Maldives WT/TPR/S/110
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I. ECONOMIC ENVIRONMENT
(1) OVERVIEW
1. The Republic of Maldives, a large archipelago situated in the Indian Ocean south-west of
India, is a least developed country (LDC) with a population of around 270,000 (Table I.1).  Although
its GDP per capita of US$2,200 is almost twice the maximum level set by the UN for LDCs
(US$1,035), it remains one because of its economic vulnerability given its small size and narroweconomic base.
1  The economy is highly oriented towards services and depends heavily on the
sustainable development of two environmentally sensitive activities, tourism and fishing.2  A s  a
consequence of its economic development, the Maldives' social indicators have improved
substantially to well above those of other LDCs.  It is almost in the top one third of the UN ranked
"medium human development" countries, and was to have graduated from LDC status in 2000.However, this has been deferred until 2003 at the earliest.
3  Upon graduation the Maldives would lose
generous unilateral market access preferences and concessional international assistance.
Table I.1
Main economic and social indicators, 2000 (unless otherwise specified)
Land area 300 sq. km. Urban share of population 27%
Population (March 2000) 270,101 Nominal GDP at current market prices US$598 million
Annual population growth (1995-00) 1.9% GDP per capita US$2,202
UN human development index (1999) GNP per capita annual growth rate (1995-00) 7.9%
- Overall ranking
- Category
- Ranking within category
UN human poverty index in developing
countries (1999)- Overall ranking
- Within category77
th
Medium human
development
29th
25th
22ndNominal GDP at constant 1995 prices,of which (1990 shares in brackets):
-P r i m a r y
- agriculture-f i s h e r i e s
-m i n i n g
- Manufacturing-S e r v i c e s
-t o u r i s m
- construction, electricity & waterRf 6,264 million
9% (26%)
3% (9%)6% (15%)
1% (2%)
9% (6%)82% (69%)
33% (18%)
6% (9%)
Life expectancy at birth
Infant mortality rate per '000Adult literacy71 years
2199%Enrolment ratio in education
- pre-school
- primary
- secondary85%
99%
36%
Source : UNDP (2001), Human Development Report 2001;   World Bank (2001), World Development Indicators 2001;
World Bank (1999), Maldives Country Economic Memorandum Policies for Sustaining Economic Growth , Report
No. 18340 - Mal, April;  Maldives Monetary Authority (2002), Economic Statistics , Vol. 2, No. 2, February;
Maldives Ministry of Planning and National Development (2001), Sixth National Development Plan 2001-2005;
Maldives Ministry of Planning and National Development (2002),  Maldives – Key Indicators 2002.
                                                     
1 The UN also uses non-income criteria to determine LDC status.  These are embodied in an Economic
Vulnerability Index, based on indicators such as the country's export instability, and an Augmented Physical
Quality of Life Index, which incorporates nutrition, health, education, and adult literacy indicators
(UNCTAD, 2001).
2 Any rise in sea levels from global warming would pose special concerns for the Maldives, a low-lying
country.
3 Greater market access by developed countries to LDCs is likely to displace imports from other
sources, especially from poor, developing non-LDC countries, rather than domestic production.  Thus, LDCs are
likely to benefit from more generous market access preferences at the expense of non-LDC developing
countries.WT/TPR/S/110 Trade Policy Review
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2. Despite some success in diversifying its production/export base from traditional fishing into
tourism, the Maldives' dependence on these two sectors presents particular policy challenges
including vulnerability to international conditions and serious environmental concerns.  Economic
growth has slowed since 2000 to around 2% annually, due to poor macroeconomic management,
declining tourism in late 2001 and low related construction investment (following the opening of
14 island resorts in 1999), subdued seafood exports, and adverse terms of trade from falling fish andrising oil prices. Inflation has remained low (1% in 2001), while unemployment has seemingly
increased.
4  Although trade and investment have been liberalized, deep-rooted structural weaknesses
remain; these include the State's prominent direct role in the economy, a very narrow tax base, and
resource and other constraints on governance.  The authorities appear committed to improving
stabilization policies and much needed structural reforms.
