Maldives

Dependence on tourism and inflationary pressures

After slowing in 2024, growth is expected to rebound slightly in 2025, driven by robust tourist flows from China (15.7% of tourists in 2025) and Russia (11.9%), as well as a marked recovery in Indian visitors following a sharp decline related to diplomatic tensions in 2024. The government will rely on the full commissioning of the new terminal at Velana International Airport in October 2025 to support the increase. Airport capacity will rise from 1.5 to 7.5 million passengers per year and the government will offer land incentives to stimulate development of new tourist complexes. However, despite the increase in tourist arrivals (+9.4% year-on-year in the first eight months of 2025), the average length of stay fell to 6.8 days in the first half of 2025 from 7.6 days a year earlier, which curbed growth in overnight stays and revenue. The trend is weighing on employment at a time when Maldivians already account for only 40% of workers in the sector.

Growth is expected to continue in 2026. The economy will benefit fully from increased airport and hotel capacity, as well as from the continued recovery of tourist arrivals from India. The upturn in tourism is having a positive impact on transport and trade, which are benefiting both tourists and local consumers alike. Unlike services (¾ of GDP in 2024), activity in construction (4.3%) is losing momentum as the authorities moderate infrastructure spending amid a perilous budgetary situation. Despite this, the government is accelerating the completion of projects in Greater Malé, notably the Ras Malé Eco-City initiative, which plans to build 65,000 homes. However, the rollout of these projects poses challenges, namely costs related to environmental measures, supply chain disruptions and technical supervision limitations. In addition, environmental damage has harmed the marine ecosystem, thereby reducing fish stocks and increasing volatility in the fishing industry, which accounts for 2.4% of GDP. Fishing activity contracted by 25.5% in 2024. The situation raises distributional concerns as the populations of the atolls are largely dependent on this informal activity for their income.

Inflation remains high and is driven by the gradual reduction in price controls on electricity, water and fuel, and by rising food prices (including local fish prices) and services. Inflationary pressure is also fuelled by robust demand for essential goods (largely imported), which continues to exceed available supply. This has a significant impact on the poorest households, which spend more than a third of their budget on food, as well as on the populations of the atolls whose dependence on external supplies is greater. Although inflation may soften slightly in 2026 on back of an easing of the effects of subsidy cuts and lower import costs, it will still remain high. The introduction of the public sector wage harmonisation policy could exert additional pressure by stimulating consumption, particularly in Malé. Monetary policy is restricted by the fixed parity (+ or -20%) between the rufiyaa and the US dollar, which guarantees a certain degree of stability but severely thwarts the Maldives Monetary Authority's (MMA) ability to pursue an independent policy. In this context, the regulation of liquidity and domestic credit relies mainly on reserve requirements and open market operations.

Large deficits and heavy debt

The budget deficit narrowed in 2025 but is still very wide. Infrastructure spending was contained, and current expenditure fell slightly (-1.6%). Above all, revenues increased thanks to the recovery in tourism and the revision of sectoral taxes introduced in 2024. The adjustments involved the tax on tourism goods and services (TGST), the environmental tax applied to stays in hotel complexes, and air transport taxes (departure tax and airport development fee). However, this did not prevent payment delays to suppliers and public enterprises from increasing; for example, the national electricity company is still awaiting payment of MVR 661 million (nearly USD 42.9 million), which has led to power cuts in Malé. The situation is weakening businesses and weighing on activity. In the absence of major fiscal reforms, which were scheduled to be introduced in 2024, the deficit could widen again in 2026 especially as more infrastructure spending is on the horizon. Interest payments and wages, along with infrastructure spending, contribute significantly to the deficit. Moreover, heavy debt repayments are a major challenge, particularly a $500 million sukuk bond maturing in April 2026. Debt is mainly domestic (57% of the total) which exposes local banks to sovereign risk. External debt is divided between bilateral loans (mainly from India, China and Saudi Arabia in the form of buyer credits related to infrastructure projects), bond debt – including sukuk issues on international markets – and multilateral financing (ADB). A default risk exists but the involvement of creditors should help avoid this.

