Political and economic outlook

• The Economist Intelligence Unit expects the Maldivian Democratic Party (MDP) to maintain its majority in the People's Majlis (the legislature). We expect the MDP to serve a full term, which will expire in 2023.
• The Maldives' substantial financing needs and India's strategic interest in the country will deepen bilateral relations in 2021-22. Ties will be cemented by active assistance from India in procuring vaccines and providing much-needed budgetary support.
• Achieving mass vaccination against the coronavirus (Covid-19) will be a high priority for the government. In the absence of supply arrangements (at time of writing), we believe it unlikely that 60% of the population will be vaccinated before mid-2022.
• Following a deep recession in 2020, we forecast real GDP to rebound by 21% in 2021, led by a sustained recovery in the tourism sector. Despite double-digit growth, GDP will remain below its 2019 level during our forecast period (2021-22).
• We expect the peg to the US dollar to be maintained in 2021-22, despite weak levels of foreign-exchange reserves. The US$150m currency swap line with India will help to reduce pressure on reserves.
• A bilateral travel bubble with India and tourism-friendly protocols in the Maldives will prop up tourism receipts, resulting in a narrowing of the current-account deficit to the equivalent of 20% of GDP in 2021, from an estimated 26.6% in 2020.

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Key changes since October 12th

• Reflecting stronger than expected prices in recent months, we now estimate that consumer prices fell by an annual average of 1.4% in 2020, compared with 1.7% earlier.
• We expect consumer prices to nudge up by an annual average of 1% this year, slower than our previous forecast of 1.5%. This reflects our assumption of a recovery in domestic demand but only a mild rally in global oil prices.
• The government's revenue receipts in the third quarter of 2020 were slightly weaker than expected, prompting us to revise our estimate of the budget deficit in 2020 up slightly, to the equivalent of 16.7% of GDP (from 16.3% of GDP previously).

The quarter ahead

• TBC-Tourist arrivals data (January-March 2021): Tourist arrivals have recorded a slow but steady recovery since the reopening of borders in July 2020. Data for the first quarter of 2021 will be indicative of the momentum of recovery in the tourism sector-the main driver of growth in the Maldives.
• TBC-Real GDP (Q3 2020): Following a historic year-on-year contraction of 51.6% in the second quarter of 2020, real GDP data for the third quarter will reflect the pace of resumption in domestic activity, including tourism services, after a three-month lockdown that ended in mid-July.