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Overview

  • Maldives has a population of around 515,696 people dispersed across 185 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 78 years. More than 30 percent of the population live in the capital city Male’.

    Maldives has managed to attain upper middle-income status and reduce poverty mainly through the successful development of high-end tourism. According to official estimates, only 3.6 percent of the population lived below the poverty line for upper middle-income countries (US$ 5.50/person/day in PPP) in 2016. However, heavy reliance on tourism, which directly accounts for a quarter of GDP, makes the economy vulnerable to external shocks. Although growth aver-aged 5.7 percent from 2000 to 2019, natural disasters and global shocks have repeatedly caused large and sudden swings in output.

    The COVID-19 pandemic is the largest shock to have ever hit the Maldives’ economy. The government closed borders between end-March to mid-July 2020, resulting in a sudden stop of tourist inflow. To mitigate the adverse welfare impacts of the crisis, the government spent USD 187 million or about 4.7 percent of estimated 2020 GDP on special financing facilities for firms and freelance workers, monthly income support allowances, and discounted utility bills.

    Restoring fiscal and debt sustainability along with investments in renewable energy and digital technologies, as well as economic diversification are key to building back better. Even before the pandemic, Maldives was already at high risk of overall and external debt distress. Reliance on external non-concessional loans to finance the ambitious public infrastructure agenda has led to a large increase in debt. The large contraction in GDP and additional borrowing due to COVID-19 have further elevated debt vulnerabilities. Delaying large public investment projects until the economy strengthens would help to alleviate these pressures.

    Recent Developments

    Maldives’ economy is estimated to have contracted by 28 percent in 2020 as tourism and construction activity slumped. Only 555,494 tourists visited the country, a third of the number in 2019. Since December, however, tourism has picked up strongly thanks to the absence of quarantine requirements and the unique ‘one island, one resort’ concept. Approximately 189,000 tourists, mostly from Russia and India visited Maldives in January and February 2021; however, this is still 42 percent below the comparable period in 2019.

    Against this backdrop of anaemic economic activity, prices fell by an average of 1.4 percent y-o-y in 2020. The deflation was more pronounced in Malé than in the atolls, but in both cases driven by housing and utilities (reflecting lower rent and oil prices), as well as information and communications services. Food prices, however, rose by 3 percent on average, driven by an increase in tobacco duties.

    The goods trade deficit narrowed from US$ 2.5 billion in 2019 to US$ 1.5 billion in 2020, as a compression in imports out-weighed the decline in exports. Imports fell by an estimated 36 percent y-o-y, driven by lower imports of raw materials as construction activity contracted. Lower imports of food and fuel due to lower tourist arrivals and lower oil prices, respectively, also contributed. Meanwhile, exports fell by 20 percent y-o-y, mostly due to a large decline in re-exports of jet fuel from fewer international aircraft movements. However, exports of fish increased by 3 percent, boosted by a large increase in exports of processed fish in the second half of the year.

    Maldives maintains a de facto stabilized exchange rate arrangement. Official reserves recovered from a low of US$ 569.8 million at end-August 2020 to US$ 855.7 million at end-February 2021, as tourists returned and the Maldives Monetary Authority activated the remainder of its US$ 400 million foreign currency swap arrangement with the Reserve Bank of India. The central bank also implemented measures to manage shortages of US dollars. Usable reserves – netting out short-term liabilities – amounted to US$ 156.5 million at end-February 2021, equivalent to a month of 2020 goods imports.

     

    The fiscal deficit reached 20 percent of estimated GDP in 2020. While the sudden stop in tourism led total revenues and grants to fall by 35 percent y-o-y, total expenditures fell only by 4.5 percent. Although the government cut recurrent spending by 9 percent, capital expenditures are estimated to have grown by 7 percent. As a result of the higher deficit and negative growth, total public and publicly guaranteed debt is estimated to have increased to 139.3 percent of GDP in 2020 from 78.4 in 2019.

    With most Maldivians dependent on tourism and fisheries for their livelihoods, World Bank estimates based on household survey data indicate that the poverty rate has increased from an estimated 2.1 per-cent in 2019 to 7.2 percent in 2020.

    Outlook

    Assuming its borders remain open to visitors, Maldives is expected to receive 1 million tourists in 2021, about 60 percent of the 2019 number. Real GDP is therefore projected to grow by 17 percent in 2021. The rebound in growth largely reflects base effects and assumes a continuation of strong tourism inflows especially from Russia and India. Although medium-term prospects for tourism are strong, real GDP is not expected to return to pre-pandemic levels until 2023, in line with global aviation and travel forecasts. The poverty rate is expected to decline slowly over the medium term to 2.7 percent in 2023.

    External and fiscal imbalances will remain elevated. Despite the recovery in tourism receipts, the current account deficit is expected to widen over the medium term as imports linked to tourism and construction normalise. The fiscal deficit is expected to decline as revenues recover but is forecast to remain in double-digits due to expansionary fiscal policies. The 2021 Budget, for example, targets a 45 percent increase in capital expenditures from 2020, while revenues are not expected to cover current expenditures. With the recovery in growth, the debt ratio is expected to moderate to 131.4 percent of GDP in 2023.

