Economic Overview of Maldives

The quarterly economic bulletins and annual report released by the Maldives Monetary Authority has revealed that the Maldivian economy had a strong economic growth despite the impacts of COVID-19 and Russia-Ukraine conflict.

The Gross Domestic Product (GDP) of the Maldivian economy strongly recovered in Q3-2022 and strengthened further in the Q4-2022 due to swift actions from central banks to combat global inflation. The Quarterly National Accounts (QNA) estimates released by the National Bureau of Statistics on 29th December 2022 revealed that the real GDP of the country had a strong annual growth of 10.5% in Q4-2022 as a result of the tourism sector growth by 3.0 percentage points followed by transportation and communication sector (2.1 percentage points) and wholesale and retail trade (1.9 percentage points) The tourist arrivals of Q4-2022 rose by 7% compared to Q42021 from 451,075 to 484,674 along with the momentum of the tourism peak season, almost reaching the prepandemic tourist arrival numbers in Q4-2019 whereas the annual total arrivals is 2% below pre-pandemic levels. The tourist bednights increased by 15% in Q4-2022 compared to pre-pandemic levels of Q4-2019. International tourist arrivals increased by 62% compared to Q4 2022 while there were 167 resorts in operation.

Inbound Tourist Arrivals

Source: Ministry of Tourism

Contribution to Real GDP Growth by Economic Sector 2018 - 2022

Source: Maldives Bureau of Statistics

2018 2019 2020 2021 2022

The Maldivian economy observed a significant growth during the traditional peak season of the tourism sector, as the resorts in operation increased from 160 resorts in Q4-2021 to 167 resorts in Q4-2022. The strong pentup demand, higher confidence levels, and the continued removal of restrictions in several destinations has enabled to further increase the economic activities with eased travel restrictions.The operational bed capacity rose by 14% where resorts account for 69% of beds while guesthouses account for 24% of beds. Despite the increased arrivals and operational bed capacity, the occupancy rate of the industry declined from 68% in Q4-2021 to 60% in Q4 2022 while the average occupancy level also declined from 80% in Q4 2021 to 72% in Q4 2022.

The construction sector remained moderate in Q4-2022 where the gross value added by the import of constructionrelated items had a decline of 27.1% in annual terms and remained 55% lower than the pre-pandemic levels although the import of such items had an annual increase of 17%.

The decline of credit lent for construction of residential or housing projects, resorts, and guesthouses has acted as a main factor for the decline in the sector.

Furthermore, activities in the wholesale and retail trade sector have also expanded during Q4-2022 supported by the strong growth of the tourism sector and overall increase in domestic demand. Such as the private sector imports excluding imports by the tourism sector increased by 15% in annual terms along with a 10% rise in commercial bank credit to the sector. Moreover, the fisheries sector had mixed developments in Q4-2022 despite annual decline in fish purchases by fish processing companies. The volume of fish exports increased by 2% (511.8 metric tonnes) during Q4 2022 while the fish purchases totalled 24,114.8 metric tonnes reflecting a decline of 14% compared to Q4 2021.

The revenue of the government excluding grants increased by MVR 1.9 billion in Q3 2022 in comparison to Q32021 totalling to MVR 6.9 billion contributed by a major increase in tax and non-tax revenues. This is the result of a significant increase in both tax revenue and nontax revenue due to the major upturn in economic activity from the tourism sector. Such as business profit tax (BPT) accounted a growth of MVR509.7 million followed by an increase in tourism goods and services tax (T-GST) by MVR 242.7 million. In addition, the largest increase within the non-tax category is the other fees and charges accounting for an increase of MVR 653.5 million in Q3-2023 while a decline was observed in rent from resorts.

The total government expenditure excluding debt amortization recorded an increase in annual terms of MVR 990.1 million and totalling to MVR 8.5 billion in Q3-2021. This is mainly due to the significant increase in recurrent expenditure amounting to MVR 751.6 million and capital expenditure of MVR 238.5 million. Furthermore, the rise in expenditure on other infrastructure assets, and expenditure on roads, bridges, and airports amounted to MVR 344.2 million and MVR 247.4 million respectively.

Composition of Imports (miilion of US dollars) 2021 - 2022

The Consumer Price Index (CPI) of the economy increased to 3.1% in Q4-2022 from 2.7% in Q3-2022 as the price pressures increased in most of the categories of CPI mainly contributed by the cost of education services, outpatient care services and transport services offset by decline in prices of information and communication services and fall in housing rent. However, the elevated energy prices, other imported input costs, and wage increases have contributed to the strong price pressures in the domestic economy. The second highest weightage of the inflation points (1.4 percentage points) is the food and nonalcoholic beverages with a CPI basket weight of 23.5%. Although there was a decline of 6.3% in food inflation in Q3 2023, an increase was reflected in major categories such as fruits (7.9%), dairy products (6.6%), cereals and cereal products (3.8%), and oils and fats (28.9%).

The annual monetary developments in broad money growth rate decelerated further 6% by the end of December 2022. This was due to the slowdown in transferable deposits, savings, and timed deposits along with a decline in currency outside depository corporations. Moreover, a decline was observed for foreign currency denominated demand deposits.

Referring to the external trade, the total merchandise exports had an annual increase of 36% during Q4 2022 as a result of the significant increase in merchandise reexports (62%) along with the rise in domestic exports valued at US$116.5 million and US$74.1 million respectively.

Moreover, the merchandise imports had a significant annual increase of 17% (US$137.7 million). The major import categories include petroleum products USD 58.1 million (42%), food items USD 79.1 million (81%), constructionrelated items USD 19.5 million (17%), transport equipment and parts USD 50 million (82%), and electrical and electronic machinery and equipment USD 18.3 million (47%). Furthermore, the Gross International Reserves (GIR) increased to USD 827.7 million by the end of Q4-2022 with the increase in short-term foreign liabilities.