The Economy of Maldives

Area: 298 sq. km. (115 sq. mi.), over 1,100 islands; twice the size of Washington, DC.
Cities: Capital--Male (pop. 100,000).
Terrain: Flat atoll islands.
Climate: Hot and humid.

Nationality: Noun and adjective--Maldivian(s).
Population (2009 est.): 314,000 (plus 80,000 expatriate workers who are not counted in the census).
Population growth rate: 1.66%. Population growth rate has dropped dramatically in recent years.
Ethnic groups: Maldivians.
Religion: Sunni Islam.
Languages: Dhivehi (official); many government officials speak English.
Education: Years compulsory--7. Enrollment--primary (grades 1-7) 100%; secondary (grades 8-10) 70%. Literacy--97%. (Sources: Maldives Department of National Planning and World Bank)
Health: Infant mortality rate--24/1,000 (Source: World Bank). Life expectancy--72 years.
Resident work force: Community, social and personal services--21%; manufacturing--13%;fishing--11%; tourism--11%; transport, storage, and communication--9%; other--35%.

Type: Republic.
Independence: July 26, 1965 (formerly a British protectorate).
Constitution: August 7, 2008.
Branches: Executive--president, cabinet. Legislative--unicameral Majlis (parliament).Judicial--Supreme Court, High Court, Civil Court, Criminal Court, Family and Juvenile Court, and 204 general courts.
Administrative subdivisions: 19 atolls and capital city.
Political parties: Adhaalath Party (AP), Dhivehi Raiyyethunge Party (DRP--Maldivian People’s Party), Islamic Democratic Party (IDP), Maldivian Democratic Party (MDP), Social Liberal Party (SLP), Dhivevi Quamee Party (DQP), People’s Alliance (PA), Republican Party (Jumhooree), others.
Suffrage: Universal at age 21.

The Maldivian Economy

GDP (2010): $1.48 billion.
GDP growth rate (2010): 4.8%.
Per capita GDP (2010 est.): $4,770.
Inflation, year over year (2010 est.): 4.7%.
Debt, external (2009 est.): $933 million.
Exchange rate (official peg): 12.8 rufiyaa (MVR) = U.S. $1.
Unemployment rate (2006 est.): 14.4%.
Current account balance (2010 est.): -$460 million.

Percentages of GDP (2010 est.): Tourism--29%; transport and communications--20%;government--18%; manufacturing--7%; fishing--3%; construction--6%; agriculture--2%;other--10%.

Trade (2010 est.): Exports--$180 million: fish products. Major markets--Thailand, Sri Lanka, U.K., France. Imports--$980 million: foodstuffs, petroleum products, transport equipment, construction equipment. Major suppliers--Singapore, U.A.E., India, Malaysia, Sri Lanka, Thailand.

The Maldivian economy is based on tourism and fishing. Economic growth has been powered mainly by tourism, the backbone of the economy, and its spinoffs in the transportation, communication, and construction sector. More than 700,000 tourists visit annually. Fishing remains an important part of the economy as well. The Indian Ocean tsunami in December 2004 devastated many islands. The Maldivian economy made a remarkable recovery, with a rebound in tourism and post-tsunami reconstruction.

Of the Maldives' 1,191 islands, only 200 are inhabited. The population is scattered throughout the country, with the greatest concentration on the capital island, Male. Limitations on potable water and arable land constrain expansion. While income disparity remains high, particularly between the capital and distant islands, the Maldives' growth has yielded considerable social progress. The net enrollment in primary education is close to 100%. Literacy rates are about 97%. Infant and maternal mortality are declining rapidly.

GDP in 2010 totaled $1.48 billion, or about $4,770 per capita. From 2000-2010, real GDP growth averaged around 6% per year except for 2005, when GDP declined following the Indian Ocean tsunami, and 2009 when GDP shrank by 2% as tourist arrivals declined and capital flows plunged in the wake of the global financial crisis. The Maldives Monetary Authority (Central Bank) expects GDP growth around 4% in 2011. Inflation was at 4.7% in 2010.

The Maldives had a merchandise trade deficit of under $300 million until 2003. Since then the trade deficit has reached an unprecedented $780 million. In 2010, Maldives' economy was helped by a significant upturn in tourist arrivals. Consequently, the current account deficit was contained at around $460 million in 2010. The balance of payments recorded a surplus of about $50 million. Tourism is expected to continue to grow in 2011.

Fiscal control has deteriorated recently due to increased government spending, including large wage increases as well as falling revenues. The budget deficit was about 16% of GDP in 2010. Government expenditure was 51% of GDP and revenue was about 34% of GDP. According to government estimates, the deficit was forecast at 15% of GDP in 2010. Recent large budget deficits have led to a sharp buildup of public debt, prompting the World Bank and the International Monetary Fund (IMF) to classify Maldives as being at moderate risk of debt distress.

