As the World Bank continues to urge fiscal reform implementation, the Maldivian Government appears to be taking the first steps towards implementing some of the first reforms that were mentioned in the financial reform agenda.
Travelution Media
Although the Maldives’ economy is forecasted to grow by 4.7 percent in 2024, the World Bank forecasts that the country faces potential risks due to external and fiscal vulnerabilities and that increased debt risks could arise if fiscal reforms are not implemented. The Maldives has been struggling with managing its debt in recent years. In addition to financial mismanagement, the COVID-19 pandemic bringing the tourism industry and economies to a halt has continued to affect countries all across the globe - including the Maldives.
While the Maldives dealt with the pandemic with much efficiency, there is no doubt that the tourism industry has changed since then. According to the Scaling Back & Rebuilding Buffers, the latest Maldives Development Updates by the World Bank, tourism and other major industries are seeing a slowdown. While there is an increase in tourist arrivals, even in the Maldives, it has been noted that tourists have been choosing shorter stays and opting for lower spending habits. With this, countries such as Maldives, which heavily rely on the tourism industry have seen its impact on the overall GDP growth. In addition to these changes in the industry, with the growing public debt of the Maldives, the World Bank has emphasised the urgency when it comes to implementing the financial reform agenda which was published by the Government.
Implementing the government's fiscal reform agenda is essential to sustaining economic growth in Maldives. The World Bank remains committed to supporting Maldives in these reform efforts. This includes developing a targeted mechanism to support the poor and the vulnerable, phasing out the broad-based subsidy system that is currently inefficient, addressing weaknesses in state-owned enterprises, enhancing the efficiency of health spending, and improving the strategic planning of investments.
The financial reform highlighted several key measures that the administration plans to undertake, by compiling a five-year-long plan that addresses ways to tackle the increasing debt in the country. As the World Bank continues to urge fiscal reform implementation, the Maldivian Government appears to be taking the first steps towards implementing some of the first reforms that were mentioned in the financial reform agenda. To make this move, the Government has now proposed amendments to the Tourism Act and the Value Added Tax Act to reform the Airport Taxes and Fees Rate as well as reform Green Tax Rates.
Reform 1. Increase Airport Taxes and Fees Rate
The first reform highlights the changes that the Government plans to bring to the airport taxes and fees. The policy highlights the Government’s plans to increase the Departure Tax and Airport Development Fee.
Although the revisions will not impact locals travelling in economy class, the changes will affect:
In addition to being a great source of revenue in the future, as both of these fees are collected in USD, this will also be a positive step that the Government is taking towards addressing the dollar shortage issue that the Maldivian economy continues to face. The Government is estimating to implement these changes as of 1st December 2024 with the estimated revenue impact for the year 2025 to be a total of MVR 1,572.3 million.
Reform 2: Increase Green Tax Rates
The second reform that the Government plans on implementing in the near future is a revision to the green tax rates. This is yet another reform that will not impact locals as green tax is payable by tourists visiting the country. This means that tourists staying at resorts, integrated tourist resorts, tourist hotels, resort hotels, hotels, tourist vessels and tourist guest houses operated in the Maldives will be impacted by the changes in the green tax rates. The change for the Green Tax Rates, which are also collected in USD, is categorised into two:
The changes to the Green Tax Rates are set to be implemented by the Government starting in January of 2025, with the estimated revenue impact for the year 2025 standing at MVR 963.6 million.
Reform 5: Increase GST base and review tax rates
Although there is no news regarding changes to the Goods and Services Tax (GST), the Government plans to increase the Tourism Goods and Services Tax (TGST) by one percent. This will bring the TGST rates up from 16 percent to 17 percent starting June 1st, 2025. Although this is a small change, the Government is estimating a revenue impact of MVR 201.9 million for the year 2025.
These are just the first of the reforms that the administration plans to implement in order to generate higher revenues within the country and reduce the debt of the nation. While these measures reflect a crucial step towards addressing the growing fiscal challenges, the success of the government’s broader fiscal reform agenda will depend on consistent policy implementation, sustainable revenue generation, and the careful balancing of economic growth with financial discipline. If the Maldives can navigate these reforms effectively, it stands a better chance of overcoming its current vulnerabilities and ensuring long-term economic stability.
