Overview

  • COUNTRY CONTEXT

    Maldives has a population of around 436,330 people dispersed across 188 islands. The country has been a development success; enjoying robust growth coupled with considerable development of the country’s infrastructure and connectivity. It has also provided high quality and affordable public services for its people, resulting in impressive health and education indicators with a literacy rate approaching 100%, and life expectancy of over 77 years. The country’s GDP per capita reached $11,890 in 2018, compared to $200 in 1978.

    Maldives’ current development challenges stem from risks from climate change, disaster resilience and environmental sustainability with rising levels of solid waste. Almost half of all settlements and over two thirds of critical infrastructure are located within 100 meters of the shoreline and are under immediate threat from rising sea levels.

    The additional challenge of the country’s geography leads to a dispersed population across many small islands, which makes service delivery difficult and can limit opportunities for job creation and economic diversification. Compounded with inclusion issues, this has caused relatively elevated levels of youth unemployment at 15.3 percent and low rates of women participating in the workforce.

    To respond to these challenges, the new government has reversed centralization policies of the previous government, promising to empower local councils by allocating a portion of the annual state budget and to develop at least 5 regional economic hubs across the archipelago. The government has also embarked on a series of reforms to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental human rights. Also high on the new government’s agenda is climate change.

    Real GDP grew by 6.7 percent in 2018, on the back of strong performance in tourism, construction, and trade. Preliminary estimates indicate that growth slowed down to 3.1 percent y-o-y in Q1 2019, compared to 13.1 percent in Q1 2018. Tourism contributed approximately 2.4 percentage points, followed by transportation and communication (0.7 percentage points) and financial services (0.4 percentage points). Construction declined by 23.1 percent. The opening of new resorts and infrastructure (expansion of the international airport and development of a connecting bridge) and housing projects have fueled the construction sector over the last 5 years, and the decline in construction reflects the completion of some large infrastructure projects. Tourist arrivals and bed nights increased by 18.7 percent and 14.7 percent y-o-y in H1 2019 respectively, supported by these investments and the expansion in the guest houses’ sector.

    The overall Consumer Price Index (CPI) remained unchanged in H1 2019. This was mainly driven by policy changes that led to a decrease in prices of staple food items and electricity. Price declines were more pronounced in the atolls, with the CPI falling on average by 1 percent in H1 2019, whereas the CPI for Male’ increased by 1.2 percent. Two major contributors to the decline in the atolls were food and non-alcoholic beverages and housing and utilities.

    The current account deficit is estimated to have widened to 25.3 percent of GDP in 2018, from 21.7 percent in 2017. The trade deficit increased with the rapid expansion of goods imports (24.0 percent y-o-y) linked to imports of building materials. Services exports performed strongly (11.4 percent y-o-y growth) thanks to strong tourism receipts. The current account deficit was financed mainly through debt flows and direct investment. Gross official reserves decreased to USD 677.4 million in June 2019 (2.9 months of imports), from USD 726.4 million a year before. Usable reserves stood at USD 276 million.

    Preliminary estimates suggest that the fiscal deficit widened to 4.7 percent of GDP in 2018, from 3 percent in 2017. Public debt is estimated to have reached 59 percent of GDP in 2018. According to the World Bank-IMF debt sustainability analysis, Maldives remains at high risk of debt distress. The overall deficit narrowed y-o-y in H1 2019. Revenue and grants increased by 5.3 percent y-o-y in H1 2019, with tax revenues growing by 6.3 percent y-o-y, non-tax revenues falling by 8.3 percent y-o-y (driven partly by a decline in SOE dividends) and grants more than doubling. Total spending contracted by 8 percent y-o-y in H1 2019, largely due to under-execution of the public sector investment program (-61.2 percent y-o-y). Recurrent expenditures increased by 8.8 percent y-o-y.

    The poverty headcount rate is low, at 8.2 percent using the national poverty line and 6.6 percent using the international poverty line for upper middle-income countries of USD 5.50 a day. Large disparities in welfare and other socio-economic outcomes persist, with over 90 percent of poor Maldivians living in atolls.

    Labor market challenges prevail for youth and women. Over a quarter of women are either unemployed or not looking for a job. Youth unemployment is high at 15.3 percent. The government is the top employer among Maldivians. Tourism and construction, the main drivers of growth, rely mostly on foreign labor and male employment. About two thirds of Maldivians are employed in jobs not related to tourism, suggesting a misalignment between the drivers of growth and aspirations of jobseekers.

    Outlook

    Real GDP growth is expected to slow down to 5.2 percent in 2019, with the completion of large infrastructure projects and the slow transition to new ones. Tourism is expected to continue to be the main driver of growth, with recent infrastructure investment helping relieve supply bottlenecks in the sector. Growth is expected to rebound to 5.5 percent in 2020 as these new projects pick up pace. The current account deficit is projected to narrow over the medium-term, as investment-related imports gradually subside. The overall fiscal deficit is projected to increase initially before declining over the forecast period. Public debt is projected to rise over the forecast period and peak soon after.

    Challenges

    One key challenge for the Maldives is to strike an appropriate balance between making large investments needed to close existing infrastructure gaps – potentially allowing to boost tourism, increase resilience to climate change and ease constraints in service delivery – and managing the rapid accumulation of public debt. The overall level of indebtedness is high and reserves coverage is low. The large volume of external loans and guarantees on non-concessional terms to finance infrastructure projects represents significant risks.

    Large disparities in welfare and other socio-economic outcomes across regions are a cause for concern. Poverty rates vary widely across geographic areas, and Maldivians in the southern atolls are particularly affected by poverty, with almost 1 in 5 being poor. Public sector jobs account for about 40 percent of total employment. Public-private wage differentials and other benefits associated with public employment dis-incentivize young jobseekers from taking up private sector opportunities. The projected expansion in the young labor force means that private sector alternatives will be required.

