Political and economic outlook

• The Maldivian economy is heavily skewed towards the services sector, which makes up more than three-quarters of GDP and is led by tourism services. The country relies heavily on bilateral assistance for budgetary support.
• The Economist Intelligence Unit expects the ruling Maldivian Democratic Party (MDP) to complete its term in office, which expires in 2023. The party's majority will shield it from a possible break-up of the ruling coalition in 2021-22.
• Achieving mass vaccination against the coronavirus (Covid-19) will be prioritised owing to the importance of tourism. We expect 60% of the population to have been vaccinated by the third quarter of 2021.
• After a deep recession in 2020, we forecast that real GDP will rebound by double digits in 2021, led by more than a doubling of tourist arrivals from 2020 levels. That said, real GDP will still be marginally below 2019 levels by end-2022.
• We expect the peg to the US dollar to be maintained in 2021-22, despite low levels of foreign-exchange reserves. Recovering tourism receipts and a US$150m currency swap line with India will help to reduce pressure on reserves.
• The Maldives will be one of the first countries in Asia to achieve mass vaccination of 60% of the population, with an inoculation pace that is comparable to that of Israel and the UAE. India's active assistance in supplying vaccines remains critical.
• The Maldives' strategic location in the Indian Ocean will attract significant courting by countries like India, China and the US, who are vying to increase their influence in the region.

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Key changes since January 13th

• Owing to the inoculation rate in the first two months of the country's vaccination drive and the vaccine procurement pipeline, we now expect mass vaccination by the third quarter of 2021 (from the first quarter of 2022 previously).
• Our optimistic vaccination call supports our forecast that tourist arrivals in 2021 will more than double from 2020 levels, and that real GDP will grow by 23.2% this year-faster than our previous forecast of 21%. Historical data have been rebased to 2015 prices.
• We forecast that the budget deficit will narrow only to 14.4% of GDP in 2021, compared with 9.5% previously, accounting for the government's decision to provide free vaccinations for all. It also reflects higher capital expenditure to support economic recovery.
• A stronger than previously expected rally in global oil prices this year has prompted us to revise upwards our forecast for consumer price inflation to an annual average of 2.7% in 2021, from 1% previously.
• Higher oil prices will also inflate the import bill, leading to a widening of the current-account deficit, to the equivalent of 23.3% of GDP (from 20% previously).

The quarter ahead

• TBC-Tourist arrivals (March-May): Year-on-year growth will return to strength from March, distorted by the low base of comparison in 2020, when tourist arrivals contracted by 80% before being suspended completely in the second quarter of that year.
• TBC-Vaccine procurement (second quarter): The government is expecting to receive about 1m doses of the Oxford University-AstraZeneca (UK/Sweden) vaccine under different arrangements. Although we do not expect a bulk delivery, even an average of 100,000 doses per month will be enough to maintain the current pace of inoculation.