Ahmed Arshad, a desk clerk, has lived with his wife and daughter in 19 different apartments since he got married 30 years ago. With each move, his family’s quality of life has worsened. He started out with a salary of MVR 100 (about US$6.50) per month, 30 years ago. He now receives MVR 8,500 (US$552), but this is barely enough to cover his rent – even though he lives in subsidized public housing.
Residents of the capital Malé like Arshad describe their housing situation as being nothing short of dire. Problems such as exorbitant rental prices, poor housing quality and overcrowding persist. These issues were highlighted in the Maldives Public Expenditure Review (PER), which assesses the quality of government spending in selected areas such as public housing, state-owned enterprises, public wages and pensions.
Maldives’ economy has rebounded strongly from the COVID-19 pandemic, which led to a historic 34 percent decline in GDP in 2020. Maldives leveraged its “one island, one resort” model, diversified its tourism markets, and rapidly vaccinated its population to attract tourists back to its shores. Despite the challenges posed by the war in Ukraine, including higher inflation and fewer tourists from the region, growth prospects remain positive.
Nevertheless, multiple fiscal and external imbalances persist in the economy, which, if left unaddressed, could lead to a crisis. Even before the pandemic, the government was spending beyond its means. Although Maldives collected revenues comparable to its peers, the revenue-to-GDP ratio had begun to stagnate and was heavily reliant on tourism. Meanwhile, between 2014 and 2019, annual growth in public spending was nearly double the average growth in real GDP. As a result, Maldives ran much larger budget deficits than even its small island counterparts. To sustain this, the country borrowed heavily, leading debt to reach US$6.1 billion or an estimated 125 percent of GDP by the end of 2021.
Public infrastructure, including housing and health, have been the biggest drivers in the growth of spending and debt. However, spending more has not helped Maldives meet its development goals. Despite heavy state subsidies and guarantees for large-scale housing projects, housing is still unaffordable for most Maldivians, leading multiple families to live together and hence to overcrowding.