(2) RECENT ECONOMIC DEVELOPMENTS
3. Since 1997 the Maldives has experienced relatively high (but declining) growth rates, fuelled
primarily by tourism and related expenditures, such as in construction, transportation, and distribution(Table I.2).  Slower economic growth reflec ted partly weaker macroeconomic performance
(especially fiscal slippages) and adverse external developments.  Tourism-related construction
investment fell after 1999 following the latest expansionary phase of the Second Tourism Master
Plan, and tourism and fish exports declined.  Visitor arrivals dropped after the September 2001 attacks
in the United States, and resort prices softened also due to the opening of many new resorts.  Untilrecently, world tuna prices had also declined.
Table I.2
Economic performance, 1996-01
(US$ million, Rf million, and per cent)
1996 1997 1998 1999 2000 2001a
US$ million
GDP at current market prices 460.0 512.0 540.0 569.0 598.0 582.0
Rf million
Nominal GDP (current prices) 5,419.2 6,023.1 6,357.8 6,691.9 7,034.7 7,145.7
Real GDP (1995 prices) 4,679.3 5,154.5 5,575.9 5,989.1 6,263.9 6,393.9
Annual percentage change (in domestic currency)
Real GDP growth 9.1 10.2 8.2 7.4 4.6 2.1
Per cent
Unemployment .. .. .. .. 2.0 ..
Inflation (CPI) 6.2 7.6 -1.4 3.0 -1.2 0.7
Interest rates
- Deposits 5.0–6.5 5.0–6.5 5.0–6.5 5.0–6.5 5.0–6.5 5.0–6.5
- Loans 12.0–15.0 12.0–15.0 12.0–15.0 12.0–15.0 12.0–15.0 12.0–15.0
Broad money growth (M2) 26.0 23.1 22.8 3.6 4.1 8.6
Per cent of GDP
Fiscal balance
Government deficit -2.5 -1.4 -2.0 -4.3 -4.9 -5.3
- Revenue (including grants) 28.9 31.0 31.8 33.8 36.0 36.0
- Expenditure 31.4 32.3 33.8 38.1 40.8 41.3
Government domestic debt 17.7 14.9 16.2 16.7 20.0 21.4
Table I.2 (cont'd)
                                                     
4 Unemployment statistics are not readily available.   However, according to the 2000 census, 2% of the
“economically active” population are unemployed (Maldives Ministry of Planning and National Development,
2002).Maldives WT/TPR/S/110
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1996 1997 1998 1999 2000 2001a
Resource balance .. .. .. 9.2 18.2 ..
- Gross savings .. .. .. 47.0 44.6 ..
- Gross investment .. .. .. 37.8 26.4 ..
Balance of payments
- Trade -40.3 -42.7 -41.9 -46.9 -41.6 -42.5
- Current account (including
grants)-1.6 -6.8 -4.5 -14.6 -9.5 -10.9
- Capital account 11.1 12.3 10.2 13.3 8.0 6.3
- Overall balance 9.5 5.5 5.6 -1.3 -1.4 -4.6
Memorandum items
International reserves
- US$ million 77.6 99.7 119.9 128.5 124.1 94.3
- Months of imports (c.i.f.) 3.2 3.4 4.1 3.8 3.8 2.9
.. Not available.
aP r e l i m i n a r y .
Source: Maldives Monetary Authority (2002), Economic Statistics , Vol. 2, No. 2, February.
4. The Maldives is heavily dependent on services.  Their share in GDP (including construction,
electricity, and water) increased from 69% in 1990 to 82% in 2000.  Tourism's direct contribution to
GDP increased from 18% in 1990 to 33% in 2000 while  that of fishing (excluding processing) fell
from 15% to 6% (Table I.1).  Tourism's contribu tion to GDP would be well over 50% if related
activities, such as construction, transportation, and distribution, were included.  Manufacturing,
agriculture, and mining remain of relatively minor importance.
5. Since 1998 low inflation levels (Table I.2) have largely reflected the steady appreciation of
the nominal exchange rate.  However, inflation is expected to rise to 3% in 2002 due at least partly tothe price effects of the July 2001 currency devaluation.
5
(3) MACROECONOMIC POLICIES AND DEVELOPMENTS
(i) Monetary and exchange rate policies
6. The Government has exclusive responsibility to set monetary policy in the Maldives.6  The
central bank, the Maldives Monetary Authority (MMA), is not independent.7  This may have certain
economic policy risks.  Monetary policy may in practice become subservient to the Government's
fiscal objectives rather than achieving price and currency stability.  It  may also  remove a potentially
important independent source of public commentary and of economic statistics, as well as of policyadvice to the Government.
