World Bank: Maldives economy will grow by 6.5%, but fiscal buffers needed

World Bank has said that while the economy of Maldives is expected to grow by 6.5 percent this year, there needs to be urgent fiscal adjustments as there is a chance of the economy weakening.

As per this year’s second report of the biannual reports published by the World Bank, the GDP of Maldives is expected to grow by 6.5 percent this year after which, from 2024 to 2025, there will be an average growth of 5.4 percent.

According to the report, Maldives is facing fiscal challenges due to rising global commodity prices, increased spending on capital expenditure and subsidies, central bank funding to cover the budget deficit and high inflation.

These challenges have prompted the World Bank to recommend responsible debt management, along with swift and robust fiscal measures to ensure financial sustainability.

The report, while estimating a decline in the deficit, said the country’s total debt to GDP ratio would remain above 115 percent.

The World Bank said more robust measures are needed soon as subsidy reforms are not being implemented as expected. The bank noted reviewing programs such as Aasandha and establishing a strong public investment management system for infrastructure development investments among the key reforms.

In the area of ​​revenue, the World Bank Said that measures such as expanding the tax base, making use of domestic sources of revenue, reducing informal economic activities and creating tax fairness, should be kept in mind.

The report further said that regional growth is expected to slow to 5.6 per cent between next year and 2025 due to the slowdown in post-pandemic economic growth, tightening fiscal policy and weakening global demand for commodities.

The report said the economic outlook was overall positive, despite some concerns.