According to the World Bank, the Maldives faces significant downside risks in 2026 due to upcoming large debt repayments, foreign-exchange liquidity pressures, and external shocks to tourism, supply chains, and import costs stemming from the current conflict in the Middle East.

The Maldives faced a severe economic challenge in 2024. To address the challenges, the Maldivian government implemented several policy reforms. With India’s support, the Muizzu administration averted a default on debt repayment in 2024. Growth in the tourism and fisheries sectors, along with homegrown fiscal reforms, improved some economic indicators slightly in 2025. However, higher consumer price inflation, rising public debt, and low foreign exchange reserves continued to exert significant economic pressure on the Maldivian government.[1]

One of the major concerns was to repay the Sukuk bond that matured in April 2026. The government addressed the concern by settling the Sukuk debt, paying US$ 524.68 million. With this, the government claims that the ratio of state debt to Gross Domestic Product (GDP) will decrease, and the Maldives’ financial sector will be further strengthened in the medium term. Nonetheless, reports suggest that the US/Israel–Iran war is putting heavy pressure on the Maldivian economy by impacting the tourism and import sectors. In this context, the brief discusses the Maldives’ economy, focusing on government measures to address economic pressures and their impact on the economic outlook for 2026.

The Maldivian economy faced a major setback due to COVID-19, with GDP declining by 33 per cent in 2020. The primary reason for this decline was the downturn in the tourism sector, which is the country’s major source of revenue. Due to the economic decline, the government of the Maldives obtained 12 billion Maldivian Rufiyaa (MVR) in loans in 2020 to address the economic challenges.[2] With the resumption of tourist arrivals in the country, the economy gradually started to recover. The GDP reached 4.9 per cent in 2023 from -32.9 per cent in 2020. The growth rate, however, could not mitigate the Maldives’ high risk of external and overall debt stress.

While there has been a significant increase in the number of tourists visiting the country, other sectors, including fisheries, have faced setbacks. Sizeable infrastructure spending and generous social assistance programmes over the years, along with loans to address COVID-related challenges, led to a sharp rise in public debt. The government debt rose to 115.9 per cent of GDP by the end of 2023.[3] Fiscal deficit widened to an unsustainable level. To meet the expenditure, MVR 8 billion worth of currency notes were printed, leading to currency depreciation, which in turn caused inflation.[4]

To compensate debt-ridden State-Owned Enterprises (SOEs), foreign currency from the Sovereign Development Fund was withdrawn, contributing significantly to the dollar-shortage crisis. Gross international reserves steadily declined to US$ 589 million at the end of December 2023, covering about 1.4 months of prospective imports.[5] A decrease in official reserves, coupled with a significant debt obligation due during 2024–2026, emerged as a major concern for the import-dependent Maldives. Rating agencies downgraded the Maldives’ rating, which further challenged the securing of external financing.

To deal with the fiscal challenges, the Muizzu government that assumed power in November 2023, announced a fiscal reform agenda in 2024, including: (i) phasing out existing subsidies and replacing them with a targeted cash transfer scheme, (ii) improving efficiency in the health insurance scheme (Aasandha), (iii) reforming SOEs including enhancing their corporate governance and financial viability, and (iv) rationalising capital expenditure and revising the Public Sector Investment Program (PSIP) regulatory framework. Most of these fiscal policy reforms, however, took off in the latter part of 2024.

The 2024 economic indicators showed a decline compared to 2023 figures. The tourism sector expanded in annual terms, primarily driven by growth in total tourist arrivals and an increase in resort bed nights in 2024. However, there was a reduction in the activities of the public administration, real estate, transportation, communication, fisheries and construction sectors. There was a significant decline in the volume of fish exports, down 48.4 per cent in 2024, following a 3.6 per cent increase in 2023. This primarily reflected the marked decline in fish purchases by private fish processing companies due to the government’s hike in the fish purchase price.[6]

Fishermen’s protests over delayed payments by the state-owned Maldives Industrial Fisheries Company (MIFCO) also disrupted fishing activities and, thereby, exports in 2024.[7] In 2024, construction activity declined by 7 per cent, following a 7 per cent increase in 2023.[8] The decline was due to a combination of factors, including the reduced public expenditure on infrastructure assets, halting of the government projects, delayed payments to contractors, and shortages of dollars and eroding of profit margins due to high costs of imported construction materials.[9] Declining fishing and construction activities resulted in a 3.5 per cent annual growth rate for 2024.

The fiscal deficit widened due to increased expenditure, while revenue collection rose by 3.7 per cent. The current account deficit (CAD) remained high, with the trade deficit widening to around US$ 3 billion. Total outstanding debt rose to 133.4 per cent of GDP in 2024, up from 123.6 per cent in 2023. Reserves fell from US$ 590 million at the end of 2023 to US$ 443.9........

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