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FEATURE STORY

Maldives Development Update 2013

November 29, 2013

The World Bank Maldives Development Update of October 2013 shows that amidst many challenges, the country has managed to maintain moderate growth that is likely to be over 4.3% at the close of 2013.  Tourism demand is slowly picking up, and the growing Chinese tourist segment will continue to compensate for the weaker demand from Europe. This will have a positive impact on the non-tourism sectors, such as construction, communications, and fisheries, which will remain dynamic with a positive contribution to the economy.   

Contents

Maldives is spending beyond its means and financing the budget risks affecting the real economy. The deficit financing during the remainder of the year will be challenging and the current financing arrangements in the form of short-term debt, monetization, and the accumulation of arrears, pose macro risks. Loose fiscal policy has led to a significant accumulation of debt at 81% of GDP in 2012.

Challenges

The report outlines recent economic developments and the magnitude of the fiscal challenge the country is facing. Generating jobs, diversifying the Maldivian economy away from tourism into other sectors, while reducing public spending and preparing and approving a realistic budget, are among the challenges and opportunities. A policy package to curtail expenditures and raise revenues would bring public finances on a sustainable path over the medium term.

Aasandha Program

The Maldives Development Update 2013 looks at the fiscal impact of the the Universal Health Insurance program, Aasandha. Overall benefits of this program are comprehensive and the entire population is eligible for benefits without a premium contribution. The program proved to be costlier than originally envisaged and the report comes with recommendations to address its fiscal sustainability. 

The update concludes with a snapshot of the current World Bank program in the Maldives and selected economic indicators.