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 government 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.
• We expect the Maldives to welcome 1.5m tourist arrivals in 2022; India will remain the leading source of tourists. The recovery in the Maldives will outpace other tourism-dependent economies in Asia, including Sri Lanka, Fiji and Thailand.
• 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 the 2023 presidential election is likely to be accompanied by realignment away from India and towards China.

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Key changes since January 17th

• We now believe that government spending will increase at a faster pace than originally expected, which will push up the budget deficit/GDP ratio to 10.5% this year, compared with 9% previously. We still expect the deficit to narrow in 2023.
• Owing to an upward revision to our forecast for global oil prices (dated Brent Blend) in 2022-23, we now expect consumer prices to rise by an annual average of 2.3% during this period, compared with 1.9% earlier.

The quarter ahead

• TBC-Tourist arrivals (April): The lifting of the state of public health emergency and withdrawal of a required negative covid-19 test for international visitors will boost tourist arrivals in the coming months. The ongoing Russia-Ukraine war will hit arrivals from both nations, which are key sources of visitors to the Maldives.
• June 30th-GDP (Q1 2022): We expect real GDP growth to make a strong start in 2022, bolstered by stellar growth in tourism inflows over the year-earlier period. We expect the Maldives to receive about 1.5m tourist arrivals in 2022, but this is still below the pre-pandemic levels of 2019.