In December 2009, the IMF approved a $93 million loan for the country. After the first two disbursements, the IMF withheld subsequent disbursements due to concerns that the budget deficit must be further reduced. Maldives is facing a foreign exchange shortage. The current official exchange rate against the U.S. dollar is rufiyaa 15.42.

Under the IMF program, the government agreed to cut expenditure, substantially downsize the government workforce, reduce subsidies, change the tax system to direct taxes, and privatize many industries. The government also aims to move from being a service provider to a regulator, and to enhance the role of private sector. These programs require major reform in the legal and regulatory framework of the various sectors. However, most of these plans have not progressed smoothly. For instance, the government reduced civil servant salaries by an average of 14% in October 2009, but the Maldives Civil Service Commission (CSC) has filed a lawsuit to restore these salaries. Moreover, plans to retrench civil service staff have been put on hold for lack of funds. The government’s privatization plans are also jeopardized by a recent law passed by the parliament which requires parliamentary approval to privatize state institutions. The government did privatize the international airport, and it sold government-held shares in a telecommunications company prior the passage of law. The government also signed a management contract with an Indian healthcare provider to manage a state-owned hospital with the aim of improving its management and services.

International shipping to and from the Maldives is mainly operated by the private sector with only a small fraction of the tonnage carried on vessels operated by the national carrier, Maldives Shipping Management Ltd.

Over the years, the Maldives has received economic assistance from multilateral development organizations, including the UN Development Program (UNDP), Asian Development Bank, and the World Bank. Individual donors--including Japan, India, Australia, and European and Arab countries (including Islamic Development Bank and the Kuwaiti Fund)--also have contributed. In a bid to promote exports, the U.S. Government restored the Generalized System of Preferences (GSP) trade program to the Maldives in December 2009. The United States is seeking to provide various other assistance efforts to defend against climate change, prevent drug use, and enhance U.S. investment. The Maldives became a member of the International Labor Organization in 2009.

Diversifying beyond tourism and fishing, reforming public finance, and increasing employment are the major challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is 1 meter (about 3.3 feet) or less above sea level.

Economic Sectors

In recent years, Maldives has successfully marketed its natural assets for tourism--beautiful, unpolluted beaches on small coral islands, diving in blue waters abundant with tropical fish, and glorious sunsets. Tourism now brings in about $600 million a year. Tourism and related services contributed 29% of GDP in 2010. But its indirect contribution is much higher. As a result, tourism is the catalyst for growth. Since the first resort was established in 1972, more than 95 islands have been developed, with a total capacity of some 23,600 beds. Maldives has embarked on an ambitious tourism expansion plan; several resorts are under construction. However, resort expansion has not been planned very well. There is a glut of hotel rooms and several half-built resorts. Over 790,000 tourists (mainly from Europe) visited Maldives in 2010. The average occupancy rate is about 70%. Maldives had experienced capacity utilization rates of over 80%--reaching over 95% in the peak winter tourist season--prior to the new resort drive that began in 2008. Average tourist stay is 8 days.

This sector employs about 11% of the labor force. The fisheries industry, including fish processing, traditionally contributes about 7% of GDP. Due to a drastic drop in the fish catch, the industry's contribution to GDP was only about 4% in 2008 and 3% in 2009. Fish export earnings were estimated at $80 million in 2009. The use of nets is illegal; all fishing is done by line. Production was about 100,000 metric tons in 2009, most of which was skipjack tuna. More than 40% is exported, largely to Sri Lanka, Japan, Hong Kong, Thailand, and the European Union. Fresh, chilled, frozen, dried, salted, and canned tuna exports account for about 90% of all marine product exports.

Poor soil and scarce arable land have historically limited agriculture to a few subsistence crops, such as coconut, banana, breadfruit, papayas, mangoes, taro, betel, chilies, sweet potatoes, and onions. Almost all food, including staples, has to be imported. The December 2004 tsunami inundated several agricultural islands with salt water, contaminating the groundwater. Some of these islands still do not have clean groundwater. Agriculture provides about 2.0% of GDP.

The manufacturing sector provides less than 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products. Five garment factories that had exported principally to the United States closed in 2005, following the expiration of the Multi-Fiber Arrangement (MFA) that had set quotas on developing country garment exports to developed countries. The loss of these factories has not proven an insurmountable hurdle, however, as most of the profits were repatriated and most of the labor was expatriate.

The construction sector contributes approximately 6% of GDP.

NOTE: The Above Information is Directly Taken from the US State Department Website.
Ahmed Xahir
Ahmed Xahir

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