Maldives: Economic and Political Overview
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The Maldives has been a development success until 2020, enjoying robust growth coupled with considerable development of infrastructures and connectivity. After suffering a significant economic downturn caused by the pandemic, the Maldives has experienced a remarkable recovery, thanks to the government's effective policy measures. With the resumption of tourism activities, the country's real GDP growth rebounded strongly, surging from a record-low contraction of 33.5% in 2020 to a robust expansion of 37% in 2021. In 2022, the IMF estimated the country’s growth at 10.5% thanks to buoyant tourism activity and associated spillovers to related sectors such as transportation and trade. GDP is forecast to continue growing this year and the next, although at a slower pace (6.6% in 2023 and 5.7% in 2024 – IMF).
The Maldives experiences chronic budget deficits partly due to imports for infrastructure development, an indicator that plummeted due to the COVID pandemic. In 2022, the double-digit fiscal deficit persisted (14.3% of GDP) due to heightened capital expenditure, a rise in interest payments, and an increase in wage expenses. Although the banking system remains stable, bolstered by robust reserves, potential hazards arise from the connection between the government and the banking sector. Moreover, sustained aid to State-Owned Enterprises (SOEs) amplified the vulnerabilities of the fiscal situation. In fact, The Maldives is still exposed to a significant risk of external debt distress and an overall high risk of debt distress. Although the total public and publicly guaranteed (PPG) debt-to-GDP ratio has decreased from its pandemic peak of 154% of GDP in 2020 to 122.6% in 2022 thanks to the economic rebound, it is anticipated to remain elevated in the medium term (around 117% in 2023-24). As external financing requirements are predicted to increase, it will add pressure on the already limited reserve buffers, heightening the possibility of debt rollover hazards. China has established its influence through a free trade agreement and significant infrastructure investments (over USD 1.2 billion) under the Maritime Silk Roads project. Moreover, loans from China make up 45% of the country’s national debt. Inflation has risen but is contained due to price subsidies (3.9% in 2022) and is projected to increase further, reaching 4.9% in 2023, reflecting the persistence of high costs of energy and food, spending pressures for the 2023 elections, and the one-off impact of the planned goods and services tax hikes in 2023 (IMF). 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. Furthermore, considering that 80% of its territory is less than one meter above sea level, the government is worried in the long term about the impact of erosion and global warming on the low-lying country.
In the current context, the Maldives remains a relatively prosperous country in South Asia in terms of GDP per capita (USD 36,358 PPP in 2022 - IMF), and its unemployment rate remains relatively low (at 6.4% in 2021 according to the World Bank, latest data available). However, poverty remains a serious problem, with 15% of the population living below the national poverty line and insufficiently developed infrastructure. The population is largely dependent on state aid (subsidies, social benefits), thus the recent fiscal consolidation measures could also lead to increased social tensions.
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
| GDP (billions USD) | 6.24 | 6.98 | 7.50 | 8.16 | 8.82 |
| GDP (Constant Prices, Annual % Change) | 13.9 | 8.1 | 5.0 | 6.5 | 5.9 |
| GDP per Capita (USD) | 15,962 | 17,559 | 18,568 | 19,872 | 21,111 |
| General Government Gross Debt (in % of GDP) | 114.4 | 110.3 | 111.8 | 108.4 | 105.1 |
| Inflation Rate (%) | n/a | 3.5 | 2.8 | 2.2 | 2.0 |
| Current Account (billions USD) | -1.05 | -1.15 | -0.96 | -1.01 | -0.85 |
| Current Account (in % of GDP) | -16.8 | -16.4 | -12.8 | -12.4 | -9.6 |
Source: IMF – World Economic Outlook Database, October 2021
The agricultural sector accounts for 5.3% of GDP and around 8% of total employment (World Bank, latest data available). The agricultural sector of Maldives is based primarily on coconuts and other tree crops with only around 4,000 hectares under other agriculture crops (FAO). Most of the agricultural produce from the islands is used for local consumption in the islands and atolls. Fishing is the second-largest industry in the Maldives after tourism: more than 20% of the labour force of the Maldives is employed in the fisheries sector and fish and fisheries products account for more than 98% of the physical exports from the country by quantity and value.
The industry sector is relatively small, contributing 8.9% of GDP and 19% of employment. The traditional industries consist of boat building and handicrafts, while the fish-processing industry is the most important. Overall, the manufacturing sector is estimated to account for only 2% of GDP.
The economy of the Maldives is based on services: overall, the tertiary sector accounts for around 73% of both total GDP and employment. Tourism and related services directly contribute to 40% of the economy, 80% of exports and 60% of exchange reserves. According to the latest data by the Maldives Inland Revenue Authority (MIRA), tourism trade turnover reached USD 3.9 billion between Jan-Nov 2022, up from USD 2.4 billion in the same period one year earlier. Maldives registered 1.49 million tourist arrivals by the end of November 2022, close to the level recorded before the pandemic.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 10.5 | 26.4 | 63.1 |
| Value Added (in % of GDP) | 5.3 | 8.9 | 73.2 |
| Value Added (Annual % Change) | -0.6 | 4.5 | 46.8 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
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Latest Update: November 2023
