The World Bank has published the latest Maldives Development Update (MDU), providing a thorough snapshot of the country’s economic landscape as of April 2025. This biannual publication examines recent economic trends, assesses the outlook for the medium term, and offers deeper insights into critical policy challenges.
The newly released MDU highlights that while economic growth remained robust in 2024, underpinned largely by tourism, serious fiscal and external vulnerabilities have continued to deepen. The report notes that real GDP growth reached an estimated 5.5 percent last year, with tourist arrivals surpassing two million for the first time. However, inflationary pressures picked up towards the end of 2024, especially in food and essential services, and are forecast to rise further in 2025.
The publication outlines a worrying fiscal trajectory. The fiscal deficit widened to 12.3 percent of GDP in 2024, and public debt climbed to an estimated 134.2 percent of GDP by the end of the year. Although revenue collection improved modestly, largely due to tourism-related taxes, expenditure pressures, including rising salary costs and delayed subsidy reforms, pushed the deficit higher. In addition, the government accrued significant expenditure arrears, exacerbating financing challenges.
Externally, the situation remains fragile. The Maldives’ current account deficit stayed elevated, with foreign reserves reaching critically low levels by late 2024. Despite a temporary boost from a currency swap agreement with the Reserve Bank of India, official reserves remain historically low when compared to short-term import and debt servicing needs. Credit rating downgrades and soaring external borrowing costs have further strained the country’s financial position.
Looking ahead, the report forecasts moderate GDP growth, supported in part by the anticipated opening of the new terminal at Velana International Airport. Yet the risks are heavily tilted to the downside. Fiscal deficits are expected to remain high, external debt repayments will significantly rise, and inflation could worsen if targeted social protection measures are not swiftly introduced.
The MDU stresses the urgent need for a sharp fiscal adjustment. The World Bank recommends immediate implementation of the government’s homegrown reform agenda, including phasing out blanket subsidies, enhancing the efficiency of healthcare spending, reforming state-owned enterprises, and tightening the Public Sector Investment Program. Without decisive action, the report warns, Maldives faces heightened liquidity and solvency risks that could jeopardise future economic stability.
This latest Maldives Development Update serves as a stark reminder that while short-term growth remains positive, long-term sustainability hinges on painful but necessary fiscal and policy reforms.
