Update Country Report Maldives 16 Feb 2021

• Real GDP in the Maldives contracted by 44.2% year on year in the third quarter of 2020, owing to a tepid recovery in tourism-the main driver of economic growth.
• The Economist Intelligence Unit has revised its forecast and now expects economic growth to bounce back to 23.2% in 2021 (previously 21%), from an estimated 29.5% contraction in 2020, on the back of a more than doubling of inbound tourism. However, GDP will remain below its 2019 level.
• Inoculating resort workers first will boost the Maldives' attractiveness as a tourist destination, but mass vaccination is unlikely to be achieved before the first quarter of 2022.

Data released by the National Bureau of Statistics revealed that real GDP shrank by 44.2% year on year in the third quarter of 2020, compared with a 52% contraction in the second quarter. The Maldivian economy is heavily skewed towards the tertiary (services) sector, which accounts for around three-quarters of total economic output and recorded a 47% contraction in July-September. The smaller secondary sector (manufacturing, utilities and construction) also recorded a steep drop. These declines were only slightly offset by gains in the primary sector, which expanded by 34.8% year on year, owing to a healthy resumption of output from the fisheries subsector.

Tourism services slump

The economy's historically lopsided reliance on tourism services-which generally make up around a quarter of total GDP-left it badly affected by the coronavirus (Covid-19) pandemic. The Maldivian government reopened borders to international tourists in July 2020, after nearly four months of closure. Despite the resumption of tourism activity, its share of real GDP was a mere 3.4% in the third quarter, and its value added contracted by 92.5% year on year. The ripple effect from subdued tourism was also felt in associated sectors, such as transport and communications and wholesale and retail trade, which contracted by more than 50% year on year.

Wind in the sails

Data released by Maldives Immigration, a government agency, showed that in 2020 as a whole, 555,399 tourists visited the Maldives, with the number of arrivals in the fourth quarter-the peak season-rebounding by over 700% from the previous three-month period. The momentum continued into 2021, with around 92,103 international arrivals being recorded in January. Since the reopening of borders, the majority of tourists have arrived from Russia and India, with the latter operating a bilateral travel bubble with the Maldives. As the spread of more infectious strains of the coronavirus caused many governments in Europe to tighten travel restrictions in the final months of 2020, affluent residents of these countries have been escaping to warmer retreats. The Maldivian archipelago has been benefitting from this trend, witnessing a healthy inflow of tourists in January from mainland Europe (mainly Romania, France and Germany), as well as the UK and the US.

By contrast, the number of visitors from mainland China, which has traditionally been the largest source of tourists to the Maldives, has remained muted owing to the strict quarantine rules upon return to that country. Arrivals from China usually peak during the moveable Chinese New Year holiday (January-February), but have been lacklustre.

The Maldivian authorities expect to receive around 1.5m visitors in 2021, which will still be lower than the pre-pandemic level of 2019. We believe that this target is achievable and would be aided by ongoing travel campaigns by the government, as well as the global rollout of vaccination programmes, which will help to reduce travel hesitancy compared to 2020. This informs our new forecast that the economy will stage a recovery of 23.2% in 2021, although the economy will still be smaller than it was in 2019.

A shot in the arm

The Maldivian authorities launched a vaccination programme on February 1st, with resort and airport staff being included in the priority group to be inoculated. This will help further to alleviate health and safety concerns among potential visitors to the islands. The country currently has a stock of 100,000 doses of the Oxford-AstraZeneca vaccine (the only one to have been approved so far by the local drug authority) received under grant assistance from India. It is expected to receive another 100,000 doses under the World Health Organisation-led Covid-19 Vaccine Global Access (COVAX) Facility and is seeking to source the rest of its requirement through further assistance from India and commercial purchases from AstraZeneca Singapore.

By February 8th close to 13,000 people had been given the first of the two-shot regime. The government is aiming to vaccinate all citizens and migrant workers in the Maldives by the fourth quarter of 2021. Our view is less optimistic. The country has yet to sign adequate supply agreements to cover even its population, and the shipment of additional doses is likely to happen over a prolonged timeline. We therefore do not expect mass vaccination (which we have defined as 60% of the population) to be achieved before the first quarter of 2022. That said, a faster than expected procurement of doses, through active assistance from India, presents a significant upside risk to our forecast.