Maldives: Economy

A revival in tourism and sustained construction and infrastructure spending at a pace higher than expected will likely extend this year’s growth rate to 2016, which is an upgrade from the earlier projection.

Selected economic indicators (%) 2015 2016
  ADO 2015 Update ADO 2015 Update
GDP Growth 6.3 5.9 5.1 5.9
Inflation 3.0 1.6 2.5 2.5
Current Account Balance (share of GDP) -6.3 -8.9 -6.1 -9.0

Source: Asian Development Outlook 2015; Asian Development Outlook 2015 Update

Economic performance

Maldives Tourism growth in the Maldives was much slower than expected in the first half of 2015, increasing by only 1.3% against 11.5% in the previous year, despite upbeat tourist arrivals globally and in Asia. Occupancy fell by 4.2%, compared with growth at 6% in 2014. Improved economic prospects in Europe may also help offset the effects a marked slowdown in arrivals from the People’s Republic of China, which in recent years have buoyed tourism.

Construction grew more strongly than expected during the first half, with related imports growing by nearly 42% and bank credit to the industry rising by about 40%.

Monthly inflation in Malé, the capital, remained low at less than 2.0%, aided by the continued decline in global food and fuel prices and low domestic fish prices during the first half of 2015.

Economic prospects

On balance, the forecast for growth is trimmed for 2015 despite an expected revival in tourism from Europe. Robust construction is likely to continue in light of the large infrastructure projects now under way and the increase in public capital spending budgeted for this year and 2016. Inflation in 2015 is expected to be slightly lower than the March forecast before it picks up in 2016 as world prices advance moderately.

The current account deficit is now expected to widen in 2015 and 2016 more than previously anticipated because of unexpectedly large imports for construction, lower retained earnings from tourism, stronger domestic demand, some increase in the prices of oil and consumer goods.

High public debt is a significant issue given the high volatility of earnings from tourism, even though the fiscal deficit has recently narrowed from the double digits. Debt sustainability is a risk because of plans to massively scale up public capital investment over the next 3 years, at least 30% financed through loans, and the demonstrated difficulty of cutting back current spending.

Excerpted from the Asian Development Outlook 2015 Update.