Update Country Report Maldives 16 Apr 2021

• Data released by the National Bureau of Statistics showed that real GDP in the Maldives contracted by 32% in 2020, owing to suspended tourism-the main driver of economic growth-in the second quarter and a tepid recovery in the second half of that year.
• We now expect economic growth to bounce back by 25% in 2021 (from 23.2% previously), driven by an anticipated doubling of inbound tourism. However, the size of the economy will still be smaller than in 2019.
• The country's "one island, one resort" set-up and its staff, will make it a preferred travel destination in 2021. The government's 3V strategy of "visit, vaccinate, vacation" will also boost its appeal.

Data released by the National Bureau of Statistics revealed that real GDP contracted by 30.5% year on year in the fourth quarter of 2020, improving from a 44.2% fall recorded in the previous quarter. For 2020 as a whole, real GDP declined by 32%, broadly in line with our previous estimate of 29.5%. The tertiary (services) sector, which accounts for about three-quarters of total economic output, shrank by 33.4% in October-December 2020, improving modestly from the third quarter of 2020.

Tourism services play a dominant role in the Maldivian economy, making up more than a quarter of total GDP alone. Although the size of the sector continued to shrink on a year-on-year basis in the fourth quarter, its value-added recovered by nearly 500% relative to the third quarter, on the back of the end-of-year seasonal rush. Nevertheless, the ripple effect from subdued tourism was still prominent in associated sectors, such as transport and communications and wholesale and retail trade, in October-December 2020.

Tourist inflows return to growth

Data released by Maldives Immigration (a government agency)showed that after 13 consecutive months of decline, international tourist arrivals soared by 84% year on year in March 2021, with 109,585 visitors arriving in that month. The annual growth rate was flattered partly by a low base of comparison. In absolute terms, the number of visitors still remained below the pre-pandemic levels of March 2019. That said, on a month-on-month basis, visitor arrivals rose by 13.1%, signalling a sustained recovery of the tourism sector since reopening in July 2020.

The recovery in March 2021 was led by steady inflow of visitors from India (making up almost a quarter of the month's total) under a bilateral air bubble, which has been operational since August 2020. However, surging coronavirus (Covid-19) cases in several Indian states (particularly Maharashtra) have prompted local administrations to tighten restrictions around international travel, amid other measures, in April. An unabated rise in transmission could force the state governments to keep these restrictions in place for longer, reducing outbound tourism in the coming months. Amid suspended tourist inflows from China, the onus of supporting the Maldives' tourism recovery will fall on visitors from Europe and the Middle East. Russia has emerged as a major source of tourism for the Maldives recently, with almost 23,000 arrivals in March. Germany, Ukraine and Kazakhstan together made up for about 16% of total visitor arrivals in the same month.

2021: the year of "vaxication"

Given the dominant role of tourism in the Maldivian economy, real GDP growth in 2021 will be tied closely to the resumption of international travel. Vaccination programmes in major tourist source markets will help to alleviate some of the restrictions and hesitancy around travel, but achieving mass vaccination will be a prolonged and staggered process, keeping tourist arrivals below pre-pandemic levels this year.

That said, with its vaccination rollout set to continue apace, the Maldives is well placed to attract a significant number of tourists on "vaxication" (the first trip that people take after being vaccinated) during the peak tourist season of end-2021. In addition to welcoming vaccinated tourists, the Maldivian minister of tourism, Dr Abdulla Mausoom, has announced the government's plan to launch a 3V initiative-"visit, vaccinate, vacation"-to boost tourism activity. This drive will offer two vaccine doses to travellers, encouraging weeks-long stays in the country's resorts. Most of such tourists are expected to be from high-income groups who are likely to welcome a luxurious stay as they get vaccinated. The unique "one island, one resort" set-up of the country also allows for natural social distancing, which, coupled with vaccinated resort and airport staff, will help it to attract more cautious tourists.

The Maldivian authorities expect to receive about 1.5m visitors in 2021, which will still be lower than pre-pandemic levels in 2019. We believe that this target is achievable and would be aided by ongoing travel campaigns promoting vaxications and "workcations" by the government. This informs our new forecast that real GDP will rebound by 25% in 2021, although the size of the economy will still be smaller than it was in 2019.