ECONOMIC RECOVERY
November 10, 2010 - The economy of the Maldives is expected to rebound after a slump in 2009 due to the financial crisis. With the recovery of tourism and fiscal stability, the economy is expected to grow 4% in 2010 after a 3% contraction in 2009.
TOURISM REBOUNDS
Tourism accounts for around 30% of GDP in the Maldives and was greatly affected during the financial crisis. The sector has seen a steady rebound since the second half of 2009 and arrivals increased 29% in July 2010 compared to July 2009. The total number of arrivals for the first seven months of 2010 increased to almost 440,000 – a record number so far.
Fortunately, tourist arrivals growth in Maldives fell less sharply than the global average during the crisis and has been rebounding more strongly in 2010. The report expects over 10% growth in arrivals this year. It is also notable that more tourists now comparatively come from fast-growing emerging countries rather than high income countries. In the last few years, China has emerged as the largest source of tourism for the Maldives, surpassing the UK.
DECLINE OF FISHERIES
The fishing industry is a distant second to tourism (3% compared to 30%) in its contribution to GDP, but 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. The causes of the drop in fish-catch are poorly understood, but may be related to changing ocean currents and rising costs of fuel in recent years. Consequently, earnings from fish exports declined by 5%, to US$36.7 million during Jan-July 2010, despite the higher tuna prices in the international market.
BALANCE OF PAYMENTS
Despite tourism’s rebound, the current account deficit continues to widen. The immediate post-crisis era has resulted in a growing trade deficit but is improving with the current account deficit decreasing to 30.8% of GDP (or US$ 402.9 million) in 2009, from nearly 52% of GDP (or US$ 647.3 million) in 2008, while the overall balance recorded a surplus of US$ 20 million, compared to a deficit of US$ 68 million in 2008.
Maldives is one of the most open economies in the world, largely because imports are so significant (over 90% of GDP in 2009). Food and fuel products make up almost 60 percent of imports. The recent rise in international food and fuel prices, therefore, raises concern that the current account deficit may widen more than expected in 2010 and put pressure on foreign exchange reserves.
WORLD BANK ASSISTANCE
The World Bank is currently supporting three investment projects, a pension project, and an economic stabilization and recovery credit. The investment projects are worth around US$ 36.5 million, with support ranging from improving access to financial systems on mobile systems, to improving health and education services, and protecting the environment.
