The Maldives is facing significant economic challenges that require immediate and comprehensive reforms, according to the World Bank's latest country economic update. The report, titled "Maldives Development Update: Seeking Stability in Turbulent Times," highlights vulnerabilities in the country's fiscal and external sectors.
In the first half of 2024, the Maldivian economy experienced growth rates of 7.7% and 4.5% in the first and second quarters, respectively. This growth was supported by an 8.5% increase in tourism during this period. However, inflation remained low at 0.5%, while food prices rose by 6.7%.
Concerns have been raised about increasing public debt and high fiscal spending on public sector investments and subsidies. Although there was a reported drop in the fiscal deficit for the first quarter of 2024, delays in payments are affecting critical sectors like healthcare and construction.
Foreign exchange reserves have declined from $590.5 million at the end of 2023 to $443.9 million in August 2024, covering only 1.5 months of imports. Public debt has increased to 116.5% of GDP in early 2024 from 110.4% a year earlier.
The government introduced a fiscal reform plan in February 2024, but progress has been limited. The Medium-Term Revenue Strategy has been endorsed as a positive step; however, urgent measures are needed to reduce spending through decreased public investments, phasing out subsidies, improving health spending efficiency, and reforming state-owned enterprises (SOEs).
"Maldives has made remarkable progress in realizing its development aspirations, but protecting these achievements and scaling them up will depend on addressing the current fiscal challenges,” said David Sislen, World Bank Regional Country Director for Maldives, Nepal, and Sri Lanka.
The report also addresses climate risks such as sea-level rise and coral reef degradation that could impact the economy significantly by reducing GDP by up to 11 percentage points by 2050 under worst-case scenarios.
The Maldives Development Update is part of the South Asia Development Update series by the World Bank that reviews economic developments across South Asia twice a year.