World Bank calls for urgent economic reforms in Maldives
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Maldives faces increasing external and fiscal vulnerabilities that require immediate economic reforms, according to a latest World Bank report released on Thursday.
The “Maldives Development Update: Seeking Stability in Turbulent Times”, highlights the need for comprehensive changes to stabilise the economy and maintain the country's development progress.
The report indicates that the Maldives' economy grew by 7.7 percent and 4.5 percent in the first and second quarters of 2024, supported by an 8.5 percent increase in tourism during the first half of the year. Despite this growth, fiscal and external challenges persist.
Inflation remained low at 0.5 percent during the same period, though food prices increased by 6.7 percent year-on-year.
Public debt has continued to rise, reaching 116.5 percent of GDP in the first quarter of 2024, compared to 110.4 percent in the same period last year.
High levels of fiscal spending, particularly on public sector investments and subsidies, have contributed to the debt burden.
Although the reported fiscal deficit decreased in the first quarter of 2024, payment delays are affecting key sectors such as healthcare and construction, which are not fully captured in fiscal statistics.
Foreign exchange reserves have declined, falling from $590.5 million at the end of 2023 to $443.9 million in August 2024. Current reserves cover only 1.5 months of imports, with ongoing pressure from debt repayments.
The balance of the Sovereign Development Fund, at $65 million, remains inadequate to meet rising financing needs.
The World Bank warns that fiscal risks linked to loans, trade payables, subsidies, and state-owned enterprises (SOEs) remain high.
The report emphasises the need for comprehensive reforms to address fiscal and external imbalances, improve investor confidence, and reduce debt over time.
Although the government introduced a fiscal reform plan in February 2024, progress in implementing these changes has been limited.
While the endorsement of the Medium-Term Revenue Strategy is seen as a positive move, the World Bank urges immediate measures to cut spending, including scaling back public investments, phasing out subsidies, improving efficiency in healthcare spending, and reforming SOEs.
“Maldives has made progress in achieving its development goals, but safeguarding these gains and expanding them will require addressing current fiscal challenges,” said David Sislen, World Bank Regional Country Director for Maldives, Nepal, and Sri Lanka. “Efficient public spending – with the timely implementation of expenditure reforms and targeted social support – will be crucial to ensure resilience amid rising economic challenges.”
In addition to fiscal challenges, the report highlights climate risks facing the Maldives. It warns that sea-level rise and coral reef degradation could reduce GDP by 11 percentage points by 2050 in a worst-case scenario.
The World Bank suggests that investments in climate adaptation and renewable energy could help mitigate these effects, reduce long-term costs, and support economic growth.
The Maldives Development Update serves as a companion piece to the broader South Asia Development Update, which explores economic trends and challenges across the region. The October 2024 edition, titled Women, Jobs, and Growth, includes economic projections and discusses how increased female labor force participation and trade openness could unlock economic growth potential in South Asia.
