A sharp slowdown in tourist arrivals dragged down economic growth in the Maldives. Fiscal and external imbalances intensified. The outlook is for a modest recovery on limited improvement in tourism, the economic mainstay. Inadequate political backing for implementing decisive fiscal measures in recent years and the difficulty of achieving economic diversification and generating employment threaten to restrain rapid and inclusive growth.

Economic performance

Growth in gross domestic product (GDP) in 2012 slowed to 3.4% from 7.0% in 2011 as tourism and related activities, which directly provides 28% of GDP, sharply decelerated. Other related tertiary sectors such as wholesale and retail trade, transportation, and communications are also affected. Growth in tourist arrivals slumped to 2.9% in 2012 from 17.6% in 2011, as recession in Europe and the slowdown in the global economy combined with uncertainty created by domestic events to stymie the industry. The continued influx of visitors from the People’s Republic of China, up by 15.6%, was the bright spot in the market, while growth in arrivals from other Asian countries slowed to 1.5%. Tourist arrivals from Europe fell by 3.7%, slashing the European market share to 54% from over 70% only 5 years earlier, as the Asian share nearly doubled to 38%. Tourist spending edged up a miniscule 0.3% in 2012, stalling from 9% growth a year earlier.

Source: ADB estimates.

Economic prospects

The economy of the Maldives is forecast to recover modestly to grow by 4.3% in 2013 and 5.5% in 2014, as the anticipated gradual global economic recovery boosts tourism. Higher spending ahead of the planned August 2013 national elections is expected to add a fillip to growth. In 2014, the new government may initiate the implementation of its intermediate macroeconomic policy, and the direction thus provided may improve local investment in the tourism sector.

Source: ADB. 2013. Asian Development Outlook 2013. Manila.

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