Significant economic challenges to the Maldives: World Bank

The World Bank has revised down its growth forecast for Maldives this year.

According to the new report published by the World Bank, the Maldivian economy is projected to grow by 4.7 percent this year. This figure aligns with the forecast for the economy provided by the Central Bank of Maldives, Maldives Monetary Authority (MMA).

Previously, the World Bank had projected the Maldivian economy to grow by 5.2 percent this year. However, this figure has been revised by a decrease of 0.5 percent.

The World Bank said the country's economy faces external and fiscal challenges and state debt could increase if fiscal reforms are not implemented.

The World Bank's latest Maldives Development Update, titled "Scaling Back and Rebuilding Buffers," indicates a slowdown in tourism and other key industries. Despite a rise in tourist arrivals, the report highlights low tourist spending and a decrease in the length of stay in the Maldives. These factors are adversely impacting the country's GDP growth rate.

World Bank emphasized the importance of accelerating expenditure reduction and subsidy reforms to address economic challenges.

World Bank reported that the country's state debt reached 123 percent of GDP last year, amounting to MVR 123 billion (USD 7.96 billion). This represents one of the most significant issues highlighted in all World Bank reports over the past two years.

World Bank estimates that an average of USD 512 million will be required for debt servicing in 2024 and 2025. By 2026, this figure is expected to rise to USD 1.07 billion. The World Bank warns that without fiscal reforms, reliance on high-interest foreign debt could exacerbate financial challenges.

The World Bank highlighted the importance of the government implementing the recently announced fiscal reform agenda and emphasized the need for clear communication with the citizens of Maldives to ensure its successful implementation. Additionally, the World Bank called for reforms to ensure that assistance is delivered to those most in need.

“Implementing the government’s fiscal reform agenda is essential to sustaining the country’s economic growth,” said Faris Hadad-Zervo, World Bank Country Director for Maldives, Nepal and Sri Lanka.

"The World Bank remains committed to supporting Maldives in its reform efforts, which includes providing targeted subsidies to assist impoverished and vulnerable groups, addressing issues related to state-owned companies, and enhancing the strategic planning of investments."

The World Bank's report emphasized the need to prioritize diversification of the tourism sector to overcome the economic slowdown. Additionally, it called for increased private sector participation to drive the economy and facilitate job creation.