Maldivian economy - a brief introduction

Just 1.5 meters above sea level, the Maldives (0.35 million inhabitants) is made up of a chain of 1190 islands, of which 198 are inhabited and around 100 are exclusive resort islands which lie off the Indian sub-continent. The country was long a sultanate, first under Dutch and then under British protection. The Maldives became a republic in 1968, three years after independence. The economy of the Maldives is a typical island economy, with a narrow based economic infrastructure and a substantial deficit on the current account, largely compensated by money transfers from Maldivians living abroad to their families on the islands. Annual GDP growth has averaged 7.9 percent over the last 15 years and per current per capita income is around US $3000, while inflation has been maintained at modest levels. The Maldives economy is largely based around two industries—tourism and fishing. Other complementary activities to tourism and fishing, including retail and wholesale trade, construction, communication and transportation, are increasingly becoming important sectors.

Prudent macro-economic management and a stable political environment have enabled the Maldives to achieve uninterrupted economic growth in the past. Infant mortality rate has fallen and adult literacy rate has reached about 97%. The country was heavily hit by the December 2004 Indian ocean Tsunami, destroying much of its economic infrastructure. The impacts of globalization and the challenges for been a part of the wider global economy is even greater (Dicken, 2003). Changes that take place in both internal and external environment directly affect vulnerable economy due to the greater dependence on tourism as a key economic activity. Since inception in 1972, tourism has been developing in the Maldives, and today, tourist arrivals to the country doubled the population of the country. (The Seventh National Development Plan 2007).
With the shock of tsunami 2004, Tourism (traditionally accounting for over 40% of GDP) came to a hold, while many other industries suffered stagnation in production. The situation has further worsened the situation due to the continued political unrest especially with the recent development of multi-party political system.

There has been complete transformation in the Maldivian political and civil environment with the introduction of various independent commissions. Maldives has been experiencing larger current account deficit over the years. The Maldives’ economy collapsed after the Tsunami. The country lost a significant part of income from tourism while export revenues halved. Adequate information about the country’s economy is scarce. Estimations of the current account deficit vary from 15% of GDP to nearly 40% of GDP. Maldivian Balance of payments deficits during the first half of the 1980s were caused largely by the international shipping recession, the collapse of world tuna prices, and a brief downturn in tourism caused by the violence in nearby Sri Lanka. The government began an economic reform program in 1989, by lifting import quotas and opening some exports to the private sector. In recent years, it has encouraged more foreign investment by liberalizing regulations.