Economy of the Maldives

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The economy of the Maldives is a mixed economy that is based on the principal activities of tourism, fishing and shipping. Since the 1970s the economy of the Maldives has developed rapidly. Annual growth of gross domestic product (GDP) has been high, averaging about 6 percent in the 2010s, and the gross national income (GNI) per capita reached the level of most upper middle-income countries by the late 2010s.

In ancient times, Maldives were renowned for cowries, coir rope, dried tuna fish (Maldive fish), ambergris (maavaharu) and coco de mer (tavakkaashi). Local and foreign trading ships used to load these products in the Maldives and bring them abroad.

Tourism is the largest industry in the Maldives, accounting for 28% of GDP and more than 60% of the Maldives' foreign exchange receipts. It powered the current GDP per capita[1] to expand 265% in the 1980s and a further 115% in the 1990s. Over 90% of government tax revenue flows in from import duties and tourism-related taxes.

Fishing is the second leading sector in the Maldives. The economic reform program by the government in 1989 lifted import quotas and opened some exports to the private sector. Subsequently, it has liberalised regulations to allow more foreign investment.

Agriculture and manufacturing play a minor role in the economy, constrained by the limited availability of cultivable land and shortage of domestic labour. Most staple foods are imported.

Industry in the Maldives consists mainly of garment production, boat building, and handicrafts. It accounts for around 18% of GDP. Maldivian authorities are concerned about the impact of erosion and possible global warming in the low-lying country.

Among the 1,190 islands in the Maldives, only 198 are inhabited. The population is scattered throughout the country, and the greatest concentration is on the capital island, Malé. Limitations on potable water and arable land, plus the added difficulty of congestion are some of the problems faced by households in Malé.

Development of the infrastructure in the Maldives is mainly dependent on the tourism industry and its complementary tertiary sectors, transport, distribution, real estate, construction, and government. Taxes on the tourist industry have been plowed into infrastructure and it is used to improve technology in the agricultural sector.

History

Historically, the Maldives provided enormous quantities of cowry shells, an international currency of the early ages. From the 2nd century CE, the islands were known as the 'Money Isles' by the Arabs.[2] Monetaria moneta was used for centuries as a currency in Africa, and huge amounts of Maldivian cowries were introduced into Africa by western nations during the period of slave trade.[3] The cowry is now the symbol of the Maldives Monetary Authority.

In the early 1970s and 1980s, the Maldives was one of the world's 20 poorest countries, with a population of 100,000.[4] The economy at the time was largely dependent on fisheries and trading local goods such as coir rope, ambergris (Maavaharu), and coco de mer (Tavakkaashi) with neighbouring countries and East Asian countries.[5]

The Maldivian government began a largely successful economic reform programme in the 1980s, initiated by lifting import quotas and giving more opportunities to the private sector. At that time, the tourism sector was in its infant stage but would later play a significant role in the nation's development. Agriculture and manufacturing continue to play lesser roles in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labour.

Macro-economic trend

This is a chart of trend of gross domestic product of Maldives at market prices estimated [1] by the International Monetary Fund with figures in millions of rufiyaa.

Year Gross domestic product US dollar exchange Per capita income
(as % of USA)
1980 440 7.58 rufiyaa 3.11
1985 885 7.08 rufiyaa 3.85
1990 2,054 9.55 rufiyaa 4.34
1995 4,696 11.76 rufiyaa 6.29
2000 7,348 11.77 rufiyaa 6.77
2005 10,458 12.80 rufiyaa 5.33
2011 10,458 15.40 rufiyaa 7.43

The Maldives has experienced relatively low inflation throughout the recent years. Real GDP growth averaged about 10% in the 1980s. It expanded by an exceptional 16.2% in 1990, declined to 4% in 1993, and, over the 1995–2004 decade, real GDP growth averaged just over 7.5% per year. In 2005, as a result of the tsunami, the GDP contracted by about 5.5%; however, the economy rebounded in 2006 with a 13% increase.[6]

The following table shows the main economic indicators in 1980–2020.[7]

