With tourism continuing to be the major source of growth in the Maldives, the economy is expected to grow in 2014 and 2015 as projected in the Asian Development Outlook (ADO) 2014 in April. In the first half of 2014, tourist arrivals grew strongly by 11.5% but less than in the same period of the previous year. The relatively successful local council and parliamentary elections this year indicate more stable political conditions than prevailed during last year’s presidential election, and this may help underpin tourism growth over the near term.

Selected Economic Indicators (%) - Maldives 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 4.5 4.5 5.4 5.4
Inflation 5.0 4.0 4.8 4.8
Current Account Balance (share of GDP) -21.8  -10.5 -22.1 -10.8

Source: ADB estimates.

Inflation in the first half of 2014 was slight, the average easing to 2.9% from 4.7% in the previous year. The improvement stems from lesser rises in prices for furnishings and household equipment and lower food prices in the first quarter. Inflation is expected to pick up in the second half of the year and into 2015 in tandem with economic growth. Reflecting this, inflation is now projected to be 1 percentage point lower in 2014, but the forecast for 2015 is retained.

Revaluation of travel receipts, mostly from tourism, substantially brought down estimates of the current account deficit in recent years. With a new basis for projection, the current account deficit is recorded as 10.1% of gross domestic product (GDP) in 2013, and the projections for 2014 and 2015 are similarly halved. As the economy expands, increased earnings from tourism will partly offset rising imports.

Risks to the outlook include high public debt and currently low capital expenditure, which throw into question the sustainability of the country’s medium-term growth. The budget deficit was slashed nearly by half to equal 4.7% of GDP in 2013, with further reductions planned to 3.2% in 2014 and 1.0% by 2016. Under the Fiscal Responsibility Act, 2013, fiscal consolidation and discipline will likely contain debt and maintain the ratio of debt to GDP at about 80% over the next 3 fiscal years, as targeted. Strong fiscal consolidation efforts may limit current expenditure in favor of expanded capital expenditure.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.