8
                                                     
5 The inflationary impact of devaluation is accentuated by the economy's high import propensity:
imports represent some 60% of the CPI basket.
6 The MMA was established in 1981 (Maldives Monetary Authority Act) principally to issue currency
and regulate the exchange rate;  advise government on banking and monetary policy;  supervise and  regulate
banking to provide a sound financial structure;  and to promote the international stability of the currency.  Itsrole and legislation is to be strengthened during the Sixth National Development Plan.
7 The MMA falls under the Ministry of Finance and Treasury;  the Head of Government, the President,
is both Minister of Finance and Treasury and Governor of the MMA.
8 There is no independent provider of economic statistics.  The Ministry of Planning and National
Development publishes most economic statistics, such as national accounts data.  A new Statistical Law is
intended to establish a separate Bureau of Statistics.WT/TPR/S/110 Trade Policy Review
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7. Although monetary policy has been directed towards macroeconomic stability by supporting
low inflationary growth and maintaining external  balance, it has accommodated fiscal indiscipline
through the MMA's automatic provision of credit to fund budget deficits.  Over 40% of the 2001
fiscal deficit was financed from MMA resources.9  Although broad money supply growth fell sharply
from 23% in 1998 to 4% in 1999 and 2000, it accelerated again in 2001 to an expected 9% (Table I.2).
Net credit to the Government soared from 1% in 1998 to 13% and 31% in 1999 and 2000, beforeslowing to an estimated 8% in 2001.   
8. Since mid-2001, the MMA has introduced several reforms aimed at eliminating direct
monetary controls, which have greater potential to become subordinate to government fiscal needs,
towards increased reliance on market-based indirect instruments.  This is expected to improve
liquidity management by allowing more flexible interest rates and sales on tap of Certificates ofDeposits (CDs) by the MMA.  From July 2001, bank specific credit ceilings (apportioned between
banks on the basis of an overall credit ceiling) were abolished, and the limit of 7 percentage points on
the maximum interest differential between rufiyaa (national currency) lending and deposit rates was
removed from 14 August 2001.
10  A standing facility for supporting bank liquidity was established
from 6 August 2001, at an interest of 5 percentage points above the highest bank rate.  Sales of CDswere opened to state-owned enterprises (SOEs) from 26 August 2001.  Other reforms being
considered include lifting the 20% ceiling on ru fiyaa lending interest rates.  Private-sector  credit
growth accelerated from 8% in 2000 to almost 30% in 2001.  The commercial sector benefited most,
with credit growth in 2001 of 76%, up from 7% in 2000.  Credit growth for construction slowed
substantially, from 72% to 5%.  Credit to SOEs, which grew rapidly during 1998 and 1999, declined
in both 2000 and 2001.
9. Since October 1994, the Maldives has maintained a de facto  fixed exchange rate with the
rufiyaa pegged (or anchored) to the U.S. dollar.
11  An IMF member since 1978, the Maldives,
accepted the transitional arrangements of Article XIV.  No exchange rate restrictions, such as
surrender requirements, exist.  The rufiyaa is fully convertible for current and capital account
transactions.  Residents and non-residents can freely hold foreign currency accounts.  Investment
proceeds can be fully repatriated, and offshore borrowings are allowed.  Commercial banks buy andsell foreign currencies without restriction, according to the authorities.
 12  There is no forward
exchange market.
10. Pegging the currency to the strengthening U.S. dollar caused an appreciation of the rufiyaa's
real effective exchange rate by around 30% from 1995 to 2000 (Table I.3).  This has contributed to
undermining the Maldives' international competitiven ess, especially in fishing and tourism, and
discouraged new exports and economic diversification.13  The Government's capital and current
expenditures increased imports and created excess demand for foreign currency at the fixed exchange
                                                     
9 Maldives Monetary Authority (2002).
10 U.S. dollar deposit and lending interest rates were liberalized in 1995.  The economy is substantially
dollarized;  U.S. dollar deposits accounted for 45% of broad money supply in 2001, up from 36% in 2000.
11 The buying and selling margins around the central currency rate are set at a narrow band of plus or
minus 5 laari i.e. currently from Rf 12.75 to Rf 12.85.
