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.
• The Maldivian Democratic Party controls the presidency and legislature. EIU expects the incumbent president, Ibrahim Mohamed Solih, to win another term. But the participation of the opposition leader, Abdulla Yameen Abdul Gayoom, who secured a 42% vote share in the 2018 election, will make the 2023 presidential election a hard-fought contest.
• The government will focus on the recovery of tourism in 2022-23, keeping the Maldives a popular destination for tourists. It will also focus on implementing planned measures that were put aside amid the pandemic, which include tackling corruption and human rights abuses, which had spread under the previous administration.
• The pace of economic recovery will slow in 2023 compared with 2022, but we still expect real GDP to be 5.7% larger than its 2019 level. Growth momentum in 2023 will be driven by the return of tourists from China, an important source of tourism in 2019, as we expect China's strict zero-covid policy to be eased from mid-2023.
• 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 more than 1m tourist arrivals in 2023, with India continuing to be the leading source country. 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. A victory for the Progressive Party of Maldives in the 2023 presidential election (not our forecast) would probably lead to a realignment away from India and towards China.

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Key changes since April 10th

• The strong recovery in tourist activity in 2022 will push up the value of services exports in the year. We now expect the surplus in the services balance to widen in 2022, improving from our previous expectation of a narrowing of the surplus.
• We expect a larger import bill, pushed up by elevated global commodity prices and higher import demand due to recovering tourist activity, to result in a widening of the trade deficit in 2022 from US$1.9bn to US$2.7bn.

The quarter ahead

• TBC-Tourist arrivals (July): The absence of strict quarantine and masking requirements, and a higher inflow of tourists who are likely to shift away from rival destinations such as Sri Lanka, will boost tourist arrivals. Despite the number of visitors from Russia and Ukraine remaining subdued, we expect overall tourist activity to recover strongly in 2022.
• September 30th-GDP (Q2 2022): We expect real GDP growth to accelerate in the second quarter of 2022, as tourism inflows will recover in the absence of containment measures that were in place during the year-earlier period. The country is expected to receive about 1.5m tourist arrivals in 2022, but this is still below the pre-pandemic levels of 2019.