The Maldives also runs a large current account deficit, which reflects its heavy dependence on imports of essential goods and equipment for consumption and infrastructure projects. Although the trade deficit is the main factor contributing to the imbalance, it narrowed slightly in 2025 thanks to growth in fish exports and lower import costs. At the same time, tourism revenues continue to support the services balance, even though it is burdened by payments related to freight and financial services. Interest on external debt keeps the primary income account in deficit, while remittances from foreign workers (9% of GDP in 2024) generate a secondary income deficit. Overall, the current account deficit is expected to narrow in 2025 and 2026 but remain high. It is mainly financed by FDI (11% of GDP in 2025), targeting primarily tourism and infrastructure.

External debt servicing and, to a lesser extent, current account deficit financing are weighing on foreign exchange reserves. After reaching a historic low in September 2024 (USD 371.2 million, or 0.8 months of imports), reserves rebounded to USD 774.5 million in July 2025 (1.8 months of imports). The improvement is the result of several measures: a USD 400 million swap agreement with the Reserve Bank of India (repaid in October 2025), the entry into force in January 2025 of the Foreign Currency Act requiring companies generating foreign currency revenues – particularly in the tourism sector – to convert part of their earnings into rufiyaa and deposit them in the local banking system, and the reduction of reserve requirements on foreign currency deposits from 7.5% to 5% in July 2025 to support dollar liquidity. These adjustments have stabilised the official foreign exchange market but have increased tensions in the parallel market, widening the gap between the two due to the controls imposed. Despite the recovery of usable reserves, after deducting essential imports and debt servicing costs, they still remain below one month and sustain the situation of high external vulnerability. However, the boom in tourism and financial support from bilateral and multilateral partners should make it possible to service the external debt.

China's ambitions and pragmatic rapprochement with India

Elected President in 2023, Mohamed Muizzu enjoys a strong political position thanks to the large majority obtained by the coalition formed around the People's National Congress (PNC) in the 2024 general election (75 seats out of 93). This overwhelming dominance gives him the necessary headroom to deploy his infrastructure and development projects. However, tensions persist in the coalition between the PNC and the Progressive Party of Maldives (PPM) due to internal faction fighting. Political stability is expected to continue in 2026 despite economic challenges and social tensions related to budgetary reforms and media restrictions. The Maldivian redistributive model, which is based on tourism revenues and generous public spending, has led to a significant reduction in poverty (8.7% in 2024 compared to 11.2% in 2019), but the model is increasingly vulnerable to budget cuts. The opposition is weak and divided: despite efforts by Mohamed Nasheed, a former president and figurehead of democratisation, to regain a central role, the Maldivian Democratic Party (MDP) is struggling to overcome its internal divisions and regain voter confidence.

After demanding the withdrawal of Indian troops in May 2024, Muizzu strengthened ties with China and signed 20 strategic agreements in January 2024 in the fields of digital technology, tourism and projects related to the Belt and Road Initiative. The Sino-Maldivian free trade agreement, which entered into full effect in January 2025, removed customs duties on most industrial and aquatic products, thereby promoting Chinese trade and investment. China is the main bilateral creditor, which increases the Maldives’ financial dependence. Confronted with financial and diplomatic tensions, Muizzu moved closer to India in mid-2024 and made a round of official visits in June and October 2025. The diplomatic thaw brought about budget support from India. At the same time, the country is diversifying its partnerships: trade and digital agreements with Malaysia in 2025, increased cooperation with the Gulf States to attract financing and develop renewable energies. Last, climate diplomacy remains a priority, with the submission in February 2025 of a new national contribution to the UN, reaffirming the goal of carbon neutrality by 2030.

Last updated: November 2025