Economic Outline

Economic Indicators

The Maldives has been a development success until 2020, enjoying robust growth coupled with considerable development of infrastructures and connectivity. After shrinking due to the pandemic, the Maldivian economy bounced back with a 37.7% expansion in 2021, followed by 13.9% in 2022. While the Maldives has seen robust growth post-pandemic, it's now stabilizing: a drop in the average length of stays and reduced spending per tourist resulted in slower growth in 2023, reaching 4.4%. Projections indicate a 5.2% growth in 2024, driven by anticipated increases in tourist arrivals (IMF). The planned expansion of the Velana airport terminal, coupled with the expected rise in hotel accommodation capacities, is anticipated to enhance growth prospects. However, considerable uncertainty persists regarding the future outlook, with risks predominantly leaning towards the downside. This underscores the need for prompt policy adjustments to address the challenges ahead.

In 2023, travel export receipts experienced a contraction of 6.8% year-on-year, while merchandise imports remained high at USD 3.5 billion, fueled by increased imports of commodities and capital goods. Consequently, the current account deficit expanded significantly, estimated at 23.4% of GDP. Failure to execute planned subsidy reforms and a rapid escalation in recurrent and capital spending resulted in a notable surge in overall expenditure, leading to an increase in the fiscal deficit, estimated at 13.2% of GDP in 2023. In 2024, the fiscal deficit is anticipated to persist at a high level, driven by ambitious spending plans outlined in the approved Budget. There exists an unidentified financing gap exceeding USD 700 million. Consequently, the debt-to-GDP ratio is forecasted to hover around 120% over the medium term. In 2023, domestic inflation stood at 2.9% year-on-year, significantly surpassing its historical average of 0.5%. This elevated level was attributed to soaring global commodity prices and a cautiously implemented increase in the goods and services tax (GST) rate, reflecting fiscal prudence. The projected removal of blanket fuel subsidies is expected to lead to a rise in inflation in 2024 (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 25,124 PPP in 2022), and its unemployment rate was relatively low in 2023 (at 4.2%, from 4.4% one year earlier - data World Bank). The upper middle-income poverty rate (USD 6.85 in 2017 PPP) stood at 3.9%, declining compared to the post-pandemic level. However, elevated prices may influence the labor market dynamics and exacerbate existing disparities in employment opportunities, potentially resulting in a 2.5 percentage point increase in poverty levels this year, as noted by the World Bank.

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