Update Country Report Maldives 30 Mar 2022

Tourism is an important source of income for many Asian economies

• The negative economic effect of the covid-19 pandemic has been especially deep for tourism services, amid widespread border closures in 2020 and strict travel and quarantine regimes in 2021.
• The tourism industry is important for Asian economies, with such expenditure running equivalent to more than 10% of GDP on average. Island nations such as the Maldives, Vanuatu and Fiji, alongside city-state economies like Macau and Hong Kong, are among the most dependent.
• In 2022 reopening the borders and attracting international tourists will be a priority for tourism-dependent economies to support recovery. Widening vaccine access and coverage, along with the subsiding lethal nature of covid-19, provides a window of opportunity for Asian economies to reopen confidently.

Travellers care more about restriction measures than vaccination

• Our Asia's Travel-Ready (ATR) Index assesses prospects for a tourism recovery across Asian economies. Our index captures three factors that might affect international tourists' sentiment: vaccination coverage in the destination; the ease of travelling to the destination; and quarantine requirements when they return to their place of residence.

• The index allocates a greater weight to restriction factors compared with vaccination. The public perception of covid-19 has become less fearful, as a result of vaccination and the declining severity of the virus. Restrictions, on the other hand, require significant time and costs from travellers, and complicate travel plans.

• Beyond the concern of vaccination and local restrictions, testing requirements, treatment of travellers who are infected with covid-19 and uncertainty in border policies are also important causes for concern. These conditions can bring compliance costs to a level on a par with those associated with return airfare or accommodation.

High tourism-dependency countries are usually more ready to reap the benefits

• The top performers in the ATR Index, including Fiji, the Maldives and Sri Lanka, have eased their visa and entry restrictions since 2021 or earlier. A combination of broader and more effective vaccination coverage and greater reliance on tourism have lent themselves to less restrictive travel policies.
• The infectious Omicron variant has accelerated convergence of covid-19 transmission profiles across the world, rendering border measures less meaningful. This has accelerated reopenings, with Thailand, Malaysia, Vietnam, Singapore and the Philippines announcing broad liberalisation in March-April.
• North-east Asian economies, which are less reliant on tourism, have been slower to reopen. Meanwhile China, along with its territories of Hong Kong and Macau, will hold onto its "dynamic zero-covid" policy for at least 2022. While Macau benefits from a bilateral arrangement in which mainland-Chinese tourists can visit that territory without quarantine, Hong Kong-a global trade and financial hub-will suffer as it loses connectivity to the world.

Countries that reopened borders earlier mopped up the most gains

• Countries that started to open to tourism earlier have been best placed to meet pent-up tourism demand in countries with more open borders, including India, EU countries and the US. This is most evident in the case of the Maldives, where tourism in the latter half of 2021 had recovered to its 2019 level, with public health indicators no worse than neighbouring countries.
• On the contrary, countries choosing to maintain quarantine measures and reopening in a tiered fashion, like Indonesia and Thailand, have seen a slower recovery.

Dependency on outbound Chinese tourists will slow the recovery

• China was the most important tourism source market for Asian economies before the pandemic. Out of 28 economies in our index, 13 relied on China as their top source of visitors and six as the second-largest source.
• The stringent return quarantine measures that are likely throughout most of 2022 is a strong deterrent for outbound Chinese tourists, which will slow tourism recovery in markets such as Cambodia and Vietnam.
• Some countries have a diverse portfolio of tourism sources, mitigating such an impact. India is the leading substitute, which bodes well for short-haul tourism destinations in South Asia, including Sri Lanka and the Maldives.
• The revival of European outbound tourism will support recovery in popular long-haul travel destinations like Indonesia and Thailand.

Loss of Russian tourists is not game-changing for the recovery

• The Russia-Ukraine conflict will add uncertainty to the recovery of the Asia tourism market. Steep losses in income for the Russian middle-class, rouble depreciation and sanctions affecting access to foreign payment systems will have an impact on tourism demand in the country.
• Reliance on Russian tourists is low across Asia but its significance had been picking up before the war. So far in 2022, Russia has been the top tourist source of the Maldives, for example, accounting for 14.1% of tourist arrivals.
• In general, Asian air routes remain open to Russian airlines, in contrast to those in Europe.

Full tourism recovery will occur only in 2024

• With the exception of fully reopened small island nations like Fiji and the Maldives, where we expect a full recovery, most markets will see only a partial recovery in 2022, with tourist arrivals and receipts still far below the 2019 level.
• Slow growth in tourism receipts will dampen the recovery in GDP in the region. For Sri Lanka, which is facing a balance-of-payments crisis, a slow recovery in tourism will affect its foreign-exchange earnings, complicating foreign debt repayment.
• Risks that could derail a tourism recovery in 2022 persist, including: a new virulent variant of covid-19 that forces countries to reintroduce restrictions; higher oil prices that translate into higher airfares; elevated global prices that squeeze the purchasing power of consumers; and a financial crisis that shrinks the wealth of potential travellers.
• However, upside risks might outweigh downside ones, including: a full reopening of China's border within 2022; companies revising travel policies and allowing business travel to return in full swing; and a declaration from the World Health Organisation of ending the "pandemic" status of covid-19, giving countries the confidence to remove all social restrictions.
• We believe that a full tourism recovery in Asia is more likely to happen in 2024, when Chinese tourists resume international travel and confidence in travel among consumers and businesses is restored more substantially.