Tourism-dependent Maldives steps up financial diversification effort

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The Maldives are littered with their island resorts and endowed with white sandy beaches and turquoise seas. They have always proven to be a top travel destination.

But the coronavirus pandemic stalled the global travel and tourism industries last year, forcing the island nation to step up efforts to diversify its economy by expanding other sectors.

Tourism accounts for over 28% of the gross domestic product in the small archipelago and brings in about 60% of the foreign exchange income, according to Michigan State University.

“As an economy heavily dependent on international tourism, global travel restrictions and other protective measures against the Covid-19 pandemic have had a significant impact on the Maldives,” President Ibrahim Mohamed Solih said in a recent interview with CNBC.

The closure of the borders meant that tourist arrivals were practically zero during this period, a first since modern tourism began in the late 1970s.

Ibrahim Mohamed Solih

President, Maldives

The Maldives closed its borders between March and July last year, temporarily closing the tourism sector and laying off thousands of workers. Some of them have lost their jobs permanently. This has resulted in a drastic lack of foreign currency revenue that the Maldives relies on to pay for imports.

“Closing the borders meant tourist arrivals were practically zero during that period, a first since modern tourism began in the late 1970s,” Solih said via email.

A little more than half a million tourists were welcomed to the Maldives last year. This corresponds to a 67.4% decrease in tourist arrivals from 2019, when 1.7 million visitors came.

Diversification

Still more than 19,500 people in the country – or a little less 4% of the population – According to the Johns Hopkins University, tested positive for the coronavirus and 61 of them died.

As the tourism sector recovers, the Maldives are also working to stimulate other economic sectors, according to Solih.

“We are currently working on economic diversification by expanding the fishing and agricultural sectors and building a decentralized network to provide public services,” he said.

The president added that the country is also working on initiatives that take into account the Maldives’ conservation and climate action.

Combating climate change is high on the government’s agenda as rising sea levels pose physical vulnerabilities for the island nation.

Economic measures

The Maldives received a temporary suspension of its debt service payments to its creditors by the Initiative to suspend debt servicing by the G-20 until the middle of this year. According to the president, he was also granted a debt moratorium from other key development partners, which allowed the government to divert $ 24 million towards its Covid response efforts.

“We are in constant discussion with the creditors in order to apply for additional suspensions of debt servicing if possible,” said Solih.

However, the budget deficit remains a matter of concern. The rating agency Fitch downgraded the Maldives from “B” to “CCC” in November and expects a sharp increase in the country’s debt burden due to the Covid shock and continued debt-financed infrastructure spending.