Year 1980 1985 1990 1995 2000 2005 2010 2015 2020
GDP in $
(PPP) 		0.24 bn. 0.51 bn. 0.80 bn. 1.24 bn. 2.01 bn. 2.86 bn. 4.65 bn. 7.63 bn. 7.27 bn.
GDP per capita in $
(PPP) 		1,599 2,791 3,768 5,090 7,444 9,732 14,528 21,931 19,222
Inflation
(in Percent Change) 		27.9 % -9.16% 15.5 % 5.49 % −1.18 % 2.46 % 6.15 % 1.37 % -1.59%
Government debt
(Percentage of GDP) 		... ... ... ... 39 % 43 % 53 % 55 % 146 %

Economic sectors

Tourism

Main article: Tourism in the Maldives
See also: Diving in the Maldives
page-not-found

Fishing

Main article: Fishing industry in the Maldives
page-not-found

Industry

Main article: Industries in Maldives

The industrial sector provides only about 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, five garment factories, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products. There are no patent laws in the Maldives.[8]

Financial

See also: List of banks in the Maldives, Islamic banking, Maldives Stock Exchange, and Capital Market Development Authority

The banking industry dominates the small financial sector of the Maldives. The country's seven banks are regulated by the Maldives Monetary Authority.[9]

While formerly the Maldives had no income, sales, property, or capital-gains taxes, and was considered to have the simplest tax code in the world,[10] now taxation is regulated by the Maldives Inland Revenue Authority (MIRA). In 2011, the Tax Justice Network gave the Maldives a "secrecy score" of 92 on its Financial Secrecy Index - the highest score in that category of any actively-ranked country; however by 2022 with a secrecy score of 75, no longer ranked in the top ten.[11] However, in both 2011 and 2022, the Maldives' minor market share put it near the bottom of the overall weighted lists.[12]

A recurrent trend of China leveraging its economic influence to attain geopolitical goals is observable. This pattern is not confined solely to small island nations in the Indian Ocean, like the Maldives and Sri Lanka, but extends to the wider Indo-Pacific region, encompassing countries with sizeable and advanced economies as well.[13] The Maldives government is grappling with concerns about falling into a potential debt entrapment with China.[14]

Education

Main article: Education in the Maldives
page-not-found

Healthcare

Main article: Health in the Maldives
page-not-found

Telecommunications

Main article: Telecommunications in the Maldives

Shipping

See also: Maldives Ports Limited

Beginning in the 1990s, the Port of Male received over £10 million in loans from the Asian Development Bank designated for infrastructure upgraded.[15] The ADB notes that from 1991 to 2011, due to the loans, the ports annual throughput in freight tons equalled 273,000. By 2011 that number reached 1 million.[16] The ADB also provided training for port authority staff to increase efficiency. ADB and the Government of Maldives, in a joint report address ship turn-around, "What used to take about 10 days in 1991 was achieved in 3.8 days by 1997, and about 2.6 days by 2014".[17]

Transport

Main article: Transport in the Maldives
See also: List of airports in the Maldives and List of airlines of the Maldives

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Environmental concerns

There is growing concern towards the coral reef and marine life due to coral mining (used for building and jewellery making), sand dredging, solid waste pollution and oil spills from boats. Mining of sand and coral has destroyed the natural coral reef that once protected several important islands, now making them highly susceptible to the erosive effects of the sea. The destruction of large coral beds due to heat is also a growing concern.[18]

In April 1987, high tides swept over the Maldives, inundating much of Malé and nearby islands which prompted Maldivian authorities to take global climatic changes seriously. An INQUA research in 2003 found that actual sea levels in the Maldives had dropped in the 1970s and forecasts little change in the next century.[19] There is also concern over the questionable shark fishing practices in place in the island. Shark fishing is forbidden by law, but these laws are not enforced. The population of sharks has sharply decreased in recent years.[20]

The Asian brown cloud hovering in the atmosphere over the northern Indian Ocean is also another concern. Studies show that decreased sunshine and increased acid rain source from this cloud.[21]

Energy

The Maldives relies heavily on imported petroleum for electricity, with diesel-fired power stations servicing the islands and the capital, Malé. While 100% of the population has access to electricity, costs are high. The country is transitioning toward renewable energy due to climate change and high diesel costs.

