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 its 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 2021-22.
• On the back of a resumption in tourism and ongoing work on infrastructure projects in 2021, we expect real GDP to expand by 21% that year, following an estimated contraction of 29.5% in 2020.
• We expect the peg to the US dollar to be maintained in 2021-22, despite weak levels of foreign-exchange reserves. The prevalence of a currency swap line with India will help to reduce pressure on reserves.
• As tourism activity picks up in 2021, the surplus on the services account will expand, resulting in a narrowing of the current-account deficit to the equivalent of 23.2% of GDP in 2021, from an estimated 27.9% in 2020.

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Key changes since July 17th

• We have revised our estimate for 2020 following the release of data for the second quarter, which showed the economy contracting by 51.6%, year on year. We now see real GDP contracting by 29.5% compared with 15.2% previously.
• On the back of a 39% year-on-year fall in revenue receipts in the first half of 2020, and increased spending on public-sector investment programmes, we now estimate the budget deficit will widen to the equivalent of 16.3% of GDP, compared with 7.8% previously.
• A tepid restart of tourism and weak external demand will widen the current-account deficit to an estimated equivalent of 27.9% of GDP in 2020, compared with 23.6% previously.

The quarter ahead

• TBC-Tourist arrivals data (October-December 2020): Following the reopening of borders on July 15th, tourist arrivals were merely a trickle in the third quarter of 2020. Incoming data for the fourth quarter will be indicative of the momentum of recovery in the tourism sector-the main driver of growth in Maldives-going forward.
• TBC-Government finance statistics (September-December 2020): Despite weak GST and import duties collection, tax receipts rebounded to pre-lockdown levels in August, as business tax receipts rose significantly following the easing of restrictions in July. Data for the remainder of 2020 will be indicative of the pace of economic recovery.