Maldives

Economic Overview

 

After having registered a GDP growth rate of 5.8% in 2008, the country entered into recession in 2009 with a growth rate of – 1.3%, being strongly hit by the effects of the global economic crisis (fall in tourism, foreign financing and exports). Growth rate recovered in 2010, reaching 3.4%, due to the resumption of tourism activities and exports.

After the global economic crisis’ destabilizing effect on the country’s balance of payments, the public authorities asked the IMF for help, signing a stand-by accord in December 2009. The government’s priorities are to restore macro-economic stability through a rigorous tax and monetary policy, to increment monetary reserves and to reinforce the banking sector. In addition to the crisis, the main problems that the country’s economy faces are the lack of natural resources, the low availability of agricultural land and its great dependence in imports. Moreover, the country is still recovering from the destruction caused by the tsunami in 2004.

Maldives is the most prosperous country in South Asia in terms of its per capita GDP. However, poverty does exist, unemployment is significant and infrastructures remain insufficient.

 

FDI in Figures

Even though they remained modest, FDI stocks as a percentage of GDP increased between 2000 and 2008. However, the international financial crisis has created a slowdown in foreign investment inflows into Maldives.

The country provides an open and liberal economic environment, political stability and a steady economic growth. However, high level of unemployment, land erosion and the effects of global warming (Maldives is a low-lying country, 80% of its land is less than one meter above sea level) represent subjects of concern to foreign investors.

The main foreign investment sector is tourism, followed by transportation and telecommunications. The main investing partners are the USA, Thailand, Great Britain, Sri Lanka and Japan.

Foreign Trade Overview

The country is open to foreign trade, which in 2008 represented more than 190% of the GDP. The country needs to import most of its food items. As a part of its trade policy, the government has lifted import quotas on most of the items and from now on, imports are open to the private sector.

Customs duties are still high. The government of Maldives depends heavily on import duties for its income. However, there are not many non-tariff trade barriers. Customs procedures have been simplified and the right to obtain an import license is almost automatic.

Diversification beyond tourism and fishing is a big challenge for the development of trade. Although the State Trading Organization (STO) is still the largest importer, procurement procedures are transparent and the government is now trying to bring more private players.

Maldives imports much more than what it exports, which creates a structurally negative trade balance. It is estimated that in the next years the trade balance will remain negative.

The main trading partners are the countries of ASEAN (Association of South East Asia), the European Union and the United Arab Emirates.