Economy of the Maldives

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Economy of Maldives

Malé, commercial centre of Maldives
Currency	Maldivian rufiyaa (MVR, Rf)
Fiscal year	Calendar year
Trade organisations	WTO, SAFTA
Country group	Developing/Emerging[1] High-income[2]
Statistics
GDP	$6.55 billion (nominal, 2023 est.)[3] $13.4 billion (PPP, 2023 est.)[3]
GDP rank	158th (nominal, 2022) 162nd (PPP, 2022)
GDP growth	6.9% (2018) 5.2% (2019e) −13.0% (2020f) 8.5% (2021f)[4]
GDP per capita	$16,439 (nominal, 2023 est.)[3] $34,000 (PPP, 2021 est.)[3]
GDP per capita rank	65th (nominal, 2022) 62nd (PPP, 2022)
GDP by sector	Agriculture (4%), industry (23%), services (73%) (2012 est.)
Inflation (CPI)	2.3% (2022 est.)[3]
Population below poverty line	8.2% (2016)[5] 6.6% on less than $5.50/day (2016)[6]
Gini coefficient	31.3 medium (2016)[7]
Human Development Index	0.747 high (2021)[8] (90th) 0.594 medium IHDI (2021)[9]
Labour force	278,813 (2019)[10] 54.1% employment rate (2016)[11]
Main industries	Fish processing, tourism, shipping, boat building, coconut processing, garments, woven mats, rope, handicrafts, sand mining
External
Exports	$238 million (2021)
Export goods	Fish
Main export partners	Thailand 28.7%  India 20.4%  Germany 11.8%  UK 4.44%  France 4.04% (2021)[12]
Imports	$2.83 billion (2021)
Import goods	Petroleum products, ships, foodstuffs, clothing, intermediate and capital goods
Main import partners	India 14.7%  China 14%  UAE 13%  Oman 9.65%  Singapore 9.02% (2021)[12]
Gross external debt	$742 million (2014 est.)
Public finances
Government debt	$316 million (2004 est.)
Revenues	$758 million (2010 est.)
Expenses	$362 million; including capital expenditures of $80 million (2004 est.)
Economic aid	N/A
Foreign reserves	$540 million (September 2016 est.)
All values, unless otherwise stated, are in US dollars.

In ancient times, Maldives were renowned for cowries, coir rope, dried tuna fish (Maldive fish), ambergris (maavaharu) and coco de mer (tavakkaashi). Local and foreign trading ships used to load these products in the Maldives and bring them abroad.

Nowadays, the mixed economy of Maldives is based on the principal activities of tourism, fishing and shipping. This results from the Maldives' strategic geographic positioning near crucial sea routes essential for China's energy provisions. Consequently, China has persistently utilized its economic resources to enhance its sway over the Maldivian government.

Tourism is the largest industry in the Maldives, accounting for 28% of GDP and more than 60% of the Maldives' foreign exchange receipts. It powered the current GDP per capita^[13] to expand 265% in the 1980s and a further 115% in the 1990s. Over 90% of government tax revenue flows in from import duties and tourism-related taxes.

Fishing is the second leading sector in the Maldives. The economic reform program by the government in 1989 lifted import quotas and opened some exports to the private sector. Subsequently, it has liberalized regulations to allow more foreign investment.

Agriculture and manufacturing play a minor role in the economy, constrained by the limited availability of cultivable land and shortage of domestic labour. Most staple foods are imported.

Industry in the Maldives consists mainly of garment production, boat building, and handicrafts. It accounts for around 18% of GDP. Maldivian authorities are concerned about the impact of erosion and possible global warming in the low-lying country.

Among the 1,190 islands in the Maldives, only 198 are inhabited. The population is scattered throughout the country, and the greatest concentration is on the capital island, Malé. Limitations on potable water and arable land, plus the added difficulty of congestion are some of the problems faced by households in Malé.

Development of the infrastructure in the Maldives is mainly dependent on the tourism industry and its complementary tertiary sectors, transport, distribution, real estate, construction, and government. Taxes on the tourist industry have been plowed into infrastructure and it is used to improve technology in the agricultural sector.

This is a chart of trend of gross domestic product of Maldives at market prices estimated [1] by the International Monetary Fund with figures in millions of rufiyaa.

