The Maldives emerged from a year of economic moderation and resilience in 2023. According to the latest Quarterly National Accounts (QNA) estimates by MMA, the Maldives economy will grow by 4.0% in 2023, a significant slowdown from its impressive 13.9% growth. recorded in the previous year. This slowdown is lower than initially expected GDP growth and is mainly due to challenges in key sectors such as tourism and construction.
The tourism sector, the backbone of the Maldives economy, experienced a contraction in 2023, mainly due to a decline in the number of resort stays. Despite significant progress in the first quarter, including the reopening of China’s borders and strong immigration from Russia, the sector faced headwinds throughout the year. Total tourist arrivals exceeded the government’s annual target, reaching 1,878,543, but the growth was uneven across all segments. While the number of guesthouse nights soared, the number of resort nights fell for the first time since the start of the coronavirus pandemic. As a result, the gross value added (GVA) of the tourism sector is estimated to contract by -1.0% in 2023.
The global context played an important role in shaping tourism trends. The United Nations World Tourism Organization’s (UNWTO) World Tourism Barometer reported that international tourist arrivals have rebounded strongly, reaching 88% of pre-pandemic levels. This recovery was driven by pent-up demand, particularly in regions such as the Middle East and Europe. However, challenges remained, especially as the ongoing conflict between Russia and Ukraine is impacting travel trends.
On the fiscal front, the Maldives faced a widening fiscal deficit, reaching 12.7% of GDP in 2022. Despite exceeding budget revenue targets, higher-than-expected expenditures, particularly current expenditures and capital expenditures, contributed to the fiscal deficit. In particular, increased spending on the national health insurance system and subsidies and delays in implementing spending reduction policies exacerbated fiscal pressures.
Monetary policy remained accommodative in 2023, with the Maldives Monetary Authority (MMA) maintaining the minimum reserve requirement ratio (MRR) at 10%. Broad money growth accelerated slightly due to higher net claims on the central government and increased credit to the private sector. Profitability in the insurance and non-bank financial sectors declined, while the banking sector remained strong with solid asset growth and capital metrics.
The balance of payments (BOP) showed mixed results, with the current account deficit widening to 20.3% of GDP in 2023. Although the goods trade deficit narrowed, reflecting an increase in export earnings, the surplus in the services account decreased. Travel receipt. Foreign direct investment (FDI) inflows and government and private sector borrowing covered the deficit, highlighting the importance of external financing.
Going forward, the Maldives will face the dual challenge of maintaining economic recovery while addressing structural vulnerabilities. Revitalizing the tourism sector, strengthening fiscal discipline, and promoting diversification efforts will be critical to navigating the evolving economic landscape. As the global tourism industry begins its path to recovery, strategic policy-making and strong economic governance will be essential to charting a trajectory for sustainable growth and development for the Maldives.
