Update Country Report Maldives 15 Jul 2021

• The Economist Intelligence Unit expects tourism activity to gather momentum in the second half of 2021, owing to an easing of restrictions in the Maldives and the reopening of the country's borders to travellers from South Asia.
• However, our revised forecast of an 18.6% rebound in real GDP in 2021 marks a downgrade from our previous forecast of 25%, owing to the weaker than expected performance in the second quarter, when tourist inflows were depressed by a surge of Covid-19 in the country and in South Asia.
• Looking ahead, the Maldives is well placed to benefit from the ongoing recovery in international travel, owing to its impressive vaccination drive and natural set-up for safe visiting.
• Returning tourists are expected to stay for longer on average, after a year-long pause on their international travel. This will allow tourism receipts to recover more quickly than the number of arrivals.

With the curfew lifted in the Greater Male area (which houses the majority of the population) in early July and the reopening of the country's borders to South Asian tourists from July 15th, we expect tourism activity in the Maldives to gather momentum in the second half of this year. This will be supported by an anticipated pick-up in international travel and widespread vaccination among local inhabitants and resort staff.

The peak year-end tourist season is likely to be particularly strong, as the country's "one island, one resort" set-up will make it a preferred destination for a safe getaway. We continue to expect a doubling of inbound tourism from 2020 levels, but now expect it to fall short of the authorities' target of 1.5m visitors in 2021. Our new growth forecast of 18.6% for real GDP (at market prices) in 2021 represents a downgrade from our previous forecast of 25%, reflecting a weaker than expected first half of the year. Despite the double-digit recovery, the Maldivian economy will remain smaller than its 2019 level in 2021.

Covid-19 outbreaks create another bump in the road

Data released by the National Bureau of Statistics in early July revealed that real GDP contracted by 8.6% year on year in the first quarter of 2021, improving from a (revised) contraction of 36.1% in the final quarter of 2020. The tertiary sector, which accounts for over three-quarters of total economic output, shrank by 6.3% in January-March-a marked improvement from the 37% contraction in the previous quarter, led by a pick-up in tourist activity.

We expect this sequential recovery to have lost steam in the April-June quarter, when a surge in domestic Covid-19 infection forced the authorities to tighten restrictions on people's mobility and economic activity in May and June. Visitor arrivals were further depressed by travel bans imposed by several European countries and a tightening of the Maldives' own immigration policy, amid a surge in Covid-19 infections caused by the Delta variant in South Asia-and particularly India, one of the Maldives' main sources of inbound tourism.

Data published by Maldives Immigration (a government agency) showed a consistent rise in monthly tourist arrivals in the first quarter of 2021, peaking at 109,585 visitors in March, before a slide in the second quarter. Overall, total visitor arrivals in the first half of 2021 rose by 33% over the year-earlier period, when the country's borders were closed to international tourists between late March and mid-July 2020. However, visitor numbers remained below the pre-pandemic levels recorded in the first half of 2019. Europe-particularly Russia-accounted for the majority of tourists in the first half of 2021, overshadowing the traditional leading source markets of India and China.

A smoother journey ahead

Our forecast of the economic recovery gaining fresh momentum in the second half of this year is based on our assessment that the Maldives is well placed to benefit from an ongoing (albeit choppy) recovery in international travel. Although outbound tourism from China will continue to be depressed for the remainder of this year, as Chinese tourists will still be required to undergo long periods of quarantine after re-entering the country, tourists from India are expected to return in strong numbers, which will provide a major boost to overall tourism activity during the year-end peak season.

The country's impressive inoculation programme, with around 60% of the local population and 97% of resort employees having received at least one dose by mid-July, will help it to attract a significant number of tourists on "vaxication" (the first trip that people will have taken since the onset of the pandemic). The crunch in vaccine supplies, owing to the suspension of exports from India, is expected to ease in the second half of July with the expected procurement of 2m doses of the Oxford University-AstraZeneca (UK) vaccine. The consignment will be delivered as part of an order of 7m doses placed by the government with AstraZeneca Singapore, under a commercial purchase agreement. We continue to expect that 60% of the population will be fully vaccinated by the end of the third quarter.

In addition to welcoming vaccinated tourists, the government also plans to launch a "3V" (visit, vaccination and vacation) programme, under which it will offer two vaccine doses to travellers, encouraging stays of several weeks at the country's resorts. The majority of tourists visiting the Maldives are from high-income groups who are likely to be attracted by and able to afford a luxurious stay. However, the administration has also stated that the initiative will be rolled out only after the entire local population has been completely vaccinated, which is unlikely to be achieved this year.

The recovery in tourism receipts is also likely to be more pronounced than the number of tourists, as the average duration of each visit increases. This trend of "revenge travel", whereby tourists who were unable to travel abroad in 2020 are motivated to take longer holidays this year, was visible in the first quarter of 2021; the average duration of a stay in the Maldives jumped to nine days, from an average of six days in 2019. We expect this to persist in the second half of 2021 as more and more people are inoculated globally and partake in longer holidays after a year-long hiatus.