Maldives’ economy, buoyed by a strong rebound in tourism, is projected to grow at 7.6 percent in 2022 and fully recover to pre-pandemic levels by 2023, but the country’s high debt levels are a major concern, says the World Bank in its twice-a-year regional update.
Released today, the latest South Asia Economic Focus Reshaping Norms: A New Way Forward projects the region to grow by 6.6 percent in 2022 and by 6.3 percent in 2023. The 2022 regional forecast has been revised downward by 1.0 percentage point compared to the January projection due in part to the impacts of the war in Ukraine.
Countries in South Asia are already grappling with rising commodity prices, supply bottlenecks, and vulnerabilities in financial sectors. The war in Ukraine will amplify these challenges, further contributing to inflation and deteriorating current account balances.
Also released today as a companion piece, the latest Maldives Development Update underscores the growing momentum of the economy supported by a sustained recovery in tourism, while identifying potential downside risks to growth. Maldives is expected to see strong economic growth in the medium-term, with real GDP expected to grow by 10.2 percent in 2023.
But the country faces vulnerabilities due to its large imports of fossil fuels as share of GDP, a reduction in tourists from Russia and Ukraine, and a high debt burden. Further increases in global energy prices may cause an additional fiscal burden. Tourism could be adversely impacted by a persistent reduction in Russian and Ukrainian tourists and new waves of COVID-19 infections. However, there is some upside potential from increasing tourist arrivals from traditional source countries and new markets.
“While the strong rebound in tourism is expected to boost Maldives’ economic recovery, with real GDP growth projected to return to pre-pandemic levels by 2023, prudent debt management remains critical to improving fiscal sustainability,” said Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka. “A high dependence on tourism and limited sectoral diversification also remains a key structural challenge. We continue to support Maldives in leveraging digital technologies and investing in renewables to achieve a green, resilient, and inclusive development path.”
Another challenge the region faces is the disproportionate economic impact the pandemic has had on women. The South Asia report includes an in-depth analysis of gender disparities in the region and their link with deeply rooted social norms, and recommends policies that will support women’s access to economic opportunities, tackle discriminatory norms, and improve gender outcomes for inclusive growth.