Maldives Economic Survey 2021

Maldives economic success is driven by the rapid growth of tourism and fisheries sector, which is presently a middle-income country. There are however major challenges in management of public finances which have resulted in large investment in infrastructure financed by China, thus a large and growing fiscal deficit is envisaged. GDP (Purchasing Power Parity) is $6.901 billion (2017 est.) and GDP per capita (Purchasing Power Parity) $19,200 (2017 est.) as per CIA Country Fact Sheet report.

The World Bank has projected that the Maldivian economy will grow by 22.3 percent this year in regional update report titled ‘Shifting Gears: Digitization and Services-Led Development’ published in October this 2021 largely due to low base effects. The Report projects economy to grow by 11 percent in 2022. Forecasts for this year is on the presumption that the Maldivian borders will remain fully open for the rest of the year – with at least 1.1 million tourist arrivals; double the number of arrivals recorded last year.

Meanwhile, World Bank March 2021 estimates the economy to have contracted by 28 percent in 2020 as tourism and construction activity slumped. Only 555,494 tourists visited the country, a third of the number in 2019 as per the World Bank. Official reserves recovered from a low of US$ 569.8 million at end-August 2020 to US$ 855.7 million at end-February 2021, as tourists returned and the Maldives Monetary Authority activated the remainder of its US$ 400 million foreign currency swap arrangement with the Reserve Bank of India as per the World Bank.

The fiscal deficit reached 20 percent of estimated GDP in 2020 total revenues and grants fell by 35 percent y-o-y, total expenditures fell only by 4.5 percent.

As a result of higher deficit and negative growth, public and publicly guaranteed debt increased to 139.3 percent of GDP in 2020 from 78.4 in 2019. The poverty rate has increased from an estimated 2.1 per cent in 2019 to 7.2 per cent in 2020 as per the World Bank. Real GDP is therefore projected to grow by 17 percent in 2021. With the recovery in growth, the debt ratio is expected to moderate to 131.4 percent of GDP in 2023.

Risks are heavily tilted to the downside and are based on resumption of global travel which will come about only through COVID-19 vaccinations globally. Prioritizing large infrastructure projects will reduce the load on the fiscal deficit and address the large public debt. Diversifying the economy beyond tourism and fishing, reforming public finance, increasing employment opportunities, and combating corruption, cronyism, and a growing drug problem are near-term challenges facing the government. Over the longer term, Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is 1 meter or less above sea level as per the World Bank.