World Bank Urges Fiscal Reforms as Maldives Faces Slower Economic Growth

The Maldivian economy is anticipated to experience a slower growth rate in 2024, with projections at 4.7%, according to a recent press release from the World Bank. The deceleration is attributed to a decline in tourist spending and a sluggish performance in other key sectors.

In response to this economic slowdown, the World Bank has issued a cautionary statement, underscoring the urgent need for fiscal reforms to address mounting debt and mitigate potential economic risks. The current debt burden in the Maldives stands at over USD 8 billion, equivalent to 122.9% of the country's GDP.

The World Bank's report, titled "Scaling Back & Rebuilding Buffers," emphasizes the significance of fiscal consolidation measures. This entails reducing government spending and subsidies, albeit with potential repercussions on household incomes. Nonetheless, such reforms are deemed imperative to ensure long-term economic stability.

To address these challenges, the World Bank proposes a comprehensive approach. Firstly, the Maldivian government is urged to implement its recently announced fiscal reform agenda, accompanied by effective communication strategies to garner public understanding and support.

Additionally, the report recommends the establishment of targeted assistance programs to aid vulnerable populations adversely affected by the reforms. These initiatives would aim to replace inefficient blanket subsidies and ensure continued support for those in need.

Furthermore, diversification of the economy is advocated as a crucial strategy to reduce reliance on tourism. This entails reducing the involvement of state-owned enterprises, fostering private sector participation, and promoting job creation in emerging industries.