12 The Post Office Exchange Centre (POEC), established in 1987 to sell foreign currency mainly to the
non-business private sector, including small-scale importers, and for travel and educational expenses andrepatriation of expatriates' earnings, was closed in July 2000.  Its closure was in line with the MMA's policy thatselling foreign currency to the public was an inappropriate central bank function.  Commercial banks haveabsorbed this function, and are required to report sales of foreign exchange to the MMA on the following day.
13 Since the tourism industry imports most of its supplies and uses a high share of expatriate labour paid
in U.S. dollars, it may benefit less from a devalued currency than other industries.Maldives WT/TPR/S/110
Page 5
rate.  Despite introducing measures, such as limitations on bank foreign exchange allocations of
US$2,000 per day per customer, the rufiyaa was devalued by 8.5% in 2001 to avert a currency
shortage.  Faced with insufficient foreign exchange  to meet international payment commitments, a
parallel exchange market emerged from late 1999 to mid-2001offering substantial premiums on hard
currencies.14  There have been no currency pressures following the devaluation, according to
authorities.15
11. Although the authorities acknowledge the adverse impact of an over-valued exchange rate on
economic diversification and international competitiveness, they are concerned about the cost-push
effects a devalued currency may have on an economy heavily reliant on imports.  They believe that
the exchange rate regime has worked well, but intend  to review the system periodically to monitor its
suitability to changing circumstances in light of the economy's structural diversification.
Table I.3
Balance of payments, 1996-01(US$ million and percentage change)
1996 1997 1998 1999 2000 2001a
Current account -7.4 -34.2 -23.3 -81.6 -53.0 -62.0
Merchandise trade balance -185.6 -214.0 -215.9 -262.4 -233.3 -242.0
- Exports (f.o.b.)b79.9 93.0 95.6 91.5 108.7 106.8
- Imports (f.o.b.) -265.5 -307.0 -311.5 -353.9 -342.0 -348.8
Services (net balance) 179.2 190.5 204.3 203.6 208.8 210.2
- Exports 295.0 319.7 339.9 351.8 358.8 366.9
- Imports -115.8 -129.1 -135.6 -148.2 -150.0 -156.8
Private unrequited transfers (net balance) -27.3 -27.9 -30.6 -40.5 -46.2 -49.7
Official unrequited transfers 26.2 17.2 18.9 17.7 17.7 19.6
Capital account 51.1 61.6 52.3 74.3 45.1 36.0
Foreign direct investment and other private
inflows41.0 42.9 42.9 42.9 25.6 24.3
Overall balance 43.7 27.4 29.1 -7.2 -7.9 -26.0
Memorandum items Percentage change
External reserves (changes) 57.4 28.6 20.3 7.1 -3.4 -24.0
Terms of trade 20.5 23.6 3.1 -32.9 -3.2 ..
Nominal effective exchange ratec2.8 8.4 5.4 0.5 6.7 ..
Real effective exchange ratec6.5 14.0 2.3 2.6 3.6 ..
.. Not available.
aP r e l i m i n a r y .
b Includes re-exports.
c Positive value denotes appreciation of the rufiyaa.
Source : Maldives Monetary Authority (2002), Economic Statistics , Vol. 2, No. 2, February, and the Maldivian authorities.
                                                     
14 External factors contributing to the foreign exch ange shortage included the adverse terms of trade
due to rising oil and falling fish prices as well repayment of overseas borrowings to finance the expansion inresort facilities.
15 Although shortages in foreign exchange (cash) have occurred periodically, there are no restrictions
on its availability, except for very large requirements that may take a few days for the MMA to provide.
Foreign exchange sold to commercial banks in 2001 was much higher than total sales to the banks and the
POEC in 2000 and 1999.WT/TPR/S/110 Trade Policy Review
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(ii) Fiscal policy
12. Since 1997 expansionary fiscal policies have raised budget deficits, from 1.4% of GDP in
1997 to an estimated 5.3% (2001);  a further rise, to 7.6%, is expected in 2002 (Table I.2).
