A downturn in tourism brought markedly slower growth in the Maldives in 2015 and combined with higher capital spending enlarged budget and current account deficits, even as inflation fell to a record low. The outlook is for moderate growth on tepid recovery in tourism and on further infrastructure spending intended to foster economic diversification and higher, less volatile growth over the long term.
|Selected economic indicators (%) – Maldives||2015||2016 Forecast||2017 Forecast|
|Current Account Balance (share of GDP)||-12.6||-12.6||-10.5|
Source: Asian Development Outlook 2016
Growth in the gross domestic product (GDP) braked to an estimated 1.5% in 2015 from 6.5% a year earlier as tourism contracted and transport growth slowed markedly. As most taxes are tied to tourism, growth was cut further due to a fall in tax earnings net of subsidies. Growth came largely from robust public investment that propelled a doubling of construction growth to over 40%.
In sharp contrast with previous years, tourism contracted by over 4% as growth in arrivals slowed and bed-night occupancy slipped. Growth in tourist arrivals declined to 2% from 7% in 2014 despite upbeat tourism globally and in Asia. Arrivals from the People’s Republic of China (PRC) - which accounts for 30% of the total - fell by 1% following 6 years of rapid growth and despite resilient outbound travel from the PRC. Arrivals from Europe - which has a 44% market share - picked up but only slightly. Despite some growth in arrivals, bed-night occupancy, which largely determines earnings, fell by 4.3% as the average stay continued to shorten.
The growth outlook rests heavily on prospects for tourism and public-led investments. Growth will be driven in the near term by investment, as external economic developments will likely keep recovery in tourism modest and gradual over the forecast period.
Arrivals growth may pick up moderately to 5% in 2016, broadly in line with the tourism outlook for Asia. Bed-night occupancy and earnings are projected to recover to positive but minimal growth, held back by the short average stay preferred by Asian tourists. The PRC will continue to lead arrivals growth, but less so in view of recent trends, notably moderating economic growth there and stronger competition from nearer destinations. A stronger pickup from Europe may be expected as economic recovery there gathers pace. Strengthened marketing, new flights, and the opening of 10 new resorts are seen to boost travel interest. Integrated resorts for the middle-income segment that are expected to open by 2017 would also help augment tourism numbers.
Growth will come largely from strong public investments fueling construction and real estate development. The government plans for its public sector investment program to grow by about 140% to 9.1 billion rufiyaa in 2016, with growth easing to 6% in 2017. Most of the investment surge is to be financed through external loans, while domestic borrowing is to be kept restrained.
Assuming similar investment growth in 2015, construction-led industrial growth is projected to reach at least 20% in 2016 in conjunction with the public sector investment program before moderating slightly in 2017. Against this backdrop and the expected gradual recovery in tourism, GDP growth is projected to rise to 3.5% in 2016 and further to 3.9% in 2017. Growth could be much higher if tourism or foreign investment picks up faster than expected, or if oil prices and therefore fuel and electricity subsidies decline more than anticipated.
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