The Maldives is currently experiencing one of its worst economic setbacks in recent history.
Reason to this major detriment is the ongoing COVID-19 pandemic outbreak across the world; which has brought several major global economic structures to its knees.
Countries have shut down their borders, completely restricting international flight movements. Citizens of the world are advised against from going outside their homes, apartments and tenements; with the exception of necessary trips to purchase food, medicine and items for survival.
Maldives too, is currently facing all the worst edges of the pandemic with the situation intensifying further with the discovery of positive cases in mainland Male’ City.
The Maldives capital is regarded as the most densely populated city in the SAARC region, which is a ‘ticking time-bomb’ for a viral contagion. So far, as many as 177 total cases have been reported inclusive of the 17 recoveries.
At the time of this report, a total of 158 remain in isolation facilities for treatment while 2 who confirmed positive was the virus were discovered only after reaching their home country; Italy.
Meanwhile, the Maldives government have taken several necessary steps to ensure the impact on the country’s economy and public finance sector remains at the minimum possible extent.
However, the main economic component of the island nation; tourism industry have come to an abrupt standstill as no tourist arrivals are registered to the country with several international travel restrictions imposed by the government itself.
With this, the Ministry of Finance have put fresh impetus to ensure the state bodies cut down expenditure; as a long-term target of saving state funds. Moreover, the ministry have also projected an estimation of the impact on economic sectors and the state’s finance.
Ministry of Finance, in a presentation which has now been publicized by the authority detailed on five case scenarios with varying possible outcome.
– Scenario 01: in this scenario the ministry expects total tourist arrival at 962,398 for the entire year and a total of only 579,720 arrivals to the country in the remainder of 2020. In this scenario, the arrival drop is estimated at 44% with bed-night dropping by 30% and the estimated month for commencement of recovery is May 2020.
– Scenario 02: second worse case scenario; with a total number of arrival estimated at 883,288 and a mere 500,610 arrivals for the remainder of the year. Expected decline on tourist arrivals is projected at 48% and 36% for bed-night decline. Estimated month of recovery commencement under this scenario is June 2020.
– Scenario 03: a moderately critical case scenario with a projected total arrival count at 845,546 for the entire year and 462,868 tourist arrivals for the remainder of 2020. Tourist arrival is expected to recede by 50% and bed-night drop is expected to hit 39% while the month of recovery commencement is expected in July.
– Scenario 04: a critical case scenario with projected total arrival for the entire year at 625,082 while projection of arrivals for the remainder of the year is at only 242,404. Tourist arrivals expected to plummet by 63% and a slip of 56% in bed-nights. Month of recovery commencement is expected at October – well into the final quarter of the year.
– Scenario 05: the worst case scenario with projected total arrival at an alarming 382,678 with nil tourist arrivals to the country for the rest of the year. Tourist arrivals to drop by a staggering 78% and bed-nights to drop by 74% while the month of recovery commencement is expected in January 2021.
Gross Domestic Product (GDP)
The gross domestic product of Maldives have a significant 25% of productivity ratio shared by the tourism sector. With a decline on the tourism sector activity; tourist arrivals and businesses of tourist properties, the GDP is expected to get hit as a result of this.
– Scenario 01: the GDP growth is expected to recede by 7.7% while the nominal GDP is projected at MVR84.7 billion.
– Scenario 02: the Gross Domestic Product growth is projected to drop by 9.9% with nominal GDP at MVR82.7 billion.
– Scenario 03: GDP drop forecast at 11.5% with nominal GDP at MVR81.3 billion.
– Scenario 04: the GDP drop is projected at a critical 17.7% while the nominal GDP is forecast at just MVR75.6 billion.
– Scenario 05: the worst case scenario in which GDP is expect to recede by an alarming 29.7% with nominal GDP at only MVR64.5 billion.
Availability of Foreign Currency
Exportation from the island nation have dwindled significantly since the main export component is fish and its global demand have receded in light of many countries practicing social distancing amid viral pandemic.
Restaurants, cafes and similar food and beverage outlets do not operate under regular conduct and thus the demand on seafood or fish product from Maldives to its key markets, have also taken a hit for the worse.
More than 80% of the country’s export is shared by both tourism and transportation sectors.
With the decline in the tourism sector activity, the availability of foreign currency have also proportionately dropped.
Imports to the country will recede in light of less to no tourism activity; since a huge portion of the import are directed towards the sector. Activities in construction sector have come to a standstill as well due to current social conditions.
Many construction projects have been stalled resulting in no prospective requirement of construction material; which further resulted in the drop in imports due to absence of construction material importations.
Overall the revenue drop is expected higher than the decline in the import rate while the central bank – Maldives Monetary Authority – is expected to increase spending from the national reserves to maintain consistency of currency exchange rates.
State Revenue – Public Finance
The state revenue, albeit projected with an improvement in revenue for 2020 compared to that of 2019, will face major setbacks in light of the unprecedented changes to global economy.
A total of five case scenarios have been projected; with forecasts of estimated revenue generated to the state and the loss in comparison with initial projection.
Initially the projection of state revenue inclusive of foreign grants, for Maldives state in 2020 was at MVR29,921.6 million (MVR29.9 billion). These included;
- MVR17,852.3 million (MVR17.9 billion) generated through taxes
- MVR3,409.8 million (MVR3.4 billion) generated through non-tax sources
- MVR5,214.9 million (MVR5.2 billion) raised through foreign grant
However, based on the current economic and global condition the five case scenarios are as follows;
– Scenario 01: Expected revenue to state at MVR17,268 million; with a shortage (deficit) of MVR12,654 million.
– Scenario 02: Expected revenue to state at MVR16,234 million; with a shortage (deficit) of MVR13,688 million.
– Scenario 03: Expected revenue to state at MVR15,260 million; with a shortage (deficit) of MVR14,662 million.
– Scenario 04: Expected revenue to state at MVR13,301 million; with a shortage (deficit) of MVR16,621 million.
– Scenario 05: Expected revenue to state at MVR11,603 million; with a shortage (deficit) of MVR18,318 million.
These are all projected by the Ministry of Finance through acquired data and numbers; which are all calculated and educated forecasts which are subject to amendment given the economic situation; internally and globally, are to shift in light of the viral pandemic.