Expenditure has surged above targeted growth levels of 10%, especially on administration and social
services.  Expenditure growth has outstripped revenue expansion; government revenue (including
foreign grants/aid) is expected to rise from 36% of GDP in 2000 and 2001 to 38.8% in 2002.Revenue shortfalls have been offset by external aid and profits of SOEs.  Such fiscal slippages
undermine the economy's capacity to diversify and to absorb external shocks;  this occurred in 1999
when the terms of trade sharply deteriorated by 33% due to falling world prices for tuna and rising oil
prices.
13. The narrow tax base severely limits the Government's revenue-raising capacity and
accentuates its fiscal deficits.  There are no direct taxes (except for a bank profits tax) and no general
consumption tax.  The only indirect taxes are import tariffs and a tax of US$6 per bed night levied on
foreign tourists (as defined by the World Tourism Organization);  these taxes accounted for 92% of
total government tax revenue in 2000 (94% in 1995).  The lack of an internal tax base makes it
difficult to reduce reliance on border taxes.
14. The other main source of government revenue is land-lease payments for tourist resorts.
From 1998, these payments surpassed the tourist bed tax making them the second largest single
revenue earner after tariffs.  Tax revenue is also heavily dependant on tourism, which directly
accounted for 31% of government revenue (excluding foreign grants/aid) in 2000, up from 28% in
1995.  The sector's contribution to government revenue is increased to around 50% if tariff revenue
(estimated at 60% of tariff revenue) generated from tourist spending on imports is included.
15. Profit transfers from SOEs are also an important source of government revenue.  These
totalled Rf 357.4 million in 2000, equivalent to 16% of government revenue (excluding grants).  The
State Trading Organization contributed most to the 2000 Budget, Rf 87.3 million, followed by the
majority state-owned telecommunications monopoly, Dhiraagu Pty Ltd, with Rf 67.2 million, up
substantially from Rf 26.3 million in 1995.  However, the profitability of SOEs is often uncertain.
Some commercially non-viable SOEs have been a drain on the budget, despite receiving significantcommercial advantages, such as implicit govern ment subsidies and monopoly powers.  The Maldives
Industrial Fisheries Company (MIFCO) has been unable to service its government loans after large
losses, which rose to almost 3% of GDP in 2000, including arrears.  Two outstanding government
loans to the bankrupt Air Maldives were equivalent to 1-2 % of GDP.
(4) S
TRUCTURAL POLICIES AND DEVELOPMENTS
(i) Tax and expenditure reform
16. The narrow domestic tax base may severely limit the scope for reducing tariffs overall.  The
Government plans to broaden the tax base by introducing a business profits tax on all sectors and a
property rental value tax on lease income.  Legislation for these taxes and a Tax Administration Bill
were drafted in 1998.  The Government has no plans to introduce a consumption or goods andservices tax (GST), despite examining the feasibilit y of doing so in 1998.  It is reviewing the revenue
system to rationalize fees and other administrative changes.
17. A key government priority is to control and monitor parastatal activities, including capital
expenditures.  Since 1999, the role of the Public Enterprise Monitoring and Evaluation Board
(PEMEB) has been expanded to overseeing the pe rformance of SOEs.  Subsidies to SOEs, such asMaldives WT/TPR/S/110
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provision of public land rent-free, are to be removed.  Land rent began to be charged on public
enterprises at a nominal rate of Rf 1 per square foot from 2002.
18. Greater overall transparency and accountability in budgetary management would benefit the
economy.  The Government is in the process of making fiscal reforms to overhaul the government
accounting system, and to introduce "programme oriented" budgeting to promote efficient and
cost-effective public expenditure.  The Audit Office's role is to be enhanced.  In the medium term, acomputerized, double-entry cash-based accounting system will be introduced to replace the current
manual, single-entry system.  The new Public Finance Act and the Audit Act will govern the revised
accounting system.  The 2002 Budget does not allow for "ways and means" financing for regular
budgetary expenses.  Expenditure controls and financial disciplines are being strengthened to curtail
persistent budget overruns, including terminating the "unspent balance" approach in 2001, andspending programmes are to be better prioritized based on a public expenditure review.  The review,
prepared by the World Bank, has been submitted for final comments by the authorities and was due to
be completed in 2002.   Capital projects are to be rationalized and the public sector investment
programme (PISP)  better formulated under sectoral master plans.
