The World Bank has said that Maldives economic growth will slow for the next two years and the financial challenges will be greater if the country continues to borrow at high costs amid the global economic slowdown.
In the Maldives Development Update Batten Down the Hatches, the World Bank said real GDP is expected to grow by 6.5 percent in 2023, with an average growth of 5.4 percent from 2024 to 2025.
The twice-a-year update presented a positive outlook for Maldives' medium-term growth, primarily driven by a thriving tourism sector.
The World Bank noted that the country is grappling with pressing fiscal challenges due to inflationary pressures linked to rising global commodity prices, increased capital spending and subsidies, and ongoing central bank financing of the budget deficit.
"These challenges require an urgent and robust fiscal adjustment and responsible debt management to ensure fiscal sustainability," the report read.
World Bank Country Director for Maldives, Nepal, and Sri Lanka, Faris H. Hadad-Zervos said that to ensure a more resilient economy going forward, and to build on the recent reforms, prudent debt management and a fiscal adjustment with strengthened investment planning are needed.
"While tourism will remain a primary engine of growth, Maldives stands to benefit by promoting more eco-tourism and fisheries development, prioritizing limited infrastructure financing for remote areas, and encouraging more private sector investment in such a way that growth is inclusive, greener and resilient to climate and other shocks."
Debt management
According to the World Bank report, total debt is set to remain high at over 115 percent of GDP despite expectations of reduced deficits.
"The government raised Goods and Services Tax (GST) rates earlier this year, but more substantial and immediate commitments are necessary, especially since planned subsidy reforms for 2023 did not happen as anticipated."
Recommendations by the World Bank include:
- Manage spending while boosting revenue
- Revamping programs like the Aasandha National Health Insurance scheme
- Streamlining subsidies for state-owned enterprises
- Creating a strong public investment management system
- Broadening the tax base
- Tapping into domestic income sources
- Reducing informal economic activity
- Fostering tax fairness
The special focus section of the report, Supporting Sustainable and Resilient Infrastructure, notes that Maldives has excelled in providing infrastructure services but relies heavily on public spending, often surpassing GDP growth.
While the country has improved infrastructure across atolls, disparities remain, especially in piped water, sewage, and internet access compared to the capital Male', according to the report.
