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 Maldivian Democratic Party (MDP) to complete its term in office, which expires in 2023, the risk of political instability has risen with the leader of the main opposition Progressive Party of Maldives (PPM) having been acquitted by the Supreme Court, making him eligible to contest the presidential election.
• A sustained recovery in tourism activity will be a priority for the govern-ment in 2022-23. Widespread booster 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.
• The country's impressive vaccination coverage and liberal visa policies will provide tailwinds for economic growth over the next two years; real GDP is forecast to be 4% larger than 2019 levels by 2023. Easing of travel restrictions will boost both global tourism demand and competition from other travel destinations.
• 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 recorded 1.3m tourist arrivals in 2021, more than double the 2020 levels and far outpacing tourism recovery in several other tourism-dependent economies in Asia, including Sri Lanka, Fiji, Thailand and Indonesia.
• The Maldives' strategic location in the Indian Ocean will attract courtship by India, China and the US. Although not our forecast, a PPM victory in 2023 presidential elections is likely to be accompanied by a realignment away from India and towards China.

Download the numbers in Excel

Key changes since October 17th

• Factoring in a stronger-than-expected economic rebound in the third quarter and strong tourism inflows in the final quarter of 2021, we now estimate real GDP to have grown by 30% over the year (18.6% previously), following a 33.6% contraction in 2020.
• Softer-than-expected consumer price growth over six months to November 2021 has prompted us to lower our annual average estimate to 0.7%, from 2.3% previously.

The quarter ahead

• TBC-Tourist arrivals (January-March): The emergence of the Omicron variant of covid-19 pushed countries across the world to temporarily tighten travel restrictions, and a local surge in the Maldives in January will add further to trip cancellations. Tourism inflows from China around the Chinese New Year will be minimal.
• March 31st-GDP (2021): Real GDP is estimated to have rebounded strongly in 2021, from a deep recession in 2020, driven mainly by a stellar growth in tourism inflows over the second half of the year. The Maldives welcomed 1.3m tourists in 2021, more than double from 2020, and visitors stayed for three additional days on average relative to 2019..