While electricity in the Maldives has historically come entirely from diesel generators, solar power has been increasingly adopted to avoid high fuel costs. The resort on Dhiddhoofinolhu claims to have the world's largest oceanic floating solar plant, with 678 kW enough to supply peak demand.[22] The country's Environment Ministry has deployed solar–battery–diesel hybrid systems across the outer islands to reduce subsidies for imported diesel and promote low-carbon energy independence.[23]

Water supply and sanitation

The Maldives has been actively enhancing its water and sanitation infrastructure, with the aim for universal access to safe, piped water and sewerage systems across all inhabited islands. While at least 68% of the population has access to piped water and sewerage, significant challenges remained in providing consistent, affordable and safe water, especially during dry seasons.

Trade

An import-dependent country, Maldives faces significant fiscal pressures as increased global food and fuel prices in recent years have led to a five-fold increase in fuel subsidies paid by the government. Growing annual fiscal deficits, unsustainable external debt, and spending on large infrastructure projects and costly social welfare programs, combined with the economic impact from global events has increased economic uncertainties.

The Maldives relies heavily on imports to meet its domestic and tourism sector needs, with total annual imports of $2.8 billion in 2024. Top import partners in 2024 were India, China and Singapore.

In 2024, Maldives exported $274 million of goods, according to global customs data. Fishing products constitute the majority of Maldivian exports. The top Maldivian export destinations in 2024 were India, Thailand and the United Kingdom.[24]

Poverty, income and gender inequality

File:This is life (263615452).jpg
Old street sellers in Malé

Maldives achieved their Millennium Development Goal (MDG) of halving the proportion of people living under the poverty line to 1% as of 2011.[25] Starvation is non-existent, HIV rates have fallen and malaria has been eradicated.[26] Despite these accomplishments and progressive economic growth, developmental issues remain. In particular, the country needs to address income and gender disparities.[27] Development in Maldives has occurred predominantly in the capital Malé; islands outside the capital continue to encounter high poverty vulnerability, lower per-capita income, lower employment and limited access to social services.[27] A country-wide household income survey in 1997-1998 showed that the average income in the capital Malé was 75% higher than in surrounding islands.[26] Maldives's Gini co-efficient stands at 0.41.[28]

Poverty and Income Disparity

The factors that have led to Maldivians falling into or remaining in poverty are:[26]

  1. Geography: Residents of the northern regions of Maldives tend to remain in poverty more than other regions due to the relatively lower level of development in the North;
  2. Health: Maldivians who do not work due to poor health remain in poverty possibly on account of lower accessibility to health services in the country;
  3. Young household members: Larger proportion of young family members results in a lower overall household income;
  4. Female household members: Lower female labour participation rate and therefore, households with a greater proportion of females will have lower household income.

The difficulty of accessing social services and infrastructure in the outer atolls has meant that geography is a key reason for poverty and income disparity in Maldives.[26] In islands far from the capital, there tends to be lack of production, inadequate use of fishery resources, low value chain development and insufficient credit for small-scale producers and entrepreneurs.[29] The scarcity of land and water, the underdeveloped farming practices and absence of support services in atolls has meant low production and thus low incomes in these regions.[29]

Current Efforts

The government has recognised these issues of income and gender disparities and with the United Nations Development Programme (UNDP), Maldives has implemented policies that directly address these issues.[30][31] In 2011, President Nasheed said, "The most important facility for a country's development is its people... and since women are half of the population in any country, for a certainty their full participation will speed up the pace of development."[32]

