Update Country Report Maldives 15 Feb 2019

Event

According to the National Bureau of Statistics, real GDP growth accelerated to 8.9% year on year in the third quarter of 2018, from 6% in the previous quarter.

Analysis

The tourism sector, which accounts for almost a quarter of the Maldives' GDP, continued to drive economic growth. Earnings from tourism activity rose by 5.2% year on year in July-September 2018, achieving a modest acceleration from the previous quarter. The sector has seen unusually rapid rates of expansion in recent quarters, owing in part to the opening of several new accommodation facilities for tourists and the addition of new international air routes. Construction activity also rose by a strong 19.8% year on year, propelled by the development of new resorts and infrastructure projects. The growth in these sectors was partially offset by a decline in output from the transport and communication segment, which is the second-largest sector of the economy.

We expect economic growth to decelerate in 2019-20 as ongoing infrastructure projects funded by Chinese debt are wound down. The new government has indicated its inclination to re-establish stronger bilateral ties with India, which is likely to make the country's relationship with China difficult. This in turn will have a negative impact on the inflow of tourists from China, which provides for the largest share of visitors to the archipelago (19.1% in 2018, according to data from the Ministry of Tourism). The government's efforts to consolidate a wide fiscal deficit will also weigh on economic growth during the forecast period.

Impact on the forecast

In light of the latest data, we will revise up our estimate for real GDP growth in 2018 from 6.4% to around 7.5% in our next forecasting round. We will also revise up our forecasts for economic growth in 2019-20. However, we maintain our view that the pace of economic expansion will be slower during the forecast period than in 2018.