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.
• Although EIU expects the ruling Maldivian Democratic Party (MDP) to complete its term in office, which expires in 2023, the risk of political instability has risen following the formation of two distinct factions in the party, amid disagreement over the government's handling of sensitive issues such as corruption and religious extremism.
• A sustained recovery in tourism activity will be a priority for the government in 2022-23. Widespread vaccination, the "one island, one resort" set up for safe holidays, a lenient immigration policy (with no quarantine requirement) and initiatives such as offering vaccination to tourists will make the Maldives a preferred destination.
• With a brighter outlook for international travel and the country's impressive vaccination coverage providing tailwinds for economic growth over the next two years, real GDP is forecast to be back close to its 2019 level in 2023. The emergence of more contagious strains of the coronavirus presents the main downside risk to our forecast.
• We expect the rufiyaa's peg to the US dollar to be maintained in 2022-23, despite low levels of foreign-exchange reserves. A recovery in tourism receipts and a US$150m currency swap line with India will help to reduce pressure on reserves.
• The Maldives had fully vaccinated 60% of its population by mid-September, beating several other tourism-dependent economies in Asia, including Sri Lanka, Fiji, Thailand, Indonesia, the Philippines and Vanuatu.
• The Maldives' strategic location in the Indian Ocean will attract courtship by India, China and the US, which are vying to increase their influence in the region. The country will pivot closer to India under the current administration.

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Key changes since July 14th

• Factoring in the large cut in the price of internet access and weaker than expected price pressures in July-August, we now estimate consumer price inflation to average 2.3% in 2021, down from 2.7% previously.
• We forecast real GDP to grow by 16% in 2022, slower than our previous forecast of 19.5%. This incorporates a more gradual recovery in international travel, which is not expected to return to its pre-pandemic level until at least 2023.

The quarter ahead

• TBC-Tourist arrivals (October-December): Amid widening vaccination coverage, both international and domestic, we expect tourist arrivals to gather momentum during the peak season. This will lead to an anticipated doubling of tourists in 2021 as a whole, from around 555,000 in 2020.
• 31st December-GDP (Q3 2021): We expect real GDP to have returned to quarter-on-quarter growth in July-September, as the country's borders were re-opened to travellers from South Asia (mainly India, a traditional source of tourism for the Maldives). The economy struggled in April-June, during a wave of the Delta variant of the coronavirus.