The government’s forecast for economic growth in 2013 is 4.3 percent, following a slowdown to a projected 3.4 percent in 2012, according to an economic and fiscal outlook by the Finance Ministry introducing the state budget (Dhivehi) proposed for next year.
Tourism was especially hard hit in 2012, with growth falling from 15.8 percent in 2010 and 9.1 percent in 2011, to an expected 0.7 percent in 2012.
The original forecast for economic growth in 2012 was 5.5 percent.
An International Monetary Fund (IMF) mission said in a statement earlier this month that economic growth slowed to three and a half percent this year on the back of “depressed tourist arrivals earlier in the year and weak global conditions,” which have been “only partially offset by strong performance in construction and fisheries-related manufacturing.”
The IMF mission forecast “a modest recovery” for 2013 and beyond.
The Finance Ministry’s statement on the economic outlook for the next three years meanwhile explained that the Maldivian economy dipped into recession in 2009 following the global financial crisis in the previous year.
However, the economy rebounded with 7.1 percent growth in 2010 and 7 percent in 2011.
“While [real GDP] was projected to increase in 2012, the main cause of the economic slowdown compared to 2011 was the weakening of the tourism sector during the year,” the Finance Ministry stated.
While the tourism industry grew by 15.8 percent in 2010 and 9.1 percent in 2011, the industry’s growth in 2012 was expected to be 0.7 percent.
The two main reasons cited by the Finance Ministry for the anaemic growth were “the political turmoil the country faced in February” and a decline in the average number of nights tourists spend in the country “as a result of a decline in the average number of days a tourist spent in the Maldives.”
On average, tourism accounted for 28 percent of GDP during the past 10 years.
The main drivers of growth in 2012 were a booming construction industry and growth in manufacturing and fisheries.
Fisheries, manufacturing and construction
The volume of fish catch has been steadily declining for the past seven years. While approximately 185,000 tonnes of fish were caught in 2006, the number dropped to about 70,000 tonnes in 2011.
During the past five years, the value of the fisheries industry declined from MVR 489 million (US$31.7 million) to MVR 321 million (US$20.8 million) with a corresponding fall of 3.3 percent of the economy to 1.1 percent in 2012.
As a result of opening up the country’s Exclusive Economic Zone (EEZ), the industry’s productivity was expected to rise by 9.7 percent in 2012.
However, as fishing in the Indian Ocean was not expected to improve in coming years, the Finance Ministry has forecast the real GDP of the fisheries sector to decline by 1.3 percent in 2013.
Estimated real GDP for the manufacturing industry – fisheries products, foodstuff, furniture and cement – was meanwhile MVR 998 million (US$64.7 million) in 2012, up from MVR 850 million (US$55.1 million) the previous year.
Fisheries-related products accounted for the largest share of the manufacturing industry.
Following 19 percent growth in 2011, the construction industry was expected to have grown by 16 percent in 2012.
“The main reason for the large growth of the sector in 2011 and 2012 was the development of new resorts in 2011,” the Finance Ministry observed, adding that resort development accounted for 50 percent of construction in the Maldives.
Meanwhile, in the retail and import business sector, customs statistics for the first eight months of 2012 showed that the value of goods imported (adjusted for inflation) was 22 percent higher than the same period in 2011.
The real GDP of the business sector in 2012 was an estimated MVR 875 million (US$56.7 million).
Deficit and debt
The Finance Ministry also revealed that nominal GDP in 2011 was MVR31,447 million (US$2 billion) while the estimate for 2012 was MVR34,148 million (US$2.2 billion).
Real GDP in 2011 was MVR20,461 million (US$1.3 billion). Nominal GDP per capita in 2012 was estimated to be MVR 80,260 (US$5,206) per annum.
Real GDP measures the value of all goods and services produced in a country expressed in the prices of a base year – 2003 in the Maldives.
According to the Finance Ministry, the medium term target of the government was meanwhile reducing the fiscal deficit “to pave the way to conduct social and economic programmes” and regain the confidence of international financial institutions.
While a budget deficit of 9.7 percent was forecast 2012, the Finance Ministry said the figure was expected to reach 12.6 percent of GDP by the end of the year.
“The projected deficit in the estimated budget proposed for 2013 is 6.1 percent of GDP,” the Finance Ministry stated. “In the medium term, the budget deficit can be lowered to 1.9 percent of GDP in 2015.”
The Finance Ministry proposed MVR 1.1 billion (US$71.3 million) as foreign loans and MVR 1.1 billion (US$71.3 million) as domestic finance to plug the budget deficit in 2013.
While tax revenue from T-GST, GST and import duties collected in 2012 was lower than forecast, the Finance Ministry revealed that income from Business Profit Tax (BPT) was 80 percent higher than expected.
At the end of 2012, the government would have received MVR 1.3 billion (US$84 million) as BPT while the forecast was MVR763.6 million (US$49.5 million).
Presenting the 2013 budget to parliament on Monday, Finance Minister Abdulla Jihad said revenue forecast for 2013 was MVR 12.9 billion (US$836 million), including MVR 1.8 billion (US$116 million) expected as a result of implementing proposed revenue raising measures.
However, most of the proposed measures – such as hiking T-GST and introducing GST for telecom services – would have to be approved by parliament through amendments to the relevant laws.
More than MVR 200 million (US$12.9 million) was estimated as GST receipts from telecom services in 2013.
The Finance Ministry also revealed that the ‘total external public and public guaranteed debt’ was estimated to reach MVR 13.7 billion (US$888 million) in 2012.
Of the MVR 4.1 billion (US$330 million) of the loan assistance spent in 2012, more than 50 percent was from multilateral financial institutions and 28 percent from bilateral donors.
A total of MVR 1.9 billion (US$123 million) from loan assistance has been spent for various projects in 2012 while the rest was spent for budget support.
As of September 2012, MVR 561 million (US$36.4 million) has been received as budget support – US$16 million from the Asian Development Bank and US$20 million from a standby credit facility extended by the Indian government.
Moreover, the government spent more than MVR 1 billion (US$64.8 million) in 2011 and MVR 1.1 billion (US$71.3 million) in 2012 to service foreign debts as interest and repayments.
The figure was expected to remain the same in 2013.
In addition, the government spent MVR 660.5 million (US$42.8 million) in 2011 and MVR 2 billion (US$129.7 million) in 2012 to service domestic debts.
The figure for domestic debt was expected to decline to MVR 1.1 billion (US$71.3 million) in 2013 as payment for US$ 100 million of government bonds sold to the State Bank of India in Male’ – amounting to MVR 771 million (US$50 million) as repayment for a second tranche – has been pushed back to 2014.
Similarly, repayment of three ways and means treasury bonds to the Maldives Monetary Authority (MMA) or central bank amounting to MVR 951 million (US$61.6 million) has also been pushed back.
Government spending on loan repayment and interest payments was expected to reach MVR 3.1 billion (US$201 million) in 2012.
Including an estimated MVR 13 billion (US$843 million) in domestic debt, the total public debt is expected to reach MVR 27 billion (US$1.7 billion) in 2012 and MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.