Maldives faces slower growth, World Bank urges fiscal reforms

The Maldivian economy is expected to grow at a slower pace than previously forecast, at 4.7% in 2024.

A World Bank Press release issued on Wednesday addresses this slowdown noting that it is due to a decrease in tourist spending and a lull in other major industries. The World Bank has issued a warning, highlighting the need for urgent fiscal reforms to address the country's rising debt and potential economic risks.

The World Bank report, titled "Scaling Back & Rebuilding Buffers," emphasizes the importance of fiscal consolidation. This involves reducing government spending and subsidies, which will impact household incomes. However, these reforms are crucial to ensure long-term economic stability.

The Maldives currently has a high debt burden, exceeding USD 8 billion, which is equivalent to 122.9% of its GDP. Without addressing this issue, the country risks accumulating even more debt and struggling to meet its financial obligations.

The World Bank recommends a multi-pronged approach.  Firstly, the government should implement its recently announced fiscal reform agenda. This plan should be accompanied by clear communication to ensure public understanding and support.

Secondly, the report suggests establishing a system to assist vulnerable populations who might be disproportionately affected by the reforms. This could involve targeted programs to replace inefficient blanket subsidies and ensure continued support for those in need.

Finally, the World Bank urges the Maldives to diversify its economy and lessen its dependence on tourism. This could involve reducing the role of state-owned enterprises, encouraging private sector participation, and fostering job creation in new industries.

By implementing these recommendations, the Maldives can navigate the current economic challenges and achieve sustainable growth in the long run.