    Challenges

    Risks are heavily tilted to the downside and some are outside Maldives’ control, such as the pace and effectiveness of COVID-19 vaccinations globally. The outlook may deteriorate if more stringent restrictions on international travel are reintroduced. The low level of usable reserves and high indebtedness pose significant risks to macroeconomic stability.

    Against this backdrop of slower growth and high debt, addressing core spending needs will be a challenge. Additional financing may be difficult to raise in the near-term given rising debt levels and the global nature of the shock. Greater fiscal prudence would help address fiscal and debt sustainability risks. In particular, large public infrastructure investments that are not urgently needed in a context of weak aggregate demand could be postponed.

    The COVID-19 shock has shed renewed light on the importance of strengthening the Maldives’ resilience to external shocks. Although there are plans to develop agriculture and fishing to diversify the economy, the scarcity of arable land is a binding constraint. Focusing on higher value-added financial and business services could create good jobs, but the growth of these sectors is currently constrained by a shortage of local skills. Investing in human capital, including by retraining and upskilling workers, can help Maldives build back better. 

    Last Updated: Mar 29, 2021

  • World Bank Program and Maldives

    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 38 projects with over $371.37 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 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 portfolio of 10 International Development Agency (IDA) supported projects with a total net commitment of $148 million. The projects are focused on fisheries, solid waste management, public financial management, improving employment with a special focus on tourism and IT sectors, renewable energy, urban development, COVID-19 response, and improving the country’s health systems. In addition, the Bank is supporting a Disaster Risk Management development policy financing with a Catastrophe Deferred Drawdown Option (Cat DDO) instrument to provide immediate liquidity in the aftermath of a disaster due to an adverse natural event including public health emergencies. The Government has also benefited from a fiscal sustainability and budget credibility development policy financing operation, that supports to improve the policy framework to enhance sustainability of public finances and strengthen the policy framework to increase credibility of budget.

    To enable the Maldivian Government, combat the current COVID-19 pandemic, the World Bank initiated a $7.3 million (with an additional $7.3m co-financing from AIIB) emergency health operation to help the Maldives prevent, detect and diagnose the novel coronavirus. The project is aligned with the country’s 10 National Health Policy Goals, specifically the goal to “enhance the response of the health system in emergencies” including those related to natural disasters and severe disease outbreaks. The support is critical for the Government to continue its investment in improved emergency preparedness, including resources to rapidly respond to public health emergencies before they escalate beyond control. With a fragile ecological profile, high population density in Male, and tourists from all over the world, it is crucial to effectively prevent, control and respond to public health emergencies in a timely manner. Additionally, the Bank has also financed a $ 12.8 million COVID-19 Emergency Income Support Project (since expanded with additional financing of $21.6 million) to mitigate the economic impact of the COVID-19 crisis on workers and their families, and to increase the capacity of social protection programs to respond to future emergencies.

    The World Bank also provides analytical support in macro monitoring and analysis, financial sector, youth and gender, health financing, social protection and poverty.

    The World Bank Group conducted the second Systematic Country Diagnostic (SCD) in the Maldives at the end of 2019. The SCD will inform the World Bank Group in formulating its next Country Partnership Framework for the country. 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 Male’.

    Last Updated: Mar 29, 2021

  • Building resilience against shocks: The COVID-19 Emergency Income Support Project has delivered over MVR 318.8 million as income support to workers who suffered loss of income or jobs due to the COVID-19 pandemic. The Project provided monthly income support of up to MVR 5,000 for 19,741 Maldivians between April and December 2020, during which time tourism arrivals were sharply lower and lockdowns constrained local economic activity. In addition to providing income support, the COVID-19 Emergency Income Support Project is assisting retrenched and displaced workers to improve their skills and find new employment. The project is also financing the design of an unemployment insurance program to protect Maldivians against future shocks, strengthening the delivery of pension and social assistance programs, and developing a new National Social Protection Framework to guide future policy.

    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.

    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 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. In addition, in September 2020 four eco-rich sites in Addu City has also been designated as protected areas, which has been already submitted to the United Nations Educational, Scientific and Cultural Organization (UNESCO) in 2019, for consideration to list as Biosphere Reserves of Addu. Through the interventions in renewable energy, the Bank has also signed installation for 6.5 MW of solar installations with another 11 MW in the pipeline to be bid shortly. These installations lead the way for the largest renewable energy and storage project in the Maldives, with a capacity of 36 MW of solar including floating PV, 50 MWh of storage and grid upgrades.

    Additionally, the current portfolio is seeking to: enhance the conservation of fisheries and incomes of fishermen through the Sustainable Fisheries Resources Development (SFRD) Project; increase renewable energy generation, mobilizing private investments,  through the ARISE Project; create a circular economy for waste reduction, reuse, and recycling by means of integrated waste management systems through the Maldives Clean Environment Project; accelerate human capital accumulation, increase employment opportunities for young people, and promote equitable economic and social progress in the country through the Enhancing Employability and Resilience of Youth Project; and enhance resilient infrastructure and urban planning in selected urban centers and strengthen the government’s capacity to provide effective response to disasters through the Maldives Urban Development and Resilience Project (MUDRP).

    Last Updated: Mar 29, 2021

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LENDING

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

*Amounts include IBRD and IDA commitments


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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