(ii) SOEs and privatization
19. The 20 existing SOEs have an important role in the economy;  they operate in many
important sectors of the economy, including trade, fisheries, banking, construction, and utilities, but
not tourism (Chapter III(2)(ix) and Table III.3) .  A privatization programme was launched in 1999,
but is more of a longer-term priority, and has been hampered by some internal resistance; there is
concern about the possible anti-competitive effects of privatized firms in key activities, which would
dominate the small domestic market.  The priority is to restructure and corporatize public enterprises
prior to privatization.  The delayed and cautious approach to privatization also reflects the need tostrengthen the judiciary and legal system as well as to broaden the tax base.  Seven state-owned
enterprises have been opened to minority private pa rticipation, such as the 49% equity sold in the
former Air Maldives in 1994 and partial divest ment (93%) of the State Trading Organization.
16
Cross-ownership exists between public enterprises.  For example, the State Trading Organization
holds shares in MIFCO (20%) and the Bank of Maldives (25%).
20. Efforts have been focused on improving SOE e fficiency through greater "commercialization"
and introducing better management practices and performance monitoring.  A 1996 study showed that
few SOEs had taken the necessary steps to improve efficiency and profitability.  These steps included
corporatization, personnel rationalization, cost-cutting measures, closure of unprofitable activities,
and financial restructuring by capitalizing or rescheduling government-owed debt.17  Greater public-
sector efficiency is also to be achieved by restricting the size of the public sector and limiting it to
delivery of key services.  In addition, strengthening the legal and judiciary system is a high priority.
(iii) Governance
21. Governance has been hampered by human resource constraints, and poor policy coordination
and transparency, which has undermined the Maldives' economic development.  The authoritiesintend to adopt measures to enhance public accountability, transparency, and governance.  Relevant
                                                     
16 Other public enterprises partially privatized are Bank of Maldives Ltd, Maldives Transport and
Contracting Company, Maldives Inflight Catering Services Pty Ltd, and Male Water and Sewerage CompanyLtd.
17 The government-commissioned report by KPMG assessed the economic and financial performance
of state-owned enterprises and confirmed their inefficiency and poor performance.WT/TPR/S/110 Trade Policy Review
Page 8
legislation has been drafted to address these issues.  One of the major reforms envisaged is the
submission of audited annual government financial statements to Parliament.
(5) BALANCE -OF-PAYMENTS DEVELOPMENTS
(i) Current and trade accounts
22. Large current account deficits have occurred since 1997, equivalent to 15% of GDP in 1999
and 11% in 2001 (Tables I.2 and I.3).  Overall external deficits emerged from 1999, equivalent to 1%(1999 and 2000) and 5% (2001) of GDP, as large current account deficits could no longer be financed
by official and private capital inflows.  Although the devaluation provided relief, external pressures
are likely to persist without fiscal reforms.
23. External reserves declined from US$128.5 million in 1999 (a peak year), equivalent to just
under four months of import cover, to an estimated US$94.3 million in 2001, or 2.9 months of imports(Table I.2).  According to authorities, prospects appe ar positive, with a steady increase in reserves in
2002, to US$110.5 million at end-July.
(ii) External liabilities/debt
24. While total public (and publicly guaranteed) external debt rose from US$164 million in 1996
to US$181 million in 2001, its share of GDP fell from about 36% (1998) to about 32% (2001)(Table I.4).  Net official disbursements also declined from US$30.7 million in 1997 to
US$12.4 million in 2000.  The Maldives receives substantial foreign aid.  Most grants are from
bilateral partners, especially Japan, while most loans are from multilateral sources.  Official debt is
mainly medium or long term and on concessional terms.  The Maldives has met its debt servicing
obligations, amounting to US$19.1 million in 2000.  Its  debt service ratio remained low, at 4.4% in
2001.
Table I.4
External liabilities, 1996-01
(US$ million and per cent)
1996 1997 1998 1999 2000 2001a
External debt (US$ million) 163.7 165.3 184.7 185.5 178.0 181.3
Multilateral 96.5 102.2 114.2 116.5 114.9 118.6
Bilateral 35.8 33.0 29.8 27.1 24.5 22.7
Other (commercial) 31.4 30.1 40.7 41.9 38.6 40.0
External debt as a per cent of GDP 35.6 33.0 35.8 33.2 31.8 31.9
External debt service ratio (as a per cent of exports) 3.2 6.9 3.5 3.9 4.2 4.4
aP r e l i m i n a r y .
