Political and economic outlook

• The Economist Intelligence Unit expects the president, Ibrahim Mohamed Solih, of the Maldivian Democratic Party (MDP), to serve a full term, ending in 2023. The MDP's emphatic victory in the April 2019 parliamentary election will enhance political stability.
• The MDP's strong performance in the latest legislative election has ensured that the party now controls both the presidency and the legislature, which will aid political effective-ness and smooth policymaking for the government.
• The government will pursue policies designed to put the country's public finances back on a more sustainable footing after a bout of intense spending on infrastructure under the previous presidential administration of Abdulla Yameen Abdul Gayoom.
• We believe that economic growth will average 4.5% in 2020-21 as the economy adjusts to the government's planned fiscal retrenchment measures, which are likely to be imple-mented over the next few months.
• Despite the tourism-related surplus on the services account, a wide merchandise trade deficit will ensure that the Maldives continues to post current-account deficits in 2020-21. The scale of the deficit will ease, however, as construction-related imports fall.

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Key changes since June 25th

• In view of the latest data, which show that the exchange rate of the rufiyaa against the US dollar has been weaker than we anticipated, we now estimate an average exchange rate of Rf15.38:US$1 in 2019 and forecast an average rate of Rf15.37:US$1 in 2020..

The quarter ahead

• October 27th-GDP data (Q2): The data release will show whether the weakness in year-on-year real GDP growth recorded in the first quarter of 2019 persisted in the subsequent months. We estimate that average real GDP growth will decelerate to 5% in 2019, from an estimated 7.5% in 2018.
• December-Tourist arrivals data (October): Tourism activity is one of the main drivers of economic growth in the country and the largest contributor to the services trade surplus. Although growth in tourist arrivals has been fairly strong in 2019, we expect it to moderate slightly in 2020.