- Basic data
- Public finances and the state budget
- Banking system
- Tax system
According to cheeroutdoor.com, Maldives is in the list of middle income countries. The outbreak of the coronavirus pandemic has had a severe impact on the country’s economy, which is dependent on international trade and travel. However, since the middle of last year, the Maldives has reopened to foreign tourists, with 1,312,706 arrivals in 2021. This is a year-on-year increase of 138.8%, but still 22.5% below the non-Covid 2019 figure.
In 2021, GDP growth is expected to be between 28.1% and 38.5%, with the most likely growth rate being 31.6%. The government predicts a full economic recovery in 2022. The World Bank predicts that the Maldivian economy will recover to pre-covid-19 levels by 2023.
|GDP growth (%)||6.9||-29.5||30||12||8.5|
|Export of goods (billion USD)||0.2||0.2||0.3||0.4||0.4|
|Import of goods (billion USD)||2.9||1.5||2.5||2.7||3|
|Trade Balance (Billion USD)||-2.4||-1.5||-2||-2.2||-2.5|
|Industrial production (% change)||ON||ON||ON||ON||ON|
|OECD export risk||07.VII||07.VII||07.VII||ON||ON|
Source: EIU, OECD, IMD
Public finance and state budget
|State budget balance (% of GDP)||-14.4|
|Public debt (% of GDP)||ON|
|Current account balance (billion USD)||-1.4|
The country, especially in the first half of the year, faced a deterioration of fiscal strength beyond original expectations stemming from a significant increase in the debt burden during the coronavirus pandemic. Maldives even decided to borrow USD 200 million from Bangladesh. A fiscal deficit threatens in the coming years as well due to the risk of higher interest costs associated with the debt burden and larger commercial loans.
The Maldives remains exposed to high overall and external debt risk. Total public debt was $billion at the end of the 2020-2021 fiscal year. The current account deficit is expected to remain in double-digit shares of GDP. Foreign exchange reserves amounted to USD 94million at the end of November.
Parliament approved the state budget for 2021-2022. Revenues are to be 2billion, expenses 34.10 billion MVR. The deficit amounts to MVR 9.7 billion, which is 11.1% of GDP.
Both banking and non-banking institutions operate under the supervision of the National Bank of Maldives (MMA, http://www.mma.gov.mv /). The Maldives banking system consists of one local commercial bank, The Bank of Maldives, and 5 branches of commercial banks with foreign owners.
Non-bank financial institutions in the country are mainly represented by insurance companies, loan companies, building societies, financial advisors and securities trading intermediaries. The Bank of Maldives, which was founded in 1982 and is partly owned by the state.
Other banks in the country are branches of foreign banking institutes. It is about:
- State Bank of India (1974)
- Habib Bank Limited (1976)
- Bank of Ceylon (1981)
- Hong Kong Shanghai Corporation (HSBC 2002)
- Mauritius Commercial Bank Ltd (2008)
The only local insurance company in the country, also with a share of the state, is The Allied Insurance Company of Maldives, which was established in 1984. This company is also the only composite insurance company in the country. Other entities on the insurance market are mainly from Sri Lanka The Sri Lanka Insurance Corporation Ltd. (1976), Ceylinco Insurance Company Ltd., HMS Private Ltd. ETA.
The Maldives tax system is very simple and clear. The country has no personal or corporate income tax, no sales, value added or real estate tax. Indirect taxes are thus the main income of the state.
In 2011, several new taxes were introduced to increase tax revenues for the state budget. The Goods and Services Tax (GST) is applied at the rate of 6%, which included the previously separate Tourism Goods and Services Tax (T-GST) at the rate of 8%. Taxpayer registration is mandatory for all importers of goods and providers of goods and services for the tourism industry, for other suppliers only if the value of the taxable supply exceeds 1 million MVR/year.
Another new tax is the Business Profits Tax (BPT), which taxes companies and individuals at 15% and profits from sources outside the Maldives at 5%, paid twice a year.
Indirect taxes account for 70% of the country’s total revenue. Money to the state treasury flows mainly from tourism and the import of goods, tourism accounts for almost 75% of the country’s income.
The second largest contributor to the national budget is the import of goods, which accounts for a quarter of the Maldives’ total revenue. The amount of import taxes depends on the type of imported goods, their transport price insurance, etc. Recently, the government has been discussing the possibility of introducing an income tax, which is mainly a consequence of the relatively rising standard of living of the Maldivian population and the increase in GDP. The tax system of the Maldives is friendly to foreign investors, see chapter 9.1.
More information can be found at https://www.mira.gov.mv