Maldives economy expects robust improvement, however its debt may surge further according to a recent World Bank report.
World Bank in its South Asian Economic Focus made several observations of the island nation’s economy. According to the bank, driven by its robust tourism growth, the Maldivian economy is projected to grow in real terms by 12.4% and 8.2% in 2022 and 2023 respectively.
The bank confirms this is supported by the greater capacity in the tourism sector due to completion of Velana International Airport (VIA), and new resort openings. Other indicators include the expected return of Chinese tourists, which had remained as the strongest source market prior to Covid-19.
Additionally, the continued spending on infrastructure, housing and renewable energy projects acted favorably for economic growth.
However, inflation is projected at 3.5% in 2022. According to World Bank, this will likely moderate in 2023 with global energy prices normalizing.
Current deficit may continue to elevate over the medium-term. This is owing to growth in imports over increased domestic consumption, and sustained public investments.
Fiscal deficit may widen in 2022 owing to higher capital expenditure and subsidy support. While government announced austerity measures, the recurrent expenditure may spike in light of Public Sector Pay Harmonization Policy implementation.
However, fiscal deficit may narrow down in 2023 and 2024. World Bank claims this is due to revenue growth alongside robust tourism performances. Additionally, the state-sanctioned GST hike will increase government revenue.
Despite a narrowing fiscal deficit, public debt may remain high at 118% of the GDP in 2024.