MAJOR MACRO ECONOMIC INDICATORS
|2014||2015||2016 (e)||2017 (f)|
|GDP growth (%)||6.5||1.5||3.0||4.1|
|Inflation (yearly average) (%)||2.5||1.4||2.1||2.6|
|Budget balance (% GDP)||-9.4||-8.7||-13.7||-18.4|
|Current account balance (% GDP)||-3.9||-9.4||-11.9||14.1|
|Public debt (% GDP)||66.3||73.1||83.1||96.0|
(e) Estimate (f) Forecast
- Growing bilateral relations with China
- Tourism potential of the uninhabited atolls
- Airport infrastructure
- Supported by the World Bank and the Asian Deveopment Bank (ADB)
- Dependence on international economic cycle due to poor economic diversification
- Chronic budget deficit and growing momentum of public debt
- Political instability
- Vulnerable to natural disasters and adverse effects of climate change
Growth recovery thanks to European tourists
In 2017, economic growth, which is highly dependent on tourism (24% of GDP) is expected to continue the recovery begun in 2016. Economic activity will be driven particularly by the growth in the number of European tourist visitors, which will help offset the drop in visitors from Russia and China. The strong tourism performance will be buoyed by massive infrastructure investment and the opening of new facilities. Three projects costing around 35% of GDP are planned over the next three years, including, in particular, increased capacity at Malé airport, which should make it possible to cope with the rise in tourist numbers. These projects should also impact positively on related sectors: transport, communications and construction. The latter (9% of GDP), supported by public and foreign investment, is projected to continue to grow more strongly after years of slow growth between 2009 and 2014. Fishing, an important provider of jobs on the Archipelago, remains antiquated. Moreover, the Maldives will continue to benefit from the support of international aids, especially China, to develop the Archipelago based on infrastructure and tourism projects.
Inflation is projected to rise in 2017 as a result of the slight increase in oil prices and in household consumption.
Public and current account fueled by infrastructure investment
The public investment programme is expected to increase the fiscal deficit in 2017. The increase is explained by the pressure of current spending (+300% over the past ten years) for example higher civil service wage costs, welfare payments and social subisidies. Although the government is proposing to cut these current spending items, this will not offset the extra spending on infrastructure investment to boost growth and support the process of ecological transition. The main revenue source is likely to be the new USD25 tax on all passengers leaving from Ibrahim Nasir International Airport. Higher duties on cigarettes and fizzy drinks should also help increase income. Despite these measures, anticipated revenues appear, as in 2016, overestimated. The persistence of the deficit will put the public debt on an upward trajectory to reach a worrying level. Without any budgetary measures, the debt could even become unsustainable.
The current account deficit will continue to deepen. The country's geographic isolation means it still has to import massively, which puts a burden on the trade balance (trade in goods). Imports are expected to climb with growing demand for construction material needed for the new investment projects. Exports, mainly of fish, will remain weak. Tourism income, which is an item on the services balance, will provide the main positive contribution to the current account balance. With some 100,000 expatriates (officially) on the island with a population of 340,000, net flows of current transfers will also remain in deficit. As a result, the Archipelago has a significant external financing needs which means the country depends on international donors. However, the foreign exchange reserves are holding up (equivalent to 3-4 months of imports in 2016) thanks to tourism growth and considerable flows of FDIs. Both these sources help reduce the pressure on the Maldivian currency and, in turn, the foreign exchange risk. The situation could however rapidly deteriorate if the dynamism of the tourism sector were to decline (for example, because of a worsening security situation).
Worsening political environment
Since the election in 2013 of President Abdullah Yameen, half-brother of former President Gayoom (Head of State from 1978 to 2008), democracy seems to be increasingly fragile, Several arrests have been made including the arrest and sentencing to 13 years in prison of former President Mohamed Nasheed, well-known opponent of the current president, who has now been given asylum in the United Kingdom. These arbitrary arrests provoked a great many popular demonstrations which were firmly supressed. In summer 2016, Abdullah Yameen's government introduced additional restrictions on demonstrations and political acts deemed to insult Islam, giving the President de facto the tools to suppress all dissent. Opposition could, however, come from within his own camp : Maumoon Gayoomseems to want to distance himself from his half-brother and, for the moment, is refusing to support Yameen's bid for a second presidential term in 2018, despite the court's decisions against him, including the decision to remove him from the presidency of the Progressive Party of Maldives.
The Arhipelago of Maldives, threatened with suspension by the Commonwealth, decided in October 2016 to leave the intergovernmental organisation. Meanwhile, the country is becoming increasingly Islamised with many Malivians choosing to join the ranks of the Islamic State. While tourist facilities have thus far been spared, disaffection with this country as a destination cannot be ruled out if the security situation deteriorates. Corruption and the regime's growing authoritarianism could also dissuade FDIs, which represent 10% of GDP. Accordingly, the Archipelago suffers from a very poor business climate, and is ranked 135th out of 190 in the World Bank's 2017 Ease of Doing Business Index.
Last update: January 2017