Maldives Gross Domestic Product (GDP) expects to grow prospectively, while foreign debt accumulation is an alarming concern.
According to World Bank, driven by robust tourism growth, the Maldives economy is projected to grow by 12.4 percent and 8.2 percent in 2022 and 2023, respectively. This boost to economy is through greater capacity in tourism sector due to the completion of Velana International Airport (VIA) and new resort openings, as well as the expected return of Chinese tourists.
Moreover, the continued spending on infrastructure, housing and renewable energy projects are other major reasons for the GDP growth.
While inflation is projected at 3.5 percent in 2022, World Bank claims this will moderate in 2023 as "global energy prices normalize."
However, the fiscal deficit of the country is projected to widen in 2022 owing to higher capital expenditures and subsidy support. Though Maldives government announced austerity measures, recurrent spending is likely to increase over the medium-term as the Public Sector Pay Harmonization Policy is implemented.
Meanwhile, fiscal deficit is expected to narrow in 2023 and 2024 as "revenues grow alongside robust tourism performance" along with plans to increase the GST rates.
Despite a narrowing fiscal debt, public debt is still expected to remain high at 118 percent of the GDP in 2024.
World Bank in its report highlights that though the economy is currently at an upward trend, downside risks persist. According to the global financial institution, tourism sector could be adversely impacted by "further global shocks." Further increase in commodity prices may add more fiscal burden as well.
Maldives government faces external debt servicing payments of about USD 300 million on average for the next three years.
The state budget for 2022 forecast a gross annual revenue of MVR 24 billion, inclusive of foreign grants whereas the annual expenditure is set at MVR 34 billion. The state balance is expected to a hit a budgetary deficit of MVR 10 billion by the end of current fiscal year.
Government statistics convey Maldives debt at over MVR 100 billion, which is 110 percent of the country's GDP.
At a time when tensions loom, specifically over surging public debt, Ministry of Economic Development Fayyaz Ismail had spoken for pro-foreign loan. According to the minister, the country can only ensure prosperity for future generations if it was willing to acquire foreign loans towards development.
World Bank has highlighted several financial and economical crises South Asian countries faced in light of the Covid-19 pandemic, and the aftermath of it. The bank had provided suggestions for the region to combat expected adverse impact on the economy.
The report stressed on heavy economical impact to the South Asian region owing to the Russia-Ukraine war. Commodity price inflations are one of the major disadvantages, it had highlighted on the report.
While several countries in the region faced the consecutive economic brunt - first from the pandemic, and then followed by the war - many were attempting to recover, including the Maldives.
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