Maldives Economy - overview

Economy - overview: Tourism, Maldives' largest economic activity, accounts for 30% of GDP and more than 60% of foreign exchange receipts. Fishing is the second leading sector, but the fish catch has dropped sharply in recent years. Agriculture and manufacturing continue to play a lesser role in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labor. Falling tourist arrivals and fish exports, combined with high government spending on social needs, subsidies, and civil servant salaries contributed to a balance of payments crisis, which was temporarily eased with a $79.3 million IMF standby agreement. However, after the first two disbursements, the IMF withheld subsequent disbursements due to concerns over Maldives' growing budget deficit, and the government has been seeking other sources of budgetary support ever since. A new Goods and Services Tax (GST) on tourism introduced in January 2011 and a new Business Profit Tax introduced in 2012 have provided a boost to revenue. Economic growth slowed to 3.5% of GDP in 2012, compared to 5.8% in 2011 because of slower tourist arrivals and weak global conditions. Diversifying the economy beyond tourism and fishing, reforming public finance, and increasing employment opportunities are major near-term challenges facing the government. Over the longer term Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is 1 meter or less above sea level.

Definition: This entry briefly describes the type of economy, including the degree of market orientation, the level of economic development, the most important natural resources, and the unique areas of specialization. It also characterizes major economic events and policy changes in the most recent 12 months and may include a statement about one or two key future macroeconomic trends.

Source: CIA World Factbook - Unless otherwise noted, information in this page is accurate as of February 21, 2013