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Economy of the Maldives

Economy - overview: Tourism, Maldives' largest industry, accounts for 20% of GDP and more than 60% of the Maldives' foreign exchange receipts. Over 90% of government tax revenue comes from import duties and tourism-related taxes. Almost 400,000 tourists visited the islands in 1998. Fishing is a second leading sector. The Maldivian Government began an economic reform program in 1989 initially by lifting import quotas and opening some exports to the private sector. Subsequently, it has liberalized regulations to allow more foreign investment. Agriculture and manufacturing continue to play a minor role in the economy, constrained by the limited availability of cultivable land and the shortage of domestic labor. Most staple foods must be imported. Industry, which consists mainly of garment production, boat building, and handicrafts, accounts for about 18% of GDP. Maldivian authorities worry about the impact of erosion and possible global warming on their low-lying country; 80% of the area is one meter or less above sea level.

Of Maldives' 1,900 islands, only 198 are inhabited. The population is scattered throughout the country, and the greatest concentration is on the capital island, Male. Limitations on potable water and arable land constrain expansion.

Development has been centered upon the tourism industry and its complementary service sectors, transport, distribution, real estate, construction, and government. Taxes on the tourist industry have been plowed into infrastructure and used to improve technology in the agricultural sector.

GDP in 2000 totaled $435 million, or about $1,400 per capita. Maldives has experienced relatively low inflation in recent years. Real GDP growth averaged about 10% in the 1980s. It expanded by an exceptional 16.2% in 1990, declined to 4% in 1993, and has since bounced back to the 7% to 9% range.

Maldives has been running a merchandise trade deficit in the range of $200 to $260 million since 1997. The trade deficit declined to $233 million in 2000 from $262 million in 1999.

International shipping to and from the Maldives is mainly operated by the private sector with only a small fraction of the tonnage carried on vessels operated by the national carrier, Maldives Shipping Management Ltd.

Over the years, Maldives has received economic assistance from multilateral development organizations, including the UN Development Program, Asian Development Bank, and the World Bank. Individual donors--including Japan, India, Australia, and European and Arab countries (including Islamic Development Bank and the Kuwaiti Fund)--also have contributed.

A 1956 bilateral agreement gave the United Kingdom the use of Gan--in Addu Atoll in the far south--for 20 years as an air facility in return for British aid. The agreement ended in 1976, shortly after the British closed the Gan air station.

Economic Sectors

Tourism. In recent years, Maldives has successfully marketed its natural assets for tourism--beautiful, unpolluted beaches on small coral islands, diving in blue waters abundant with tropical fish, and glorious sunsets. Tourism now brings in about $325 million a year. Tourism and related services contributed 33% of GDP in 2000.

Since the first resort was established in 1972, more than 84 islands have been developed, with a total capacity of some 16,000 beds. The number of tourists (mainly from Europe) visiting the Maldives increased from 1,100 in 1972 to 280,000 in 1994. In 2000, tourist arrivals exceeded 466,000. The average occupancy rate is 68%, with the average tourist staying 8 days and spending about $755.

Fishing. This sector employs about 20% of the labor force and contributes 10% of GDP. The use of nets is illegal, so all fishing is done by line. Production was about 119,000 metric tons in 2000, most of which was skipjack tuna. About 50% is exported, largely to Sri Lanka, Germany, the U.K., Thailand, Japan, and Singapore. About 42% of exports consist of dried or canned fish, and another 31% is frozen; 10% is exported as fresh fish. Total export proceeds from fish were about $40 million in 2000. The fishing fleet consists of some 1,140 small, flat-bottomed boats (dhonis). Since the dhonis have shifted from sails to outboard motors, the annual tuna catch per fisherman has risen from 1.4 metric tons in 1983 to 5.6 in 1999.

Agriculture. Poor soil and scarce arable land have historically limited agriculture to a few subsistence crops, such as coconut, banana, breadfruit, papayas, mangoes, taro, betel, chilies, sweet potatoes, and onions. Agriculture provides about 6% of GDP.

Industry. The industrial sector provides only about 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, five garment factories, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products.

Environmental Concerns

There is growing concern about coral reef and marine life damage because of coral mining (used for building and jewelry making), sand dredging, and solid waste pollution. Mining of sand and coral have removed the natural coral reef that protected several important islands, making them highly susceptible to the erosive effects of the sea. In April 1987, high tides swept over the Maldives, inundating much of Male and nearby islands. That event prompted high-level Maldivian interest in global climatic changes.

Investment in Education

The government expenditure for education was 18% of the budget in 1999. Both formal and nonformal education have made remarkable strides in the last decade. Unique to Maldives, modern and traditional schools exist side by side. The traditional schools are staffed by community-paid teachers without formal training and provide basic numeracy and literacy skills in addition to religious instruction.

The modern schools, run by both the government and private sector, provide primary and secondary education. As the modern English-medium school system expands, the traditional system is gradually being upgraded. By early 1998, more than 30 islands were equipped to provide education for grades, 8, 9, and 10. Some 164 islands provided education up to grade 5, 6, or 7. In Male is the only school for grades 11 and 12, with a school in the southern most island of Gan scheduled to offer the final 2 years starting in 2002.

Seven post-secondary technical training institutes provide opportunities for youth to gain skills that are in demand. The World Bank has already committed $17 million for education development in 2000-04, and plans to commit further $15 million for human development and distance learning during this period. Over 2001-03, the ADB is planning to support post-secondary education development in Maldives.

GDP: purchasing power parity - $540 million (1999 est.)

GDP - real growth rate: 7% (1999 est.)

GDP - per capita: purchasing power parity - $1,800 (1999 est.)

GDP - composition by sector:
agriculture: 20%
industry: 18%
services: 62% (1999 est.)

Population below poverty line: NA%

Household income or consumption by percentage share:
lowest 10%: NA%
highest 10%: NA%

Inflation rate (consumer prices): 3% (1999 est.)

Labor force: 67,000 (1995)

Labor force - by occupation: agriculture 22%, industry 18%, services 60% (1995)

Unemployment rate: NEGL%

revenues: $166 million (excluding foreign grants)
expenditures: $192 million, including capital expenditures of $80 million (1999 est.)

Industries: fish processing, tourism, shipping, boat building, coconut processing, garments, woven mats, rope, handicrafts, coral and sand mining

Industrial production growth rate: 4.4% (1996 est.)

Electricity - production: 85 million kWh (1998)

Electricity - production by source:
fossil fuel: 100%
hydro: 0%
nuclear: 0%
other: 0% (1998)

Electricity - consumption: 79 million kWh (1998)

Electricity - exports: 0 kWh (1998)

Electricity - imports: 0 kWh (1998)

Agriculture - products: coconuts, corn, sweet potatoes; fish

Exports: $98 million (f.o.b., 1998)

Exports - commodities: fish, clothing

Exports - partners: US, UK, Sri Lanka, Japan

Imports: $312 million (f.o.b., 1998)

Imports - commodities: consumer goods, intermediate and capital goods, petroleum products

Imports - partners: Singapore, India, Sri Lanka, Japan, Canada

Debt - external: $188 million (1998 est.)

Economic aid - recipient: $NA

Currency: 1 rufiyaa (Rf) = 100 laari

Exchange rates: rufiyaa (Rf) per US$1 - 11.770 (fixed rate since 1995)

Fiscal year: calendar year

See also : Maldives