The World Bank in their Maldives Development Update (MDU) published in April has stated that the Maldivian economy is projected to grow by 6 percent on average in the medium term.

In the MDU, the World Bank highlighted that this growth is driven by robust activity in the tourism sector. Total arrivals are expected to increase by 7.1% year-on-year in 2023, reaching 1.8 million, adding that the expansion of Velana International Airport and new resort investments will further boost tourism.

The World Bank Report noted that even though the economic growth rate for the Maldives had been reduced a bit, it still remains the fastest-growing economy in the South Asian region.

It further added that tourism has seen a rapid recovery after the pandemic, with arrivals reaching 1.68 million in 2022, only 1.6 percent lower than the pre-pandemic level. Despite Russia’s invasion of Ukraine, a rebound in arrivals from key European markets, and growing interest from Russia, India and Middle Eastern countries have offset the absence of tourists from China. As a result, the Maldivian economy is estimated to have grown 12.3 percent in 2022.

The report also noted several challenges faced by the economy.

It highlighted that due to blanket subsidies provided on fuel, electricity, and food items, the government is facing significant pressure to continue financing this subsidy program in its current form. If the government is unable to bring proposed changes to subsidies, it will have to take on a greater expense on subsidies.

It further added that continued public expenditure, particularly on ambitious PSIP projects that are financed by external loans (including commercial and non-concessional loans during a global tightening period), and elevated spending on subsidies have kept public debt high in 2022. Total public and publicly guaranteed (PPG) debt was 106 percent of GDP in 2022Q3, with the share of external debt remaining high at 47 percent of GDP, as government contracted new debt worth US$434 million since the end of 2021 to finance general expenditure, support budget deficits and fund PSIP projects.