Maldives

Economic growth is expected to remain positive over the medium term, driven by tourism. However, substantial fiscal and external imbalances present rising liquidity and solvency concerns. Maintaining economic stability requires significant fiscal consolidation while protecting the poor and vulnerable from declining welfare. Tourism, representing about 21 percent of GDP, continues to bolster economic activity. Tourist arrivals have increased significantly, with China, Russia, and Western Europe being the leading markets. While the completion of the Velana International Airport’s new terminal brings an opportunity for further acceleration in tourism growth, average bed night and spending per tourist will be important factors for medium-term growth prospects.

Substantial increases in government spending and reliance on non-concessional borrowing for infrastructure projects have intensified fiscal and external vulnerabilities, considerably elevating public debt. Persistently large fiscal and current account deficits have led to a decline in foreign reserves. High subsidies, while creating fiscal vulnerabilities, have notably supported the budgets of vulnerable households.

The government announced a fiscal adjustment reform agenda in early 2024, focusing on reducing blanket subsidies and replacing them with targeted transfers, rationalizing capital spending, reforming state-owned enterprises, and reducing rising public health spending. Implementation of these reforms has been delayed, leading to rising fiscal and external pressures and a build-up in expenditure arrears. This has raised concerns regarding the financial health of certain sectors in the real economy.

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Maldives’ economic growth moderated in early 2025, reflecting a slowdown in the tourism sector despite a 9.4 percent rise in arrivals. The increase in visitors was offset by shorter stays, which weakened real GDP growth to 2.5 percent in the first quarter. Inflation rose to an average of 5 percent in the first half of 2025, driven by higher prices for food, fish, and accommodation. Fiscal policy was tightened due to liquidity constraints, resulting in reduced expenditure—particularly capital spending. With improved revenue performance, the fiscal balance recorded a surplus of MVR 1.2 billion (1.1 percent of GDP) by end-June 2025. However, delayed payments to contractors and state-owned enterprises suggest an accumulation of expenditure arrears. Public and publicly guaranteed debt increased to US$9.5 billion, equivalent to 126.9 percent of GDP, driven by rising reliance on domestic borrowing. External sector pressures remained elevated, though the current account deficit was projected to narrow to 15.3 percent of GDP on the back of stronger fish exports and tourism receipts. Official reserves improved to US$774.5 million, or about 1.8 months of imports, following a currency swap with the Reserve Bank of India and new foreign exchange regulations. However, usable reserves remained below one month of imports, underscoring persistent external liquidity constraints.

Maldives continues to face high debt distress risks. Limited financing options, persistent foreign exchange shortages, and heavy near-term debt obligations—including a US$500 million Sukuk repayment in 2026—pose major solvency challenges. Credit rating downgrades and higher market yields have restricted external borrowing, while domestic banks’ exposure to the sovereign has grown. Fiscal reforms have lagged, with delays in subsidy rationalisation, capital expenditure adjustments, and state-owned enterprise restructuring, further straining the budget. The Sovereign Development Fund’s liquid balance, estimated at around US$80 million in July 2025, remains insufficient to cover upcoming external repayments.

Economic growth is projected to moderate to around 4 percent over the medium term, as shorter tourist stays offset gains from expanded airport capacity. Inflation is expected to stay elevated at 4.6 percent before easing gradually. The fiscal deficit, temporarily contained by liquidity constraints, is forecast to widen to 13 percent of GDP by 2026–27, pushing public debt close to 135 percent of GDP. Risks remain substantial, including potential external shocks to tourism, rising global commodity prices, or delays in implementing fiscal reforms. A credible medium-term fiscal consolidation and financing strategy—centred on targeted subsidy reforms, SOE restructuring, improved expenditure efficiency, and prioritised investment—will be crucial to restore macroeconomic stability and sustain growth.

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The Maldives and the World Bank have been partners since 1978, and the World Bank has supported diverse development initiatives throughout that time. Currently, the Maldives has an active portfolio of 10 projects (eight IDA, one IDA guarantee, one regional), totalling $193.83 million. These projects span crucial sectors like fisheries, solid waste, energy transition, employment, social protection, urban development, education, digital advancement, youth resilience, and financial management.

The World Bank also provides vital analytical support for fiscal reforms, including public asset and investment management, health financing, social protection, and poverty assessments. The Country Partnership Framework (2023-2027), launched in January 2023, guides this engagement. It aims to help the Maldives achieve a greener, more resilient, and inclusive high-growth future by improving resilience to shocks, expanding economic opportunities, and enhancing human capital outcomes. Deepening the digital economy is a cross-cutting theme to accelerate economic transformation.

The International Finance Corporation (IFC), which the Maldives joined in 1983, has invested nearly $250 million to foster private sector-led growth. IFC's strategy addresses key development gaps in financial inclusion, housing, tourism, and sustainable infrastructure.

Because tourism is the largest economic sector, it is a primary focus. IFC has invested over $50 million in John Keells Holdings and the Crescent Fund to promote green and sustainable tourism. IFC also bolsters access to finance for SMEs and entrepreneurship through support for financial institutions, notably a $50 million investment in the Bank of Maldives.

To strengthen connectivity and drive economic growth, IFC has invested $35 million in Dhiraagu, the country's leading telecommunications provider. This partnership accelerates the Maldives' digital transformation and supports Dhiraagu's initiatives for a diverse and inclusive workplace. IFC collaborates closely with the World Bank to achieve sustainable growth across key economic sectors.

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The Maldives Competitiveness and Growth Project (MCGP) strengthens the private sector by enhancing SME access to loans and technical support, while reforming selected State-Owned Enterprises (SOEs) to boost private participation. Digital Maldives for Adaptation, Decentralization, and Diversification (DMADD) promotes broadband competition, modernizes ID systems for online services, and improves climate data analytics. IDA support through the Maldives Clean Environment Project (MCEP) helps island communities improve waste management and recycling, including plastics. The Transforming Fisheries Sector Management in South-West Indian Ocean Region and Maldives (TransFORM) Project enhances fisheries sector competitiveness, biosecurity, decarbonization, and private sector engagement. The Country Environmental Assessment (CEA) and Climate Development Report (CCDR) provide insights into coastal resilience, sustainable development, and tourism’s environmental impact. Public financial management is improving with support from the World Bank, enabling greater transparency via an integrated financial system.

Accelerating Sustainable Private Investment in Renewable Energy (ASPIRE) and Accelerating Renewable Energy Integration and Sustainable Energy (ARISE) projects drive the clean energy transition by mobilizing private investment in solar infrastructure and scaling renewable energy, storage, and grid upgrades—reducing fuel import costs. To prepare youth for the labor market, Maldives: Enhancing Employability and Resilience of Youth (MEERY) Project strengthens education, skills, and entrepreneurship systems, while Sustainable and Integrated Labor Services (SAILS) builds resilience through integrated labor services. The Atoll Education Development Project (AEDP) improves curriculum delivery, teacher development, and access to higher secondary education, enhancing overall school performance.

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