    Key priority areas for reform include: i) containing recurrent spending and improving the efficiency of social spending; ii) renewing efforts in economic and social inclusion of all regions across the country; ii) fostering private sector job creation; iii) reducing vulnerability by enhancing disaster risk preparedness; and iv) Public Financial Management reforms and other measures to improve budget credibility.

    Last Updated: Oct 16, 2019

  • STRATEGY

    Maldives became a member of the World Bank in 1978 and has enjoyed a trusted partnership with the institution over the past 41 years. Working together, the country has implemented 32 projects with over $295 million in support across many development areas.

    The World Bank Group’s Country Partnership Framework (FY2016-2019), endorsed by the Maldives and the World Bank board in May 2016, aims to support Maldives to achieve more inclusive and sustainable growth, making better use of the country’s assets – human capital, natural assets, and financial resources. Updated in 2018 based on an evolving country context and lessons from project implementation, the strategy was extended until 2020 and has three major focus areas:

    1.     Promoting economic opportunities for Maldivians through improving access and quality of primary and secondary education, expanding the economic benefits from the fishing industry, and increasing access to financial services.

    2.     Building resilience to climate change, natural hazards, and other exogenous shocks through improving environmental management, and enhancing preparedness for disaster risk management and climate change.

    3.     Strengthening fiscal sustainability through improving efficiency in public financial management.

    Maldives has a World Bank portfolio of 6 International Development Agency (IDA) supported projects with a total net commitment of $104 million. The projects are focused on fisheries, solid waste management, public financial management, and improving employment with a special focus on tourism and IT sectors. The World Bank also provides analytical support in macro monitoring and analysis, financial sector, youth and gender, health financing, social protection and poverty.

    Moving forward, the World Bank Group is in the process of conducting the second Systematic Country Diagnostic (SCD) in the Maldives. The SCD will inform the World Bank Group in formulating its next Country Partnership Framework for the Maldives. The World Bank Group plans to continue providing greater integrated support to strengthen Maldives’ fiscal sustainability, preparedness and resilience to natural disasters, and human capital development as the country continues to reduce poverty and increase prosperity for its people.

    IFC COLLABORATION

    Maldives became a member of the International Finance Corporation (IFC), a sister organization of the World Bank and member of the World Bank Group, in 1983. Since then, IFC has invested over $157 million, including over $8.5 million mobilized from other institutions.  

    IFC has one active project in its current Maldives portfolio; a 2008 equity investment in the Housing Development Finance Corporation (HDFC), which stands at US$ 2.25 million (Equity - 18% stake). IFC partnered with ADB and HDFC Investments Limited, a subsidiary of Housing Development Finance Corporation Limited, India, to provide an equity and loan investment package, which enabled privatization of HDFC, a government-owned housing finance institution. IFC and ADB invested $4.5 million, while HDFC Investments Limited provided $3.75 million. IFC and ADB also provided a $7.5 million loan each to support the project.

    In addition to housing finance, IFC has invested in several businesses, including a telecom operator, a leading hotel operator in Maldives, a finance leasing company and a Maldivian sponsor’s South-South investment in Seychelles. IFC’s advisory projects have included support for the Maldives Monetary Authority on establishing a credit bureau and drafting the Non-Banking Financial Institutions Act. IFC has also completed projects promoting green growth, such as advising on resort island energy efficiency and on solid waste management for Malé.

    Last Updated: Oct 16, 2019

  • RESULTS

    Building capacity and improving quality of educationBank assistance focused on easing constraints to providing equitable access to all levels of education from preschool to higher secondary education. The enrollment rate at the high school level rose from 26.8 percent in 2013 to 36.8 percent in 2017. Similarly, the enrollment rate at university level education rose from 10 percent in 2005 to 21 percent in 2011 to 34 percent in 2017. In addition, a total of 55 Special Educational Needs (SEN) classrooms have been established across the country.

    Strengthening Public Financial Management: With the Bank’s support, the Ministry of Finance has made considerable progress on improving transparency through making the budget and financial information available through an integrated financial management system. In addition, the Ministry has reduced the fiscal deficit – slashing it from 10.6% of GDP in 2016 to 2.5% in 2017 – and strengthened revenue collection.

    Climate change adaptation and mitigationBank interventions in wetland management have successfully established two protected areas, with management units and facilities for visitors to support the conservation of fresh/brackish water wetlands with systematic planning and wide stakeholder engagement in the Southern Atolls of Addu and Fuvahmulah. Subsequently, as a result of this success, the Government has recently declared 2 more Protected Areas through Gazette notifications – one each in the Shaviyani and Huvadhoo atolls.

    Additionally, the current portfolio is seeking to simultaneously enhance the conservation of fisheries and incomes of fishermen, through the Sustainable Fisheries Resources Development (SFRD) Project; increase renewable energy generation in the Maldives through the ASPIRE Project; create a circular economy for waste reduction, reuse, and recycling by means of integrated waste management systems that meets the requirements of the population across selected zones in the country with investments in the Maldives Clean Environment Project; and accelerate human capital accumulation, increase employment opportunities for young people, promote equitable economic and social progress in the country through the Enhancing Employability and Resilience of Youth Project.

    Last Updated: Oct 16, 2019

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LENDING

Maldives : Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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Additional Resources

Country Office Contacts

Male
Hotel Jen 4th Floor, #404 Ameer Ahmed Magu Male’ Rep. of Maldives
+960 3005289
infomaldives@worldbank.org