Economic Profile of Maldives

 

The Maldives is an archipelago of 1,192 small coral islands. Of the 200 inhabited islands, one third have fewer than 500 inhabitants. The extremely dispersed and fragmented population of about 370,000 people (a third of which is said to live in the capital Male) makes the development problems of the Maldives unique. In addition, the survival of the country’s low-lying islands is threatened by the constant rise in sea levels due to global warming.

Buoyant average GDP growth of up to 6 – 8 per cent year over the last decade driven by investment in the tourism sector with low levels of inflation until recently has been a distinctive feature of the economy in recent years. Significant progress has also been achieved in human and social development over the past two decades.  Credible macroeconomic and public investment policies as well as a largely favourable external environment has facilitated this progress, lifting the Maldives from being one of the 20 poorest countries in the 1970s to one that shares many characteristics of a lower middle-income country today.

The small size of its economy, which is largely dependent on tourism and fisheries, makes the Maldives vulnerable to external shocks as witnessed by the economic recession following the tsunami of December 2004. In spite of the relatively low death toll after the tsunami, the country’s economy was badly shaken. Financial damage was estimated at 62% of GDP or $470 million, aggravated by a non-tsunami budget deficit of approximately $80 million in 2005 due to a significant fall in revenue from tourism.

The country lacks land based natural and mineral resources; as a result virtually all economic production is highly dependent on imports, creating a heavy dependence on foreign exchange earnings. Intensive agricultural production is limited because of the poor quality of soil (porous, deficient in nitrogen and potassium) and the limited availability of fresh water. All staple foodstuffs, basic necessities and items for the tourism industry are imported.