Maldives’ Economic Resilience and Human Capital Development Analyzed in World Bank Review

The World Bank Group recently released its comprehensive Human Capital Review for the Maldives, a detailed analysis of the nation’s human capital development and potential, particularly in the context of the COVID-19 pandemic and its aftermath. This report is part of the Human Capital Project, a global initiative aimed at highlighting the importance of investing in people.

Prior to the pandemic, the Maldives, classified as an upper-middle-income country with a population of 515,122 spread across 185 islands, experienced a decade of robust economic growth averaging 6.45 per cent. This growth, largely driven by the country’s rich marine ecosystem and a booming high-end tourism sector, contributed significantly to poverty reduction. The poverty rate, which stood at 3.9 per cent in 2019, is projected to decrease to 2.1 per cent by 2023.

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The country’s Human Development Index score improved substantially from 0.555 in 1995 to 0.747 in 2021, reflecting significant progress in health, social protection, and education. Government expenditure on these social sectors averaged 42 per cent of the annual budget between 2014 and 2021. Despite these advancements, the Maldivian economy’s heavy reliance on tourism, accounting for a substantial part of the GDP and exports, has made it vulnerable to external shocks, as evidenced by the severe 34 per cent GDP contraction in 2020 due to the pandemic.

The report also highlights the existential threat posed by climate change to the Maldivian economy and human development. Vulnerable groups, including migrants, women, persons with disabilities, and children, face heightened risks due to climate-related events. The two primary economic sectors, tourism and fisheries, are particularly susceptible to climate change impacts.

A significant component of the report is the calculation of the Maldives’ first Human Capital Index (HCI) score, which assesses the potential productivity of a child born today based on health and education outcomes. The HCI for the Maldives stands at 0.596, indicating that a child born in the country today would reach 60 per cent of their potential productivity with optimal education and health. The report also introduces the Utilization Adjusted HCI (UHCI), considering employment rates and revealing gaps between accumulated and utilized human capital.

The report identifies several challenges and areas for improvement. Key concerns include the quality of education, high child stunting rates, and underutilization of human capital, particularly among women. The Maldives’ UHCI score of 0.366 highlights significant potential productivity loss in the labour market. The report also reveals substantial regional disparities in human capital outcomes.

In response to these findings, the World Bank recommends addressing geographic disparities in education access, improving education quality, tackling high stunting levels, and promoting better employment outcomes for women. Additionally, the report suggests increasing the efficiency and effectiveness of social sector spending.

The Human Capital Review is not intended as an exhaustive assessment but as a foundational study to inform future policy and investment decisions. Subsequent reports will delve deeper into the expenditure of human development sectors and the interplay between climate change and human development. This report serves as a critical resource for the Maldivian government and stakeholders in their efforts to foster equitable, resilient, and sustainable growth.

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