The Maldivian economy slowed to 1.9 percent growth in 2015, knocked by a slowdown in tourism arrivals and a number of booking cancellations following a state of emergency in November, the World Bank has said.
The figure stated in the World Bank’s bi-annual report, South Asia Economic Focus, is markedly different to the 4.8 percent touted by the government, and comes as a blow to President Abdulla Yameen, who came to power promising strong economic growth.
This was the weakest showing since 2009, when a global recession led to negative growth of -3.9 percent in the Maldives. In comparison, 2014 saw growth rates of 6.5 percent.
The economy was dragged down by a slump in tourist arrivals, especially from China and Russia, the report said. Construction has now overtaken tourism as the most important driver of growth.
Continued domestic political unrest and a slowdown in major-tourism providing countries, such as China and European states, might lead to further reduction in arrivals, affecting tax receipts and the economy, the report said.
Despite record revenue, the Maldives is spending beyond its means, the World Bank continued, warning of “significant” risks.
Figures on fiscal deficits and public debt were sobering, too; the 2015 deficit stood at 8.4 percent of GDP, and not 6 percent as claimed by the government. This makes it the highest deficit since 2010 (14.4 percent).
The risk of external debt distress is high owing to large infrastructure projects, the report said. These projects, cornerstones of Yameen’s economic agenda, include airport expansion, a bridge between the capital Malé and Hulhumalé, and housing construction in Hulhumalé.
Public debt could rise from 73 percent of GDP or US$693.7million to 120 percent of GDP by 2020, the report warned, recommending Yameen’s administration to rein in spending and implement more sequencing of investment projects to contain debt.
Managing a constrained cash flow “has become an increasing challenge,” the report noted, leading to the build-up of unpaid bills and costly domestic borrowing. A heavy reliance on domestic sources of financing is meanwhile exposing the domestic banking system to sovereign risk, it added.
The bank went on to express concern over high youth unemployment, saying rates had increased from 9.3 percent in 2006 to 12.4 percent in 2014. This was caused by “skill mismatch and lack of local economic opportunities.”
Women’s participation in the labour force, however, increased.
Inflation fell to 1.4percent while the exchange rate of MVR15.4 per USD has remained stable.
This is because the tourism industry appears to be supplying quantities of foreign exchange at a stable premium over the official exchange rate, the report stated.
Forecasts for 2016 and 2017 economic growth was moderate, at 3.5 and 3.9 percent, respectively.