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Overview

  • Maldives has a population of around 515,696 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 78 years. More than 30 percent of the population live in the capital city Male’, while the rest are distributed among just under 200 other inhabited islands. Basic human development indicators are high. Maldives ranks 101 out of 189 countries in the Human Development Index (HDI) for 2017, the second-highest HDI rank in South Asia. The country’s GDP per capita reached $11,890 in 2018, compared to $200 in 1978.

    The country is physically vulnerable to rising sea levels. Eighty percent of the total land area of the country, which is less than 300 square kilometers, is lower than 1 meter above the mean sea level. The country’s exposure to natural hazards and climate variability poses a threat to lives and the economy. 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 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 current government’s agenda is climate change.

     

    Recent Developments

    After three years of rapid expansion, real GDP growth decelerated to an estimated 5.2 percent in 2019 due to a slowdown in retail trade and construction. Tourism flourished in 2019 as visitor arrivals grew by 14.7 percent (y-o-y). Total arrivals reached a record 1.7 million.

    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 narrowed to an estimated 21.8 percent of GDP in 2019 as imports of machinery and materials declined. Despite record tourist arrivals, tourism-related services exports only grew by 4.1 percent y-o-y in 2019 compared to 10.4 percent y-o-y previously. Gross official reserves increased to USD753 million at end-2019, but usable reserves (after netting out short-term foreign currency liabilities to domestic banks) only amount to USD316 million, equivalent to 1.4 months of goods imports.

    The COVID-19 outbreak has had a debilitated effect on tourism, which directly and indirectly accounts for two-thirds of GDP, but also due to suppressed construction activity. Revenues fell by an estimated 23.4 percent in the first quarter of 2020 (y-o-y) as tourist-related revenues shrank, whereas spending grew by 10.2 percent. Central government debt rose to an estimated 61.8 percent of GDP in 2019 from 58.5 percent in 2018.

     

    Outlook

    Real GDP is expected to contract by 8.5 percent in 2020, 13.9 pp lower than the baseline (pre-COVID-19). This is mostly due to the slump in tourism, which directly and indirectly accounts for two-thirds of GDP, but also due to suppressed construction activity.

    The shock to tourism adversely affects employment and household earnings, as one-third of adult males and a quarter of females are engaged in tourism-related jobs. Lower-income households that depend on fisheries are also affected as exports of raw fish have ceased due to weak demand. The national poverty rate is expected to increase as households close to the poverty line would likely fall into poverty due to the loss of income sources. A larger impact is expected in the atolls, as there is greater dependence on fisheries and the poverty rate was already higher.

    As of end-February 2020, usable reserves have further declined to USD278 million, as lower tourist flows reduce foreign exchange earnings.  To prevent price hikes as COVID-19 disrupts imports, the authorities have implemented a range of price controls on staple foods. In addition, to ensure financial system stability, the Maldives Monetary Authority (MMA) announced measures aimed at providing liquidity to financial institutions. The MMA also obtained a foreign currency swap facility amounting to USD 150 million with the Reserve Bank of India. The Maldives maintains a de facto stabilized exchange rate arrangement.

     

    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: Apr 10, 2020

  • 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 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 8 International Development Agency (IDA) supported projects with a total net commitment of $127 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 and urban development. 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 also is benefiting 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 has initiated a $7.3 million 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.

    In addition, 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 in 2019. 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 Male’.

    Last Updated: Apr 10, 2020

  • 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; 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; enhance resilient infrastructure and urban planning in selected and strengthen the government’s capacity to provide effective response to disasters through the Maldives Urban Development and Resilience Project (MUDRP); and prevent, detect, and respond to the COVID-19 pandemic and strengthen public health preparedness through the Maldives COVID-19 Emergency Response and Health Systems Preparedness Project

    Last Updated: Apr 10, 2020

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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