Maldives: Economic and Political Overview

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.

Main Sectors of Industry

 The agricultural sector accounts for 4.9% of GDP and around 7% 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 labor 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 10.3% of GDP and 25% 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 73.3% of total GDP and 67% of 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 Monetary Authority, as a tourism-centric economy, the surplus on the services account is a fundamental aspect of the Maldives' current account. However, in 2023, this surplus declined by USD 333.9 million, totaling USD 2.8 billion, down from an estimated USD 3.1 billion in the previous year. The decrease in the services surplus was primarily attributed to a decline in tourism-related receipts, aligning with the decrease in resort bed nights throughout the year, despite an increase in total tourist arrivals and bed nights. Additionally, the services surplus contracted due to the rise in travel expenditure, reflecting the increased demand for international travel by Maldivians.

 

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.

 

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Monetary Indicators	2016	2017	2018	2019	2020
Maldives Rufiyaa (MVR) - Average Annual Exchange Rate For 1 MUR	0.43	0.45	0.45	0.43	0.39

Source: World Bank - Latest available data.

 

 

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Indicator of Economic Freedom

Definition

Definition:

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.

Score:

55,2/100

World Rank:

136

Regional Rank:

31

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

 

Foreign Trade in Figures

The Maldives, which is composed of 1,200 islands, depends heavily on trade, which represents around 143% of the GDP (World Bank, latest data available). The state budget relies primarily on revenues from import duties; therefore, tariffs are relatively high (the average applied tariff rate is 10.6% according to the World Bank). However, as part of its trade policy, the government has removed quotas for the majority of products, and customs procedures have been simplified (obtaining an import license is almost automatic). The State Trading Organisation (STO) remains the country's largest importer, but the government is seeking to include more private partners. Fish products account for almost the entirety of Maldivian exports (93% in 2023), while imports are led by hydrocarbons (22%), transport equipment (19%), food items (19%), and machinery (8% - data Maldives Monetary Authority 2023).

In 2023, the Asian market maintained its dominance as the primary export destination for Maldivian exports, holding a significant share of 66%. Following closely was the European market, capturing a share of 31% during the same period. Within the Asian market, Thailand emerged as the leading export destination, constituting 54% of total Maldivian exports in 2023, marking an increase from 49% in 2022. Meanwhile, the share of exports to India experienced a slight decline, reaching 3%. Furthermore, the UK emerged as the top European export market, representing 14% of total Maldivian exports in 2023—an impressive rise from the 9% recorded in 2022. Following behind, Germany and France constituted the second and third largest export markets from the region, respectively. In terms of import sources, the majority, constituting 84% of total imports, originated from Asia. India led the way, contributing the highest share of imports to the Maldives at 16%, followed by Oman and the United Arab Emirates (UAE). Imports from Europe, accounting for 9% of the total, experienced a decline of 7% (equivalent to USD 24.3 million) during the year. Among European suppliers, while Germany witnessed a notable increase in imports to the Maldives, this growth was somewhat mitigated by declines in imports from France and the Netherlands (data Maldives Monetary Authority).

The country possesses few raw materials and, as such, relies heavily on imported oil and finished products. As a result, the Maldives imports much more than it exports, which creates a structural trade deficit. According to the Maldives Monetary Authority, in 2023, total merchandise exports, comprising domestic exports (38%) and re-exports (62%), saw a 5% increase, totaling USD 421.4 million. This uptick was primarily fueled by a significant rise in re-exports earnings. Conversely, total merchandise imports (c.i.f) experienced a marginal 1% decrease, totaling USD 3.5 billion by the end of 2023 compared to the previous year. The decline in merchandise imports was chiefly driven by a notable 9% decrease in import expenditure on all petroleum products, especially diesel (marine gas oil), reflecting the global decline in crude oil prices during the year. Despite a slight increase in the volume of such imports, the average global crude oil prices dropped to USD 80.8 per barrel in 2023, down from USD 97.1 per barrel in 2022. As a tourism-dependent economy, the surplus on the services account plays a crucial role in the Maldives' current account. In 2023, however, the surplus on the services account decreased by USD 333.9 million, amounting to a total of USD 2.8 billion, down from an estimated USD 3.1 billion in the previous year.

Sources of General Economic Information

Ministries

Ministry of Economic Development
Ministry of Finance

Statistical Office

Maldives Bureau of Statistics

Central Bank

Maldives Monetary Authority

Stock Exchange

Maldives Stock Exchange

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