The Maldives Monetary Authority (MMA) has released its Economic Update for August 2024, providing an insightful overview of the country’s economic performance across various sectors. The report highlights developments in GDP growth, inflation, tourism, public finance, and external trade, painting a picture of moderate growth, with notable strengths and challenges impacting the economy.
GDP Growth and Forecasts
According to the Quarterly National Accounts (QNA) for Q1-2024, released by the Maldives Bureau of Statistics (MBS), the real Gross Domestic Product (GDP) grew by 9.8% compared to the same quarter in 2023. This represents a significant acceleration from the 4.2% growth observed in Q4-2023. The growth in Q1-2024 was primarily driven by robust performance in the tourism sector, with additional positive contributions from transportation and communication, wholesale and retail trade, public administration, financial services, and the real estate sector. However, the manufacturing sector reported a negative contribution to GDP growth during this period.
Looking ahead, the GDP growth forecast for 2024 has been revised downward. Initially projected at 5.5%, it is now expected to grow at a slower rate of 4.9% due to the lower-than-expected economic performance in 2023 and the anticipated moderation in the construction, transportation, and communication sectors. This follows a significant growth rate of 13.9% in 2022 and an actual growth rate of 4.1% in 2023, driven by the expansion of the transportation and communication sectors, which offset declines in tourism and wholesale and retail trade.
Tourism Sector Performance
Tourism remains a critical pillar of the Maldivian economy, and the sector’s performance in July 2024 showed encouraging signs. Tourist arrivals totalled 167,528, marking a 15% increase compared to July 2023. Bednights in resorts rose by 26%, although guesthouse bednights declined by 16%. The overall occupancy rate in the tourism sector increased from 48% in July 2023 to 54% in July 2024. For the period from January to July 2024, total tourist arrivals rose by 10%, and total bednights increased by 7%, with the average stay length remaining steady at 7.6 days.
The primary source markets driving this growth were China, Russia, the United Kingdom, Germany, and India. Despite challenges in some areas, the tourism sector continues to show resilience and growth, contributing significantly to the economy’s overall performance.
Inflation Trends
Inflation, as measured by the annual percentage change in the national Consumer Price Index (CPI), remained stable at 1.4% in July 2024. The main contributors to inflation were fish, vegetables, and electricity, contributing 0.54, 0.42, and 0.29 percentage points, respectively. The monthly percentage change in CPI decelerated to 0.1% in July 2024 from 0.7% in June 2024. The decline in inflation was partly due to lower prices in mobile communication services and major household appliances.
Public Finance Developments
On the fiscal front, the Maldives saw a 20% increase in total revenue (excluding grants) in March 2024 compared to March 2023, driven primarily by a rise in tax revenue by MVR 671.1 million. In contrast, non-tax revenue fell by MVR 117.1 million. Expenditure (excluding amortisation) increased modestly by 3%, largely due to a 6% rise in recurrent spending. Meanwhile, capital expenditure fell by MVR 444.5 million, reflecting a shift in government spending patterns.
Government debt remains a concern, with total government debt (excluding government-guaranteed debt) standing at MVR 112.2 billion at the end of Q1-2024. However, the debt-to-GDP ratio decreased from 103% in Q4-2023 to 98% in Q1-2024, driven mainly by an increase in domestic debt.
Monetary Developments
In the monetary sector, reserve money (M0) continued its downward trend, decreasing by 6% at the end of July 2024, reflecting a significant decline in net foreign assets. Broad money (M2) growth remained stable at 1%, with increases in time and savings deposits offsetting declines in transferable deposits.
Credit to the private sector grew by 12% annually by the end of July 2024, with significant growth observed in the construction sector (25%), followed by personal loans. The tourism sector, accounting for the largest share of bank credit, registered an 8% annual growth.
External Trade and Reserves
External trade data showed mixed trends. While total exports increased by 5% in July 2024 compared to July 2023, imports declined by 6%. For the year-to-date, total exports declined by 8%, whereas total imports rose by 4%. The decline in exports was primarily driven by a drop in domestic exports, particularly in frozen skipjack tuna and canned or pouched tuna, while re-exports, especially jet fuel, saw a rise.
Gross international reserves fell sharply to USD 395.4 million at the end of July 2024, a decrease from USD 509.2 million in June 2024 and USD 594.1 million in July 2023. This 33% decline compared to the previous year raises concerns about the country’s ability to cushion against external shocks.
What It All Means
The latest economic data suggests that while the Maldives is experiencing growth in certain sectors like tourism and credit to the private sector, there are underlying vulnerabilities that could pose challenges ahead. The downward revision of GDP forecasts and declining international reserves signal caution, reflecting both internal and external economic pressures. The mix of moderate inflation, rising public debt, and fluctuating external trade performance suggests a need for strategic economic planning and policy adjustments to sustain growth and ensure financial stability. Strengthening key sectors, managing debt levels, and bolstering reserves will be crucial to navigating the complexities of the current economic landscape.
The August 2024 Economic Update by the Maldives Monetary Authority presents a complex picture of the Maldivian economy, characterised by robust tourism growth and steady inflation but tempered by moderate GDP growth forecasts and declining reserves. As the Maldives navigates these economic dynamics, careful policy planning and structural reforms will be crucial to sustaining economic stability and growth in the coming months.
