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 reform and the 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 archipelago attracts interest from India and China. The government is likely to use the country's location to garner financial concessions from both countries in 2020-21.
• We expect real GDP to contract by 15.2% in 2020, largely owing to the disruption of the tourism sector in the wake of the coronavirus (Covid-19) pandemic. Economic growth will pick up in 2021 as the global economy recovers gradually.
• The current-account deficit will widen in 2020, mainly owing to a narrowing of the surplus on the services account. As tourism activity picks up in 2021, the related surplus on the services account will expand, resulting in a narrower current-account deficit.

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Key changes since April 13th

• An anticipated increase in expenditure has prompted us to revise our fiscal forecasts. We now expect the government to record a budget deficit equivalent to 7.8% of GDP in 2020, compared with 7.4% of GDP previously.
• Owing to severe disruption in 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 15.2% in 2020, compared with our previous forecast of a 4.3% contraction.
• We now expect consumer prices to decline by 1.7% on average in 2020, compared with our previous forecast of a 0.6% 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

• TBC-Tourist arrivals data (July 2020): Tourism activity is one of the main drivers of economic growth in the country and the largest contributor to the services trade surplus. Data for this month are likely to show a small flow of international tourists visiting the islands, after a four-month hiatus when tourist visas were suspended.