World Bank has said that the Maldives faces “significant economic risks from rising spending, high debt and external shocks.”
While the projected growth in real GDP is at 6.5% in 2023 and an average of 5.4% from 2024 to 2025, the bank said that the island nation faces significant fiscal challenges.
The bank in its latest Maldives Development Update report offered a “cautiously optimistic forecast for the Maldives’ economic trajectory” which is anchored by the robust performance of the tourism industry.
Despite the projected economic growth, the country’s fiscal challenges are exacerbated by the global commodity price surges, escalated government expenditure on capital projects and subsidies, and the central bank’s ongoing budget deficit financing.
Though Maldives had plans to reduce fiscal deficits, it has failed to achieve the targets so far while the national debt is projected to hover above 115% of GDP over the medium term.
World Bank also highlighted that while the government increased the Goods and Services Tax (GST) rates, more decisive and prompt actions were required especially on the expenditure side.
The bank further noted that Maldives must “urgently refine its expenditure strategy” for fiscal prudence, and enhance revenue generation. The bank emphasized the overhauling of Aasandha national health insurance program, rationalizing budgetary contributions for state-owned enterprises particularly in the energy and food sectors and moving towards targeted subsidies.
World Bank also recommended establishing a robust public investment framework to “ensure orderly and strategic infrastructure development.” Additionally, the bank stressed the need for immediate efforts on concentrating the expansion of tax base, leveraging domestic revenue streams and promoting equitable taxation.
“Maldives has shown remarkable resilience and recovery from the Covid-19 pandemic, but will need to remain vigilant in the face of new and emerging shocks such as conflicts around the world, price volatilities in global markets, and high inflation affecting the disposable income of people in major tourist markets,” said Faris H. Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka.
“There is an urgent need to address the country’s fiscal and external vulnerabilities, especially through prudent debt management and expenditure reform measures, and develop a sustainable and resilient infrastructure investment framework, to ensure long-term growth and prosperity for its people.”
Maldives has achieved remarkable result in basic infrastructure services, and World Bank noted that in this regard, the country has outperformed many of its neighbors and other Small Island Developing States (SIDS).