Executive Summary: The Republic of Maldives comprises 1,190 islands in 20 atolls spread over 348 square miles in the Indian Ocean. Tourism is the main source of economic activity for Maldives, directly contributing close to 30 percent of GDP and generating more than 60 percent of foreign currency earnings. The tourism sector experienced impressive growth, from 655,852 arrivals in 2009 to 1.7 million in 2019, before a steep decline in 2020 resulting from the COVID-19 pandemic. Tourism began to recover in late 2020 and reached 1.3 million in 2021. This recovery in tourism will likely continue to drive the economy. Following the COVID-19 outbreak, the government re-emphasized the need to diversify, with a focus on the fisheries and agricultural sectors.
GDP growth averaged six percent during the decade through 2019, lifting Maldives to middle-income country status. Per capita GDP is estimated at USD 6,698 in 2020, the highest in South Asia. However, income inequality and a lack of employment opportunities remain a major concern for Maldivians, especially those in isolated atolls. Following the COVID-19 outbreak, GDP fell 33.5% percent in 2020. With the tourism industry’s recovery, GDP grew 31.6 percent in 2021.
Maldives is a multi-party constitutional democracy, but the transition from long-time autocracy to democracy has been challenging. Maldives’ parliament ratified a new constitution in 2008 that provided for the first multi-party presidential elections. In 2018, Ibrahim Mohamed Solih of the Maldivian Democratic Party was elected president, running on a platform of economic and political reforms and transparency, following former President Abdulla Yameen whose term in office was marked by corruption, systemic limitations on the independence of parliament and the judiciary, and restrictions on freedom of speech, press, and association. The MDP also won a super majority (65 out of 87) seats in parliamentary elections in April 2019, the first single-party majority in Maldives since 2008. President Solih pledged to restore democratic institutions and the freedom of the press, re-establish the justice system, and protect fundamental rights. Corruption across all sectors, including tourism, was a significant issue under the previous government and remains a concern.
Serious concerns also remain about a small number of violent Maldivian extremists who advocate for attacks against secular Maldivians and may be involved with transnational terrorist groups. In February 2020, attackers stabbed three foreign nationals – two Chinese and one Australian – in several locations in Hulhumalé. ISIS claimed responsibility for an April arson incident on Mahibadhoo Island in Alifu Dhaalu atoll that destroyed eight sea vessels, including one police boat, according to ISIS’ online newsletter al-Naba. There were no injuries or fatalities. Speaker of Parliament and former President Mohamed Nasheed was nearly killed in a May 6, 2021, IED attack motivated by religious extremism. Nasheed sustained life threatening injuries and several members of his security and bystanders were also injured. Nine individuals have been charged in connection with the attack, with one already convicted.
Large scale infrastructure construction in recent years contributed to economic growth but has resulted in a significant rise in debt. The Maldives’ debt-to-GDP ratio increased from 58.5 percent in 2018 to an estimated 61.8 percent in 2019 according to the World Bank (WB); this further increased to 138 percent in 2020 according to the Ministry of Finance (MoF), an increase driven by a sharp drop-off in government revenue.
Maldives welcomes foreign investment, although the ambiguity of codified law and competition from politically influential local businesses act as deterrents. U.S. investment in Maldives has been limited and focused on the tourism sector, particularly hotel franchising and air transportation. In 2021, construction, transportation, fisheries, and renewable energy also benefited from increased FDI.
On December 28, 2020, Maldives submitted an updated Nationally Determined Contribution (NDC) which includes an enhanced ambition of 26 percent decrease in emissions and carbon neutrality by 2030, conditioned on receiving financial, technological, and technical support. (full text)