is placing on the industry.

The push is part of Sri Lanka's aim to raise tourist arrivals by 50% to 3 million this year, potentially lifting revenues from the industry to $5 billion from $3.7 billion last year, the deputy tourism minister, Ruwan Ranasinghe, told Reuters.

"Tourism plays a very significant role for us to get out of these economic issues that we have," he said.

"So these couple of years we are working more on short-term targets and getting traffic, but in the long run, our plan is to go for quality, more sustainable, and high-end tourism and casinos and gambling will be a segment of that."

Tourism accounted for about 4% of GDP last year and the government hopes it will eventually hit 10%, backed partly by high-end gaming, he said. Tourism is the third biggest dollar earner after remittances and apparel exports.

The central bank this month forecast full-year economic growth of about 4.5%, partly on the back of strong tourism numbers, sharply higher than the World Bank's April projection of 3.5%.

The $99 billion economy returned to growth only last year after two years of big contractions that forced the country to seek a $2.9 billion bailout from the International Monetary Fund.

Sri Lanka must resume repaying its creditors from 2028 after defaulting on its foreign debt in 2022.

'VERY EXCITING'

City of Dreams, located on Colombo's beachfront, features 800 rooms, a luxury mall, and conference facilities that investors anticipate will attract affluent visitors.

"It is a total greenfield market. It is similar to how we developed other markets in the past - in Manila, Macau and also in Cyprus," Melco Chairman and CEO Lawrence Ho told Reuters.

"I think we are barely scratching the surface in terms of the tourism potential and also the integrated resort gaming potential of this country."

Minister Ranasinghe expects Indians to be the main arrivals for the next decade. India, the world's most populous country, permits casinos only in a few designated locations, while China restricts all legal casino operations to Macau.

Indians made up nearly a quarter of the 2 million tourist arrivals in Sri Lanka last year, while Chinese visitors accounted for 7%. Sri Lanka maintains close economic ties with both New Delhi and Beijing, and citizens of both countries benefit from visa-free entry.

To boost revenue collection and encourage responsible gambling, Sri Lanka's parliament last week approved legislation to create a Gambling Regulatory Authority.

The legislation, however, has drawn criticism from experts for granting extensive powers to the finance minister, excluding state-run lotteries from oversight, omitting tourism industry representation in the authority and imposing low penalties for violations.

The government defends the legislation as vital to reduce social harm and raise employment, while it works to promote the industry.

"There has been gambling in Sri Lanka and in Colombo but not that significant," Ranasinghe said. "With the arrival of City of Dreams - clientele from all over the world, I'm sure they will also come to Sri Lanka."

(Reporting by Uditha Jayasinghe; Editing by Krishna N. Das and Raju Gopalakrishnan)

((Uditha.Jayasinghe@thomsonreuters.com;))