Overview

  • 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 $11,151 in 2017, compared to $200 in 1978. Real GDP growth over the past 5 years averaged 6.3 percent bolstered by construction, tourism, communications, transport, and fisheries.

    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 15.2 percent, with even much higher level in Malé, and low rates of women participating in the workforce. The combination of high unemployment and limited job opportunities for youths have made some of them vulnerable to negative social influences such as drug abuse and gang-related activities.

    To respond to these challenges, the government initiated the Greater Malé development strategy, involving investments in larger islands for improved basic service delivery, protection of households from the impact of climate change and natural disasters, and creation of economic opportunities.

    The implementation of this strategy has propelled construction as the major driver for economic growth but is costly and has led to an increase in debt and weakened fiscal position, which the Government is addressing. Construction will continue to drive near-term growth, while tourism remains the single largest contributor to the Maldivian economy.

    Following his recent victory in the 2018 presidential elections, the president-elect has pledged 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.

    Preliminary estimates indicate that growth accelerated to 9.1 percent year to year (y/y) over the first three quarters of 2018, compared to 6.6 percent over the same period in 2017. Tourism contributed 2.1 percentage points (pp), followed by wholesale and retail trade (1.8pp) and construction (1.3pp). Tourist arrivals and bed nights increased by 6.8 percent and 10.2 percent respectively y/y, supported by infrastructure investments on the international airport, the opening of new resorts, and expansion in the guest houses’ sector. However, the tourism and construction sectors are not generating employment opportunities that Maldivians are able or willing to take up.

    The overall consumer price index marginally declined by 0.1 percent in 2018, compared to an increase of 2.8 percent in 2017. This was driven mainly by a decrease in prices of staple food items and electricity, due to policy changes in food subsidies and electricity charges. The decline in prices was more pronounced in the atolls, averaging -1.4 percent for the year. Two major contributors were food and non-alcoholic beverages (-0.9 percent y/y) and housing and utilities (-9.4 percent y/y).

    The current account deficit is expected at around 24 percent for 2018, increasing from 22 percent in 2017. The trade deficit increased on the backdrop of subdued performance of goods exports (a contraction of 1.6 percent y/y) and rapid growth of goods imports (16.1 percent y/y) linked to investment projects. On the services side, exports performed strongly (10.7 percent y/y) thanks to strong tourism receipts. The current account deficit was financed mainly through debt flows and direct investment. Gross official reserves increased to $758 million in December 2018, up from $586 million a year before ($281 million after netting out short-term foreign currency liabilities to domestic banks, representing 1.3 month of goods imports).

    The fiscal deficit is expected at around 5 percent of GDP in 2018. Total spending grew by 13.3 percent between 2017 and 2018, whereas revenues and grants increased by only 6.9 percent. Increases in expenditures were driven by spending on subsidies (3.6pp of total spending), the health program Aasandha (2.5pp), allowances to employees (1.9pp), and interest costs (1.5pp), and training expenses (1.2pp). On the revenue side the full-year collection of the airport development fee helped increase receipts. Strong growth contributed positively to debt dynamics. Public debt is estimated to have reached 57 percent of GDP in 2018.

    The official poverty headcount ratio stood at 8.2 percent in 2016 (6.6 percent under the poverty line of $5.50 per person per day in 2011 purchasing power parity terms). However, many Maldivians are clustered just above the poverty line and are vulnerable to falling into poverty. The average expenditure of the bottom 40 percent of the population is 2.5 times lower compared to the average of the top 60 percent of the population. Moreover, large spatial inequalities persist with over 90 percent of poor Maldivians living in Atolls.

    Youth unemployment is high at 15.3 percent, with young males being 1.5 times more likely to be unemployed than young females, and 6 times more likely to be unemployed than their adult counterparts. Almost one in four Maldivian youth were not in education, employment or training.

    Outlook

    Real GDP growth is expected to decline gradually to around 5.2 percent by 2020, as tourism sector activity converges back to historical levels, and capital investment projects gradually taper-off. Tourism is expected to continue to be the main driver of growth, with recent infrastructure investment helping relieve supply bottlenecks in the sector. The current account deficit is projected to narrow over the forecast period, as investment-related imports gradually subside. The overall fiscal deficit is projected to increase initially before stabilizing, 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. Containing recurrent spending and improving the efficiency of social spending are key areas that require attention. The overall level of indebtedness is high and reserves coverage is low. Large volume of external loans and guarantees on non-concessional terms to finance infrastructure projects represent significant risks.

    Public sector jobs account for 40 percent of total employment. Large wage premiums and other benefits associated with public employment dis-incentivize young jobseekers from taking up private sector opportunities. Still 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 addressing key expenditure drivers in the budget; ii) improving the efficiency of Aasandha (health program) and spending in other social programs; iii) Public Financial Management reforms and other measures to improve budget credibility; iv) reducing vulnerability by enhancing disaster risk preparedness; and v) better prioritization of capital projects.

    lastupdated: Apr 02, 2019

  • Maldives became a member of the World Bank in 1978 and has enjoyed a trusted partnership with the institution over the past 40 years. Working together, the country has implemented 29 projects with over $255 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.

    Currently 4 projects worth $82 million are being implemented to realize these goals with 4 projects under preparation. The active portfolio is supported by three International Development Association (IDA) investments and one guarantee; as well the Strategic Climate Trust Fund supporting the Scaling up Renewable Energy Program. The World Bank is also providing analytical support aiming at informing policy reform decisions, sector strategy development, investments, as well as supporting institutional capacity building.

    Moving forward, 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) in 1983. Since then, IFC has invested $157 million, including $8.5 million mobilized from other institutions. IFC’s committed and outstanding investment portfolio stood at $2 million at the end of June 2017, supporting housing finance.

    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 also has completed projects promoting green growth, such as advising on resort island energy efficiency and on solid waste management for Malé.

    lastupdated: Apr 02, 2019

  • 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 mitigation: Bank 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 Gnavyani 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; and 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.

    lastupdated: Apr 02, 2019

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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