Source: Maldives Monetary Authority (2002), Economic Statistics , Vol. 2, No. 2, February, and the Maldivian authorities.
(6) TRADE AND FOREIGN INVESTMENT PERFORMANCE
25. The Maldives is a trade-dependent economy.  Between 1997 and 2001 the ratio of trade
(exports plus imports) in goods and non-factor services to GDP ranged between 169% and 172% of
GDP (Chart I.1).Maldives WT/TPR/S/110
Page 9
(i) Trade in goods
26. The Maldives' commodity trade patterns are concentrated in a few items, especially for
exports.  Between 1997 and 2001, the relative importance of seafood in total merchandise exports fell
substantially (and composition changed, with more dried and salted fish than canned tuna) whileclothing increased its export share, partly reflecting cyclical changes in world fish prices (Chart I.2).
18
The pattern of merchandise imports remained unchanged (mainly involving manufactured products,intermediate inputs for the apparel industry, food, and fuels).
27. The Maldives' trade patterns remain heavily dependent on developed countries;  trade with
South Asian Association for Regional Cooperati on (SAARC, Chapter II) members rose slightly
(mainly with Sri Lanka).  As a result of limited product and market diversification, the relativeimportance of the geographical destination of exports changed considerably during the late 1990s,
with a substantial shift away from Asia and the EU, traditional markets for fish, towards the United
States (almost entirely garments) (Chart I.3).  Sri Lanka strengthened its position as the main Asian
destination with substantially increased exports of fish products under SAARC preferences.  The
Maldives sourced around 70% of its imports from Asia, mainly Singapore, India, and Sri Lanka.
                                                     
18 Re-exports, mainly jet fuel, have expanded substantially, from 21% of merchandise exports in 1997
to 31% in 2001.  Export shares have been calculated by including re-exports in total exports (the denominator),
but excluding them from the product and country figures (the numerator).507090110130150170190210230250
1990 1991 1997 1998 1999 2000 2001Chart I.1
Trade in goods and non-factor services, 1990, 1991 and 1997-2001
Per cent 
Source:   Data provided by the Maldivian authorities.(MGS)/GDP(XGS)/GDP(XGS+MGS)/GDP
Note:       XGS = exports of goods and non-factor services;  MG S =  imports of goods and non-factor services.WT/TPR/S/110 Trade Policy Review
Page 10
Chart I.2
Composition of merchandise trade, 1997 and 2001
1997 2001
(a)    Exports (f.o.b.)
Other
0.2
Total:   US$93.0 million Total:  US$106.8 million 
(b)    Imports (c.i.f.)
Clothing   1.8
Other mining
2.5
Iron & steel
2.1Food
22.8
Machinery & 
transport equipment
28.1
Other
 semi-manufactures
9.2Agric. raw 
materials  2.6
Manufactures
61.0  Agriculture
 25.4
Fuels
11.1Textiles   6.1Food 
23.0
Textiles
7.0
Fuels  
11.8
Other 
semi-manufactures
8.5Machinery & 
transport equipment
 24.8Agric. raw
materials  2.2
Manufactures
60.9
Chemicals
5.7
Total:   US$348.9 million Total:   US$387.3 million Per cent
Other 
0.3Marine food  
39.7
Mining  
13.9Re-exports
21.2
Iron & steel
2.7Other consumer 
goods
8.4Other consumer 
goods
8.4Marine food 
62.3
Mining
13.6Re-exports
30.7
Other mining
2.1Clothing
3.8
Source :  Data provided by the Maldivian authorities.Note:      Based on HS96 nomenclature. Chemicals
5.3Agriculture
25.2Clothing
29.3Clothing
16.3Maldives WT/TPR/S/110
Page 11
Chart I.3
Direction of merchandise trade, 1997 and 2001
1997 2001
(a)    Exports  f.o.b.
Other 
 0.4
Total:   US$93.0 million Total:  US$106.8 million
(b)    Imports (c.i.f.)
