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 firm control over the presidency and the legislature will aid political effectiveness.
• Mr Solih will continue to pursue socioeconomic reforms and development goals outlined in the Strategic Action Plan for 2019-23. However, progress on this front will be sluggish, owing to resistance to such plans within the political circle.
• Owing to its strategic location in the Indian Ocean, the country attracts interest from India and China. Diplomatic relations with India will continue to strengthen in 2020-21 as the administration shifts its focus away from China.
• We expect real GDP to contract by4.3% in 2020, largely owing to the disruption to the tourism sector in the wake of the coronavirus pandemic. Economic growth will pick up in 2021 as the global economy gradually recovers.
• The current-account deficit will widen in 2020, mainly owing to a narrowing in surplus on the services account. As tourism activity picks up in 2021, the tourism-related surplus on the services account will expand, resulting in a narrower current-account deficit.

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Key changes since December 14th

• An anticipated increase in expenditure has prompted us to revise our fiscal forecasts. We now expect the nation to record a budget deficit equivalent to 7.4% of GDP in 2020, compared with 3.2% previously.
• Owing to severe disruption to the tourism sector, we expect the services sector to contract in real terms in 2020. Consequently, we now forecast that real GDP will shrink by 4.3% in 2020, compared with 4.7% growth previously.
• We now expect consumer prices to decline by 0.6% in 2020, compared with our previous forecast of a 0.3% fall. The change is in line with a sharp downward revision to our global oil price forecast for 2020 and weak domestic demand conditions this year.

The quarter ahead

• April 26th-GDP data (Q4 2019): The data release will show whether the deceleration in real GDP growth in the third quarter of 2019 has persisted. We expect economic growth to have slowed further in the final quarter of 2019, compared with the third quarter.
• May TBC-Tourist arrivals data (March 2020): Tourism activity is one of the main drivers of economic growth in the country and the largest contributor to the services trade surplus. This release will provide a complete picture of tourist arrivals for the first quarter of 2020 and we expect this to be much weaker than the previous year.