ECONOMIC RECOVERY
May 11, 2010 - The Maldives saw a decrease in GDP by 3% due to the global downturn in tourism following the financial crisis. The government has created a Strategic Action Plan for economic recovery and the GDP is expected to increase by 4% this year.
BACK FROM THE BRINK
May 11, 2010 - A rebound in tourism will help drive a rebound in economic growth this year. Real GDP growth fell by a better-than-anticipated 3% in 2009. Tourism is the lifeblood of the Maldivian economy, accounting for almost 30% of GDP and there has been recovery since the end of 2009.
Although the fishing industry accounts for only 3%, it is the second largest foreign exchange generator and an important employer. Fish-catch levels have declined continuously since 2006, falling an additional 22% in 2009 from those of 2008. The recent rebound in international tuna prices fed into increased earnings in the last months of 2009 and could indicate support to the sector going forward, if maintained.
BALANCING THE BUDGET
The financing of unsustainable deficits in 2008 and 2009 has led to a sharp build-up of public debt, prompting the World Bank and the IMF to classify Maldives as being at moderate risk of debt distress. This risk should diminish with the continuation of the planned fiscal austerity measures.
Fiscal policy has been the key factor behind the rise in macroeconomic imbalances in recent years and is now the key focus of the government’s stabilization attempts. Government actions to reduce government expenditures from 63 percent of GDP in 2008 have centered on reducing the public service wage bill.
Measures thus far include reducing public service wages by up to 20%, raising electricity tariffs by 30% in Male, and introducing an airport tax to bolster revenues. These measures have reduced the fiscal deficit by about 4% of GDP. The uptick in tourism is expected to support the balance of payments.
MALDIVES DONOR FORUM
The Maldives Donor Forum (March 28-29, 2010) was an opportunity for the government to describe to development partners the challenges it faces and the measures it has taken in recent months to lay the foundations of an economic turn-around. It was also an opportunity for the government to present the five prioritydevelopment functions of its Strategic Action Plan (SAP).
The government identified five priority areas which lack adequate resources to ensure meaningful outcomes. These priority areas are closely linked to the SAP’s key themes of good governance, social justice and economic development.
WORLD BANK ASSISTANCE
World Bank staff are currently preparing a progress report on implementation of the Bank’s current Country Assistance Strategy in order to better support the government’s implementation of key development objectives.
The World Bank has a approved a number of initiatives and project including a Mobile Phone Banking Project, an Environmental Management project, and an economic stabilization and recovery credit to assist the country into returning to economic growth.