India
11.7
Singapore
29.7Sri Lanka
9.2America
   2.7
Malaysia
8.7
Indonesia 
2.3EU15
12.7
East Asia
49.0  Thailand  2.3United Arab 
Emirates
9.2
Japan  3.1Oceania
2.2America
  3.8
Sri Lanka
13.1
Thailand  3.1
Singapore
25.4Other East Asia
2.5United Arab 
Emirates 
  8.4
East Asia
45.9
Indonesia
3.7
Total:   US$348.9 million Total:   US$387.3 millionPer cent
Other 
0.3
United States
28.6
EU15
12.2Sri Lanka
12.5
Malaysia
8.9Other
2.4Other  3.4United States
14.4Sri Lanka
13.5
Japan  2.3Oceania  3.7
Source :   Data provided by the Maldivian authorities.Note:      Based on HS96 nomenclature. Other E. Asia
2.8India
10.6Other E. Asia   0.9
Singapore  1.9
United Kingdom  
6.3EU15
12.0Japan  3.2Hong Kong, China  2.9
Thailand  6.0
Germany 4.3Other EU15   1.4East Asia
14.9Singapore  7.7
United Kingdom 
16.7EU15
20.5East Asia
31.1H.K., China
3.5
Japan
11.1Other East Asia   2.4
Thailand 
6.3
Other EU15
0.7Germany  
3.0Re-exports
21.2Re-exports
30.7WT/TPR/S/110 Trade Policy Review
Page 12
(ii) Trade in services
28. The Maldives is a net exporter of services;  its services (net) balance was estimated at
US$210.2 million (2001).  However, it is a net importer of certain services, mainly transportation and
insurance;  in 2001, trade in non-tourist services recorded a deficit of US$120.7 million.
29. Tourism, the Maldives' main export, earned an estimated US$330.8 million in 2001;  it
represented 70% of total export receipts (up from 48% in 1990).  Tourist arrivals, mainly fromEurope (Italy, Germany, the United Kingdom, and France) reached 461,063 in 2001.  Asian nations,
especially Japan and India, account for most other tourists.
(iii) Investment
30. Despite a relatively open regime and efforts to at tract foreign direct investment (FDI), inflows
remain low.  FDI grew, on average, by betw een 10% and 20% annually from 1986 to 2000.  This
growth was from a small base, with annual FDI inflows averaging US$5 million during 1985 to 1995,
and US$12 million from 1997 to 2000.  FDI stock was US$3 million in 1985, and had increased to
US$118 million in 2000 and US$131 million in 2001.19  Much of this investment was in tourism.
31. The stock of inward FDI, excluding tourism, as of March 2000 comprised approximately
50 projects with a total investment of around US$65 million (Table I.5).  About two thirds was in
two SOE activities:  the joint venture operations of the Male Water and Sewerage Company Ltd with
Danish interests, valued at US$26.144 million, and of Dhiraagu Pty Ltd in telecommunications with
UK equity, valued at US$16.34 million.  No other information on FDI patterns was made available to
the Secretariat.
Table I.5
Stock of (non-tourism) foreign direct investment, March 2002
(US$ thousand)
Type of investment Source Amount
Garments India;  United States;  Sri Lanka;  UAE;  Chinese Taipei;
Liberia;  Singapore;  Hong Kong, China16,012
Air transportation & inflight catering UK;  Canada;  Norway;  India;  Denmark;  Sri Lanka;
Japan;  Singapore3,576
Medical services Switzerland 1
Accountancy Sri Lanka 1
Repair/maintenance of machines Singapore 2
Water and sewerage Denmark 26,144
Telecommunications UK 16,340
Cement Maldives;  Switzerland 1,389
Spa Management Services Denmark;  Singapore 1
Water sports centres Germany;  Japan 1
Boat building UAE 1,760
Accommodation/property management systems Singapore 1
Computer software Sri Lanka;  India 1
Total 65,229
Source: Maldivian authorities.
                                                     
19 UNCTAD (2002).Maldives WT/TPR/S/110
Page 13
(7) OUTLOOK
32. The economic prosperity of the Maldives depends heavily on the fortunes of its two key
sectors, tourism and fishing.  Its vulnerable external position seems set to continue considering the
weak performance of tourism, the main growth and foreign exchange earner, in the aftermath of the
11 September attacks.  However, the favourable recent performance of the fisheries sector is expected
to continue.  Substantial macroeconomic and other structural reforms are needed to ensure that anyrecovery will be robust.  The Government's shor t-term economic outlook is for low annual growth, of
around 2% in 2002, with rising growth rates thereafter, to 6% in the medium term.