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The World Bank’s twice-yearly regional assessment, the latest South Asia Economic Focus Reshaping Norms: A New Way Forward has stated that the Maldives economy, buoyed by a strong rebound in tourism, is expected to grow at 7.6 percent in 2022 and fully recover to pre-pandemic levels by 2023.
However, as per the World bank’s assessment, the country’s high debt levels are a major concern. Moreover, forecasts 6.6 percent growth in 2022 and 6.3 percent growth in 2023 for the region. But due to the effects of the war in Ukraine, the regional forecast for 2022 has been revised downward by 1.0 percentage point compared to the January projection.
South Asian countries are already dealing with rising commodity costs, supply shortages, and vulnerabilities in the financial sector. The war in Ukraine will amplify these challenges, further contributing to inflation and deteriorating current account balances.
The newest Maldives Development Update, also released today as a companion piece, highlights the economy’s improving momentum, fueled by a prolonged rebound in tourism, while also noting possible development challenges. In the medium term, the Maldives is predicted to enjoy substantial economic growth, with real GDP expected to expand by 10.2 percent in 2023.
But, the country is vulnerable due to high fossil fuel imports as a percentage of GDP, a drop in tourists from Russia and Ukraine, and a high debt burden. Increases in global energy costs could result in a new fiscal burden. A continuous drop in Russian and Ukrainian tourists and new waves of Covid-19, could have a negative influence on tourism. Yet, there is some upside potential from increasing tourist arrivals from traditional source countries and new markets.
According to Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka, strong reliance on tourism and a lack of industry diversity are also major structural issues of Maldives, they will continue to assist the Maldives in utilizing digital technology and investing in renewable energy in order to create a green, resilient, and inclusive growth path.
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