Maldives state of emergency threatens growth

The Maldives state of emergency will hit the country’s economic growth if tourists are deterred from travelling there for a prolonged period, Moody’s Investors Service warned Monday.

Tourism accounts for one-third of economic output and previous political disruptions have negatively affected GDP growth, it said.

A state of emergency lasting 15 days was declared on February 5 by President Abdulla Yameen, who ignored a Supreme Court order issued days earlier to release political prisoners. Instead he rounded up even more of his opponents, threw them in prison, arrested two top judges and suspended around 20 constitutional rights.

His actions triggered widespread condemnation and a barrage of government travel advisories from key tourist markets including China and the UK.

“If tourists are deterred from travelling to Maldives for a prolonged period, the crisis will reduce growth and prompt us to revise down our current forecasts of 4.5% real GDP growth in 2018,” said Moody’s.

“Tourism accounts for one-third of economic output. During a state of emergency in 2015, growth slowed to 2.8% from 6.0% the previous year, amid a slowdown in tourist arrivals growth to 2.4% from 7.1% the previous year.

The crisis will also hinder the country’s attractiveness as an investment destination, Moody’s said.

“Net foreign direct investment which, in 2017, totaled $484.5 million, or 10.4% of GDP, plays an important role in financing Maldives’ large current account deficit of 21.7% of GDP in 2017.

“A substantial portion of this financing is likely directed toward the tourism industry and an unstable security environment risks reducing future inflows.”

The government says there is no threat to tourists, that no curfew has been imposed and the general movement of people, services and businesses is unaffected.

The state of emergency “addresses certain internal aspects of governance and affects mostly the capital island Malé,” said the foreign ministry.

Last week ratings agency Fitch warned the unrest had the potential to escalate tensions between regional powers such as China and India, given their competition for influence in South Asia.

Graphic: Moody’s Investors Service