The Maldivian economy is based on tourism and fishing. Of the Maldives' 1,191 islands, only 200 are inhabited. The population is scattered throughout the country, with the greatest concentration 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 2006 totaled $907 million, or about $3,000 per capita. The Maldivian economy has made a remarkable recovery from the tsunami, which inflicted damages of about $375 million, excluding $100 million in damages to resorts, the bulk of which was covered by private insurance. A rebound in tourism, post-tsunami reconstruction, and new resort construction helped increase GDP by about 18% in 2006 from a contraction of 4.5% in 2005. Inflation has moderated to about 3%. As tourism staged a speedy recovery and government borrowing increased, the balance of payments recorded a surplus of about $40 million in 2006 from a deficit of $17 million in 2005. Fiscal control has deteriorated due to tsunami reconstruction as well as an increase in non-tsunami-related government expenditure. Government expenditure was estimated at 74.5% of GDP in 2006, compared to 36% of GDP in 2004 before the tsunami. The budget deficit was 18% of GDP in 2006. While reconstruction is ongoing, the recovery process remains underfunded.
The Maldives has been running a merchandise trade deficit in the range of $200 to $260 million annually since 1997. The trade deficit ballooned to $386 million in 2004, $493 million in 2005, and reached an estimated $618 million in 2006, largely the result of increased oil prices and increased imports of construction material.
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, the Maldives has received economic assistance from multilateral development organizations, including the UN Development Program (UNDP), 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.
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 $450 million a year. Tourism and related services contributed 28% of GDP in 2007.
Since the first resort was established in 1972, more than 90 islands have been developed, with a total capacity of some 17,500 beds. Maldives has embarked on a rapid tourism expansion plan. The government has awarded tenders for the development of about 40 new resorts. Over 650,000 tourists (mainly from Europe) visited Maldives in 2007. The average occupancy rate is over 80%, and reaches over 95% in the peak winter tourist season. Average tourist stay is 8 days.
Fishing. This sector employs about 11% of the labor force. The fisheries industry, including fish processing, traditionally contributes about 7% of GDP. Due to a drastic drop in the fish catch, the industry's contribution to GDP was only about 4.5% in 2007. However, international tuna prices increased in 2007, thereby increasing export earnings to about $100 million. The use of nets is illegal; all fishing is done by line. Production was about 115,000 metric tons in 2007, most of which was skipjack tuna. More than 60% is exported, largely to Sri Lanka, Japan, Hong Kong, Thailand, and the European Union. Fresh, chilled, frozen, dried, salted, and canned tuna exports account for about 90% of all marine product exports.
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. Almost all food, including staples, has to be imported. The December 2004 tsunami inundated several agricultural islands, which could take a significant amount of time to recover. Agriculture provides about 2% of GDP.
Manufacturing. The manufacturing sector provides less than 7% of GDP. Traditional industry consists of boat building and handicrafts, while modern industry is limited to a few tuna canneries, a bottling plant, and a few enterprises in the capital producing PVC pipe, soap, furniture, and food products. Five garment factories that had exported principally to the United States closed in 2005, following the expiration of the Multi-Fiber Arrangement (MFA) that had set quotas on developing country garment exports to developed countries. The loss of these factories has not proven an insurmountable hurdle, however, as most of the profits were repatriated and most of the labor was expatriate.
Other. The construction sector contributes approximately 6% of GDP due to tsunami reconstruction and new resort construction.
Maldives follows a nonaligned policy and is committed to maintaining friendly relations with all countries. According to the Foreign Ministry, the country has a UN Mission in New York, embassies in the United States (Washington, DC), Sri Lanka, China, the United Kingdom, Bangladesh, India, Japan, Singapore, and Malaysia, as well as diplomatic missions in Geneva and Brussels. India, Pakistan, Bangladesh, and Sri Lanka maintain resident embassies in Male'. Denmark, Norway, the U.K., Germany, Turkey, and Sweden have consular agencies in Male' under the supervision of their embassies in Sri Lanka and India. The UNDP has a representative resident in Male', as do the UN Children's Fund (UNICEF) and the World Health Organization (WHO). Like the United States, many countries have nonresident ambassadors accredited to the Maldives, most of them based in Sri Lanka or India. The Maldives is a member of the Organization of the Islamic Conference (OIC) and the Non-Aligned Movement (NAM). In 2009, Maldives will host the 16th annual South Asian Association for Regional Cooperation (SAARC) summit.
U.S. MALDIVIAN RELATIONS
The United States has friendly relations with the Republic of Maldives. The U.S. Ambassador and some Embassy staff in Sri Lanka are accredited to the Maldives and make periodic visits. The United States supports Maldivian independence and territorial integrity and publicly endorsed India's timely intervention on behalf of the Maldivian Government during the November 1988 coup attempt. U.S. Naval vessels have regularly called at Male' in recent years. The Maldives extended strong support to U.S. efforts to combat terrorism and terrorist financing in 2001-2002.
U.S. contributions to economic development in the Maldives have been made principally through international organization programs. Following the December 2004 tsunami, the U.S. and Maldives signed a bilateral assistance agreement for $8.6 million in reconstruction assistance. This assistance will help in the rebuilding of harbors, sewerage systems, and electrical generation facilities and in the development of aid absorption capacity in the Ministry of Finance. The United States has directly funded training in airport management and narcotics interdiction and provided desktop computers for Maldivian customs, immigration, and drug-control efforts in recent years. The United States also trains a small number of Maldivian military personnel annually. About 10 U.S. citizens are resident in the Maldives; some 5,000 Americans visit the Maldives annually. The Maldives welcomes foreign investment, although the ambiguity of codified law acts as somewhat of a damper. Areas of opportunity for U.S. businesses include tourism, construction, and simple export-oriented manufacturing, such as garments and electrical appliance assembly. There is a shortage of local skilled labor, and most industrial labor has to be imported from Sri Lanka or elsewhere.