How the present recession compares with past downturns

Over the past 4 decades, global economic recessions and other economic downturns have imposed a number of complex, interrelated and severe consequences on the Maldivian economy. On each occasion, the analysis suggests that the country had witnessed a slowdown in economic activity, rising unemployment and a weak balance of payments position threatening international reserves.

While every recession is uniquely different in many ways, virtually all recessions are caused because of the occurrence of one or more of the following events: massive global supply shocks resulting from a change in the price of oil, major global conflicts, instability in the financial and banking sectors, global pandemics, rising public debt, and demand shocks caused by an in-appropriate mix of macroeconomic policies. Shocks, by definition, always come as a surprise with no prior warning. Both the 2014 Tsunami and the COVID-19 global pandemic has demonstrated that natural disasters can turn into economic disasters.

Source: IMF/World Bank online data series

The analysis also reveals that despite periodic improvements in economic performance, caused by intermittent global economic shocks and sustained fiscal expansion, the underlying balance of payments position had remained weak for the most part of the past 40 years. The table below presents the implications of economic shocks that had impacted the economy during the period 1980-2020 on macroeconomic variables.  As reflected in the table, global economic and environmental shocks have almost always, reduced economic growth, worsened external payment position, added pressure to the exchange rate, falling foreign reserves (undermining the credibility of the exchange rate regime) and have led to further recovery-related borrowings adding to the existing stock of high public debt.

Is was also found that following a temporary improvement in economic activity underpinned by global recovery and the resulting improvements in tourism, such recovery has been temporary and the fragile development achievements are exposed to greater vulnerabilities. In the end, owing to sustained macroeconomic instability and limited fiscal space, the country is left having to deal with two concomitant crises.

The economic recession due to the present COVID-19 pandemic is unique and different from all past shocks; the present situation has become prolonged, and the road to recovery is laced with many uncertainties, as the situation has been very volatile, both on the global and domestic front.

The year 2021 began with hopes of tourism recovery, and total tourist arrivals for 2021 was estimated by this newspaper at 1,053,000 in our previous article. 

Since then, the COVID-19 situation in the Maldives has worsened, with daily numbers exceeding 1,000 over the past 4-5 days. A daily record peak of more than 1,500 positive cases was reported on 11th and 12th May 2021.

Due to the surge in COVID-19 cases in India, guest houses and hotels in local islands are no longer allowed any tourists from India effective from 27 April 2021. The ban was extended to all tourists from South Asian countries from 09 May 2021. On 11 May, the Health Protection Authority (HPA) announced that effective 13 May, tourists visas for tourists arriving from all South Asian countries will be halted. UK has recently published their ‘Green’ list of countries that will not require quarantine when Britons come back home from those countries. Maldives has been placed in the ‘Red’ list.

Considering, all these factors, and the recent arrival trends, the arrivals forecast for 2021 is estimated to be lower than previous estimates.

However, with the recent restrictions by the Health Protection Authority, including the imposition of a curfew from 4.00pm – 4.00 am in capital Malé where cases have surged, and provided COVID cases are brought under control, the country could continue the tourist arrivals trends it saw in the first quarter of this year. Maldives still remains a relatively safer destination, owing to its geographical isolation of the islands.