Maldives - Overview of economy

The Maldives government has followed a policy of free market economy, making it one of the most liberal in the developing world. This has had considerable benefits. The promotion of a favorable economic climate has assisted the economy's inflow of foreign direct investment . This doubled from an annual average inflow of $5 million between 1988 and 1993 to $10 million in 1999. But with the economy's high level of dependence on just 2 economic sectors—fisheries and tourism—it is highly susceptible to constant fluctuations on world markets. Total dependence on imports to supply a number of its sectors, such as textile manufactures and tourist supplies, means that the rise and fall of the rufiyaa on international money markets can significantly affect the competitiveness

of exports and cost of imports. The simultaneous decline of fisheries exports and influx of tourists in the early 1990s led to a serious deficit in the national balance of payments that required the government to introduce unpopular cuts in public spending.

Compared to the other Maldives, Malé is highly developed. Some of the other islands have benefited from the carry-over effects of the tourism sector, the availability of arable land, or from the collection service for fish catches provided by the government. However, the geographical isolation of a significant number of islands means that their access to the productive sectors of the economy and to social services is very limited. The government has initiated a set of policies to address these disparities and spent 28.7 percent of its 1999 budget on atoll development. This was done in part to take the strain off the high population density in Malé and also to allow more of the outlying population access to the strategic economic situation of the capital. One example is Villingili, a nearby former resort island, which was transformed into a residential island with a commercial harbor. It now supports around 15,000 Maldivians. A similar government policy is to provide infrastructure and facilities to regional centers throughout the atolls to encourage people to move from isolated islands to local commercial focal points and develop the economy in a more unified trajectory.

Although the Maldives has benefited considerably from growth over the past 20 years, there are a number of factors that act as considerable limitations on the continued sustainable development of the economy. For example, the exploitation of coral for construction purposes is at such a level that it is estimated that all of the reefs in the north Malé atoll will be depleted by 2014. National debt has risen considerably, from $13 million in 1979 to $203 million in 1999. Rising population growth and such factors as the rise of tourism and the mechanization of the fishing fleet has meant that imports have risen significantly, especially for such commodities as petroleum products. Consequently, whereas exports only rose from $8 million in 1980 to $64 million in 1999, imports expanded from $29 million to $402 million. Although the total national balance of payments remained at an annual average of $7 million in credit between 1994 and 1999, the serious drain of imported goods limits the potential of reinvestment and development on the islands.

The Maldives Ministry of Planning and National development emphasizes the government's "international reputation for its high-level commitment to environmental protection, demonstrating its readiness to subordinate short-term economic gain to environmental conservation." This progressive policy-orientation entails a number of factors of self-interest ranging from the desire to maintain the country's natural beauty to continue enticing tourists, to the more serious issue of 80 percent of the land elevation being less than 1 meter above sea level. This means that the islands will be even more susceptible to storms and rising sea levels if the projected consequences of the "greenhouse effect" are realized.

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