The World Bank has stated that the real Gross Domestic Product (GDP) of the Maldives is expected to grow by 6.5% in 2023 but that the country requires an urgent and robust fiscal adjustment and responsible debt management to ensure fiscal sustainability.
In its Maldives Development Update report titled Batten Down the Hatches, the World Bank stated that the real GDP of the Maldives is expected to grow by 6.5% in 2023, with an average growth of 5.4% from 2024 to 2025. The World Bank, however, stated that challenges lie ahead, with growing external and fiscal vulnerabilities posing risks to the economy, particularly if Maldives continues to borrow at high costs during a global economic slowdown.
The World Bank presented a positive outlook for the country's medium-term growth, primarily driven by a thriving tourism sector. However, it stated that the country is grappling with pressing fiscal challenges due to inflationary pressures linked to rising global commodity prices, increased capital spending and subsidies, and ongoing central bank financing of the budget deficit. These challenges require an urgent and robust fiscal adjustment and responsible debt management to ensure fiscal sustainability.
Additionally, the World Bank stated that despite expectations of reduced deficits, the country's total debt is set to remain high at over 115% of GDP. It stated that the government raised Goods and Services Tax (GST) rates earlier this year, but more substantial and immediate commitments are necessary, especially since planned subsidy reforms for 2023 did not happen as anticipated. It added that the country needs to better manage spending while boosting revenue to ensure fiscal sustainability.
World Bank Country Director Faris H. Hadad-Zervos said that prudent debt management and a fiscal adjustment with strengthened investment planning are needed in the context of tightened global conditions and already elevated fiscal deficits, to ensure a more resilient economy going forward, and to build on the recent reforms. He also said that while tourism will remain a primary engine of growth, the Maldives stands to benefit by promoting more eco-tourism and fisheries development, prioritising limited infrastructure financing for remote areas, and encouraging more private sector investment in such a way that growth is inclusive, greener and resilient to climate and other shocks.
The special focus section of the report, Supporting Sustainable and Resilient Infrastructure, noted that the Maldives has excelled in providing infrastructure services but relies heavily on public spending, often surpassing GDP growth. It highlighted that while the country has improved infrastructure across atolls, disparities remain, especially in piped water, sewage, and internet access compared to the capital Male' City. It added that addressing these challenges requires better coordination, sustainable planning, transition to greener energy mobilising more private capital, and enhanced public investment management to deal with fiscal constraints and climate change.