Maldives Development Update : Navigating Choppy Seas

Driven by a rebound in tourism, Maldives' economy recovered sharply in 2021, and poverty is expected to return to pre-pandemic levels by 2023. In 2020, the outbreak of COVID-19 hit international travel and tourism severely and, thus, caused a 33.5 percent contraction in Maldives' GDP. However,following a successful nationwide government vaccination campaign, tourism has begun to recover strongly in the second half of 2021, with arrivalsreaching 1.3 million in 2021 or about 78 percent of prepandemic levels. As a result, GDP growth is estimated to have bounced back by 31 percent in 2021. All sectors, except for construction which remains sluggish, showed a significant rebound, particularly in the second quarter of 2021 due to the low base effect. The poverty rate, which rose sharply to 11 percent in 2020 due to the COVID-19 pandemic, is estimated to have fallen to 4 percent in 2021. External imbalances improved along with the economic recovery and rebound in tourism. While vulnerabilities remain, the fiscal and debtposition has likely improved in 2021 due to strong revenue growth. Although the economy is expected to grow strongly in the medium-term, the ongoing Russia-Ukraine war could impact Maldives' tourism recovery and growth in the near term. The impact of the Russia-Ukraine war will depend on the period of interruption and whether tourists from other countries can compensate for the loss