Economic outlook 2022

The Government of Maldives’ new estimates for the GDP growth rate for 2021 is at 31.6 percent, while the previous estimate was at 13.5 percent. The latest forecasts of the International Monetary Fund (IMF) puts growth at 18.9 percent for 2021, and latest World Bank forecast is at 22.3 percent. The growth forecasts for 2022 however do not deviate as significantly among the three, with the Government forecast at 12 percent, while IMF and World Bank forecast is at 13.4 and 11 percent respectively. 

The Ministry of Finance states that the revised estimates take into account the updated growth estimates for tourism numbers, which are slightly under-estimated by the international institutions.

Tourism sector

Maldives attracted over 1.7 million tourists in 2019, recording the highest arrivals and resulting government revenues from the sector, to date. The growth continued until end of February 2020. In March the country had to face the consequences of the COVID-19 pandemic. By the end of March, the border was closed and all tourist establishments shut-down. The period April to June recorded zero tourist arrivals, for the first time in the history of the Maldives' tourism industry, since its beginning 50 years ago. Although borders were re-opened in July, total arrivals were only 555,439 by the end of 2020. 

The year 2021 started with the first three months’ arrivals reaching about 60 percent of the 2019 levels. However, with the worsening COVID-19 situation in India, and also in the Maldives, and the closing of borders to South Asian tourists, May and June recorded lower arrival numbers. This also coincided with the traditional low season. 

With the successful vaccine rollout implemented by the Government, and subsequent re-opening of borders to South Asian tourists once again, July recorded over 101,000 tourists, and in August 2021, arrivals reached 103 percent of 2020 August levels, at 143,599 tourist arrivals. September and October also have seen arrivals exceeding 100,000 per month. With the current trend in arrivals of about 4,000 tourists per day on average, the Maldives is looking at ending the year with 1.2 million tourists. 

Current account balance

The estimated current account deficit by the end of 2021 is USD901.3 million or 18 percent of GDP. The Maldives Monetary Authority estimates the current account deficit to further worsen in 2022 to almost 21 percent of GDP, when it reaches USD1.2 billion. The Maldives current account has recorded an annual deficit of over USD1 billion since 2016, with the increased value of imports for infrastructure projects and the construction sector. However, imports of construction materials have been relatively low in the first 8 months of 2021, averaging about USD16.6 million per month. 

Foreign Exchange Reserves with MMA

The foreign exchange reserves with MMA, mainly held in USD, consists of statutory reserve requirements of the USD deposits of the banks, and USD revenues of the government, mainly in the form of T-GST payments, green tax, airport charges, and lease rents paid by the tourism sector. 

The estimated reserves by the end of 2021 as per MMA projections is USD672.2 million. The forecast for 2022 is almost similar, at USD657.3 by the end 2022. 

Government Fiscal Strategy

The total expenditure of the government in 2020 recorded MVR28.8 billion, despite the fall in revenue due to COVID-19 pandemic to MVR15.2 billion, incurring a deficit of MVR13.5 billion. The revised estimated expenditure this year is MVR 32.5 billion, with a deficit of MVR12.8 billion. Similarly proposed Budget 2022 estimates a deficit of MVR9.7 billion next year.

The expansionary, unsustainable, large government spending pattern is set to continue, despite the alarming growth in deficit in absolute numbers and also as a percentage of GDP. This will have negative long-term implications on foreign exchange stability, and the overall macroeconomy.

Government Debt

The total debt by the end of 2018, excluding guaranteed debt, was at MVR48.2 billion (59.1 percent of GDP). In 2019 total debt grew by 12 percent, and debt to GDP increased to 63 percent. With the COVID-19 pandemic, debt to GDP increased to 115 percent when the total debt reached MVR66.6 billion. By the end of this year, total debt excluding guarantees is estimated to reach MVR80 billion (103 percent of GDP). However, when guaranteed debt is included, the total debt will be MVR94 billion (122 percent of GDP).

The rate of growth in debt is expected to fall, however, total debt is estimated to remain over 100 percent of GDP over the medium term 2022 to 2024.