According to the Asian Development Outlook April 2024 report, the economic forecast for the Maldives shows a potential surge in GDP growth, with expectations set at 5.4% in 2024 and a further increase to 6.0% in 2025.
2023 Overview
The report states that the Maldivian economy experienced a notable softening in economic growth in 2023, with a preliminary estimate of 2.7% year-on-year growth in the first three quarters.
Strong performances were observed in the fisheries, transportation, communication, construction, and real estate sectors. However, despite a 12.1% increase in tourist arrivals, tourism earnings did not witness a corresponding rise. Travel receipts contracted by 6.0% yearly, partly due to pre-booked travel arrangements to avoid the planned hike in the goods and services tax (GST) rate. The average stay shortened to 7.6 days from 8.0 days in 2022.
The report also noted inflationary pressures in 2023, driven by increased GST rates. Inflation increased to 2.9% in 2023 from 2.3% in 2022, primarily due to the increase in the GST rate by 40.0% for the general sector and 33.3% for the tourism sector. However, the increase was tempered by fiscal subsidies.
The fiscal deficit widened to 14.1% of GDP in 2023, slightly higher than the government’s initial forecast of 13.8%. Total revenue, including grants, expanded by 9.8% to 29.9% of GDP, but government expenditure grew faster, reaching 44.0%.
2024 Forecast
Despite these challenges, the report forecasts modest economic growth of 5.4% in 2024 and 6.0% in 2025, driven by continued expansion in the tourism and construction sectors.
Inflation is expected to rise to 3.2% in 2024 before gradually easing to 2.5% in 2025.
The fiscal deficit is projected to decline but remain large, reaching 12.3% of GDP in 2024 and staying above 10.0% of GDP in 2025.
The current account deficit is expected to narrow on higher tourism receipts and easing import prices, declining to 16.0% of GDP in 2024 before rising to 17.0% in 2025.
One significant policy challenge facing Maldives is enhancing food security; agriculture’s average share of GDP was a paltry 1.5% from 2005 to 2022, suggesting scope for expansion.
Initiatives such as pilot projects on vertical farming and collaborations with development partners aim to enhance agricultural productivity and contribute to long-term food security.
Government initiatives promoting tourism, such as opening new resorts and enhancing airport facilities, are expected to boost tourist arrivals and related sectors.
However, the report also highlights risks to the economic outlook, including extreme weather conditions and geopolitical events that could impact commodity prices and fiscal deficits. Lower-than-expected tourism earnings and project delays pose further challenges to economic growth.