The Maldives has experienced relatively low inflation throughout the recent years. Real GDP growth averaged about 10% in the 1980s. It expanded by an exceptional 16.2% in 1990, declined to 4% in 1993, and, over the 1995–2004 decade, real GDP growth averaged just over 7.5% per year. In 2005, as a result of the tsunami, the GDP contracted by about 5.5%; however, the economy rebounded in 2006 with a 13% increase.^[14]

The following table shows the main economic indicators in 1980–2020.^[15]

The industrial sector provides only about 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, five garment factories, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products. There are no patent laws in the Maldives.^[16]

The banking industry dominates the small financial sector of the Maldives. The country's seven banks are regulated by the Maldives Monetary Authority.^[17]

While formerly the Maldives had no income, sales, property, or capital-gains taxes, and was considered to have the simplest tax code in the world,^[18] now taxation is regulated by the Maldives Inland Revenue Authority (MIRA). In 2011, the Tax Justice Network gave the Maldives a "secrecy score" of 92 on its Financial Secrecy Index - the highest score in that category of any actively-ranked country; however by 2022 with a secrecy score of 75, no longer ranked in the top ten.^[19] However in both 2011 and 2022, the Maldives' minor market share put it near the bottom of the overall weighted lists.^[20]

A recurrent trend of Beijing leveraging its economic influence to attain geopolitical goals is observable. This pattern is not confined solely to small island nations in the Indian Ocean, like the Maldives and Sri Lanka, but extends to the wider Indo-Pacific region, encompassing countries with sizable and advanced economies as well.^[21] The Maldives government is grappling with concerns about falling into a potential debt entrapment with China.^[22]

Beginning in the 1990s, the Port of Male received over £10 million in loans from the Asian Development Bank designated for infrastructure upgraded.^[23] The ADB notes that from 1991 to 2011, due to the loans, the ports annual throughput in freight tons equaled 273,000. By 2011 that number reached 1 million.^[24] The ADB also provided training for port authority staff to increase efficiency. ADB and the Government of Maldives, in a joint report address ship turn-around, "What used to take about 10 days in 1991 was achieved in 3.8 days by 1997, and about 2.6 days by 2014".^[25]

There is growing concern towards the coral reef and marine life due to coral mining (used for building and jewelry making), sand dredging, solid waste pollution and oil spills from boats. Mining of sand and coral has destroyed the natural coral reef that once protected several important islands, now making them highly susceptible to the erosive effects of the sea. The destruction of large coral beds due to heat is also a growing concern.^[26]

In April 1987, high tides swept over the Maldives, inundating much of Malé and nearby islands which prompted Maldivian authorities to take global climatic changes seriously. An INQUA research in 2003 found that actual sea levels in the Maldives had dropped in the 1970s and forecasts little change in the next century.^[27] There is also concern over the questionable shark fishing practices in place in the island. Shark fishing is forbidden by law, but these laws are not enforced. The population of sharks has sharply decreased in recent years.^[28]

The Asian brown cloud hovering in the atmosphere over the northern Indian Ocean is also another concern. Studies show that decreased sunshine and increased acid rain source from this cloud.^[29]

While electricity in the Maldives has historically come entirely from diesel generators, solar power has been increasingly adopted to avoid high fuel costs. The resort on Dhiddhoofinolhu claims to have the world's largest oceanic floating solar plant, with 678 kW enough to supply peak demand.^[30] The country's Environment Ministry has deployed solar–battery–diesel hybrid systems across the outer islands to reduce subsidies for imported diesel and promote low-carbon energy independence.^[31]

Maldives achieved their Millennium Development Goal (MDG) of halving the proportion of people living under the poverty line to 1% as of 2011.^[32] Starvation is non-existent, HIV rates have fallen and malaria has been eradicated.^[33] Despite these accomplishments and progressive economic growth, developmental issues remain. In particular, the country needs to address income and gender disparities.^[34] Development in Maldives has occurred predominantly in the capital Malé; islands outside the capital continue to encounter high poverty vulnerability, lower per-capita income, lower employment and limited access to social services.^[34] A country-wide household income survey in 1997-1998 showed that the average income in the capital Malé was 75% higher than in surrounding islands.^[33] Maldives's Gini co-efficient stands at 0.41.^[35]

The factors that have led to Maldivians falling into or remaining in poverty are:^[33]

1. Geography: Residents of the northern regions of Maldives tend to remain in poverty more than other regions due to the relatively lower level of development in the North;
2. Health: Maldivians who do not work due to poor health remain in poverty possibly on account of lower accessibility to health services in the country;
3. Young household members: Larger proportion of young family members results in a lower overall household income;
4. Female household members: Lower female labour participation rate and therefore, households with a greater proportion of females will have lower household income.

The difficulty of accessing social services and infrastructure in the outer atolls has meant that geography is a key reason for poverty and income disparity in Maldives.^[33] In islands far from the capital, there tends to be lack of production, inadequate use of fishery resources, low value chain development and insufficient credit for small-scale producers and entrepreneurs.^[36] The scarcity of land and water, the underdeveloped farming practices and absence of support services in atolls has meant low production and thus low incomes in these regions.^[36]

The government has recognized these issues of income and gender disparities and with the United Nations Development Programme (UNDP), Maldives has implemented policies that directly address these issues.^[37][38] In 2011, President Nasheed said, "The most important facility for a country's development is its people... and since women are half of the population in any country, for a certainty their full participation will speed up the pace of development."^[39]

• Economic aid to the Maldives

• Global Economic Prospects: Growth Prospects for South Asia The World Bank, December 13, 2006
• "Doing Business in Maldives" The World Bank Group
• "IMF October 2021 report" International Monetary Fund