Update Country Report Maldives 26 May 2022

What's happened?

Tourist arrivals increased by almost 60% year on year in April, according to the data published by Maldives Immigration, the country's immigration office. Although arrivals in the first four months of 2022 recorded a sharp jump from the same period in 2021, they remain lower than the pre-pandemic levels of 2019. EIU expects total tourist arrivals to exceed 1.5m in 2022, providing a strong foundation for double-digit real GDP growth this year. However, the industry will face headwinds from rising global inflation and the war in Ukraine.

Why does it matter?

The latest data auger well for the country's economic prospects. A recovery in the tourism sector, which accounts for almost a quarter of GDP, will also have positive spillover effects on associated sectors, such as transport and communications and wholesale and retail trade. The inflow of tourists since the start of 2022 has remained robust, with a faltering of growth momentum in month-on-month terms being partly attributable to seasonal factors and, to some extent, the war in Ukraine.

The year-on-year increase in tourist arrivals recorded in April was driven by a steady inflow of visitors from India and the UK, while arrivals from the US and Europe (mainly Germany, Italy, France and Switzerland) also remained strong. Prior to the pandemic, China was the largest source market for the Maldivian tourism industry. However, as a result of strict quarantine restrictions on returning travellers (which are now likely to remain in place until 2023), outbound Chinese tourism to the Maldives will remain in the doldrums.

The local tourism industry will probably be more deeply affected than others in Asia by the war in Ukraine. Before the war, Russia was one of the top sources of visitors to the Maldives; in 2021 more 200,000 Russians arrived in the archipelago. Visitor arrivals from Russia that stood at 23,341 in January 2022 plummeted to just over 5,000 in April. Even Ukraine was among the top 10 markets in 2021, but arrivals from that country are now negligible.

What next?

In addition to the loss of tourists from Russia and Ukraine, the industry will face headwinds from tighter monetary policy settings and accelerating inflation across the globe. These factors will weigh on overall household spending and adversely affect consumers' discretionary expenditure, which will directly hit demand for tourism and hospitality services. Hence, although tourist arrivals will be higher in 2022 than in the previous year, driven by a sustained rise in visitors from Europe, India and the US, the pace of recovery will be tempered and will stay below pre-pandemic levels.