See also

References

  1. ↑ "GDP: GDP per capita, current US dollars". Archived from the original on 2004-09-03.
  2. ↑ Lyon, James (October 2003). Maldives. Lonely Planet Publications Pty Ltd. p. 9. ISBN 978-1-74059-176-8. Archived from the original on 12 April 2016. Retrieved 9 November 2015.
  3. ↑ Hogendorn, Jan and Johnson Marion (1986). The Shell Money of the Slave Trade. African Studies Series 49, Cambridge University Press, Cambridge ISBN 0521541107.
  4. ↑ "Republic of Maldives Maldivian Labor Market: Spotlight on youth, tourism, and fisheries Analysis based on census 2014 data" (PDF). World Bank. 30 May 2017.
  5. ↑ Shakoor, Athif Ibrahim. "The tourism industry of the Maldives, – have we gone beyond 'regulatory capture'?" (PDF). The Maldives National Journal of Research. Saruna.mnu.edu.mv. Archived (PDF) from the original on 4 June 2024. Retrieved 1 August 2020.
  6. ↑ "U.S. State Department estimate". Retrieved 2009-07-31.
  7. ↑ "Report for Selected Countries and Subjects". Retrieved 2018-09-03.
  8. ↑ "Gazetteer - Patents". www.billanderson.com.au. Archived from the original on 2018-09-26. Retrieved 2008-02-18.
  9. ↑ "MMA". Archived from the original on 2015-04-02. Retrieved 4 March 2015.
  10. ↑ Singer-Vine, Jeremy (6 January 2011). "Which country has the simplest taxation system?". Slate Magazine. Retrieved 4 March 2015.
  11. ↑ "Financial Secrecy Index 2022". Tax Justice Network. Archived from the original on 7 March 2023.
  12. ↑ "2011 Results - Financial Secrecy Index". Archived from the original on 2013-08-28. Retrieved 2013-08-12.
  13. ↑ Balázs, Dániel (2016-06-08). "The Maldives Takes Its Place in Indian Ocean Geopolitics". Foreign Policy. Retrieved 2023-09-21.
  14. ↑ "China debt trap fear haunts Maldives government". Nikkei Asia. Retrieved 2023-09-23.
  15. ↑ adbadmin (24 April 2007). "Domestic Maritime Transport Project". Retrieved 17 October 2016.
  16. ↑ Bank, Asian Development (16 August 2012). "Maldives: Malé Container Port Boosts Economy". Retrieved 17 October 2016.
  17. ↑ "Archived copy" (PDF). Archived from the original (PDF) on 2018-04-17. Retrieved 2016-04-04.CS1 maint: archived copy as title (link)
  18. ↑ Sheppard, Charles R.C. (Sept 18, 2003) "Predicted recurrences of mass coral mortality in the Indian Ocean" Nature 425(6955): pp.294-296
  19. ↑ Mörner, Nils-Axel; Tooley, Michael; and Possnert, Göran (2004) "New perspectives for the future of the Maldives" Global and Planetary Change 40: pp.177–182;
  20. ↑ Bloody shark slaughter in the island paradise Der Spiegel (German), 09-15-2008.
  21. ↑ Srinivasan, J. et al. (2002) "Asian Brown Cloud – fact and fantasy" Current Science 83(5): pp.586-592;
  22. ↑ "World's largest solar plant at sea is installed at Maldives resort". 4 September 2019. Retrieved 2020-02-20.
  23. ↑ "ADB launches plan to repower diesel-reliant Maldives with solar hybrids". PV Tech. 15 January 2020. Retrieved 2020-02-20.
  24. ↑ https://www.trade.gov/country-commercial-guides/maldives-market-overview
  25. ↑ "UNDP Maldives: Poverty Reduction". UNDP Maldives. Archived from the original on 2011-12-03.
  26. ↑ 26.0 26.1 26.2 26.3 "Vulnerability and Poverty Dynamics in the Maldives." Institution for International and Development Economics. 2007-08-02.
  27. ↑ 27.0 27.1 "UNDP's response to the Global Economic crisis" (PDF). /www.undp.org. Archived from the original (PDF) on 2011-12-01.
  28. ↑ "Child Poverty in Maldives". Ministry of Planning and National Development, Maldives. Archived from the original on 2012-06-14. Retrieved 2017-09-06.
  29. ↑ 29.0 29.1 "Rural Poverty in the Republic of Maldives". Rural Poverty Portal. International Fund for Agricultural Development. Retrieved 23 February 2012.
  30. ↑ "UNDP Maldives Country Office Gender Mainstreaming Strategy" (PDF). UNDP Maldives. Archived from the original (PDF) on 2012-06-02.
  31. ↑ "Fast Facts" (PDF). United Nations Development Programme, UNDP Maldives. Archived from the original (PDF) on 2011-12-03.
  32. ↑ Naish, Ahmed (27 November 2011). "Eliminating Gender Inequality Essential for Development, Says President". Minivan News. Archived from the original on 29 November 2011.

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