Maldives WT/TPR/S/221 
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 I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. The Maldives is a physically and economically  small vulnerable developing country, heavily 
dependant on international trade for its prosper ity.  Notwithstanding high import tariffs, its main 
source of tax revenues, trade in goods and services is expected to account for approximately 150% of 
GDP in 2009, placing the Maldives among the most open economies in the world.   
2. Despite the adverse effects of the tsunami in 2004, real GDP growth averaged 7.4 % between 
2003 and 2008, although it is expected to contract by 1.3% in 2009 (Table I.1).  To be able to sustain 
growth, the Maldives needs to diversify the economy , especially in light of its expected graduation 
from LDC status in 2011.  Diversification would re quire significant private-sector involvement, for 
which a conducive business environment needs to be cr eated.  In this regard, the major role of the 
State as a producer of goods and services needs to be reconsidered.  The shorta ge of skilled labour and 
weak public institutions constitute impediments to pr ivate sector investment and need to be addressed. 
3. The other serious constraint on growth is the la rge fiscal deficit and the consequent level of 
public debt.  The tax system needs to generate su fficient revenues (in as neutral a fashion as possible) 
to finance the Maldives' developm ental needs (education, health, environment, etc.).  Thus, there 
needs to be a broadening of the tax base and a sh ift away from the heavy reliance on border taxes and 
to a lesser extent, land leases.  This would require  the introduction of a broa d-based value-added tax 
on consumption and the expedited implementation of the business-profits tax.  In tandem current 
expenditure would need to be curtailed through a co mbination of civil service reform and scaling back 
of subsidies.  Furthermore, fiscal consolidation would provide scope for th e authorities to implement 
their envisaged environmental programmes and create a sovereign wealth fund (see below). 
4. During the period under review, growth was driven  mainly by a resurgence in tourism, which 
is the Maldives' main services export, and to a l esser extent construction.  Consequently, GDP per 
capita rose from US$2,429 in 2003 to US$4,072 in  2008 and is expected to be US$4,214 in 2009.1  
The robust growth has also resulted in an improveme nt in some of the Mald ives' social indicators, 
with life expectancy rising from 65 years in 2003 to 68 years in 2008 and absolute poverty (as defined 
by the proportion of the population living on less than US$1 per day) declining from 3% in 1997 to 
1% in 2004.2  However unemployment increased c onsiderably to over 14% in 2006.3  The Maldives 
has maintained its ranking of medium human de velopment in the UNDP's HDI index.  The World 
Bank ranked the Maldives as the best count ry in South Asia for doing business.4   
5. Given the Maldives' openness, narrow econo mic base and associated vulnerability to 
exogenous shocks, several important short-term and long-term challenges threaten sustained growth.  
These challenges include significant increases in the fiscal (and thus the current account) deficit and 
the resulting rise in public debt to over 55% of GDP.  With the Maldives expected to graduate from its 
least developed country (LDC) status in 2011, the er osion of export preferences to the EC could also 
have adverse implications for growth.  State involve ment persists in most sectors of the economy and 
appears to crowd out the private sector, whose investment and greater involvement is necessary to 
                                                      
1 It appears that income inequality between Male and the atolls is large, with the Gini coefficient at 
0.41 in 2004, which was significantly higher that other countries in the region. 
2 UNDP (2007). 
3 Asian Development Bank Statistics.  Viewed  at:  http://www.adb.org/Documents/Books/Key_ 
Indicators/2008/pdf/mld.pdf [1 June 2009]. 
4 World Bank (2009). WT/TPR/S/221 Trade Policy Review 
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 diversify the economy.  On a longer-term horizon, global warming and the consequent rise in sea 
levels threaten the Maldives.5  In addition to the Government's environmental goal of achieving 
carbon neutrality by 2019, the President intends to create a sovereign wealth fund from money earned 
from tourism to facilitate relocation of the populatio n, should rising sea levels  inundate the islands.  
The creation of such a fund, together with the financing of the Government's more immediate 
environmental objectives, would require considerable fiscal consolidation. 
Table I.1 
Selected macroeconom ic indicators, 2003-09  
  2003 2004 2005 2006 2007 2008a 2009b 
National accounts (Percentage change) 
Real GDP (at 1995 prices) 8.5 9.5 -4.6 18.0 7.2 5.8 -1.3 
XGS/GDP (%) (at current market price) 80.0 84.0 59.8 80.6 78.8  76.7  57.2 
MGS/GDP (%) (at current market price) 77.2 93.0 115.9 114.3 117.1  124.5  93.1 
Prices and interest rates (Per cent) 
Inflation (CPI, % change)  ..  ..  .. 3.5 7.4  12.3   .. 
Male, only -1.3 -1.7 1.3 2.7 6.8  12.0   .. 
Loans rate 7.5-14.0 7.75-13.0 7.5-13.0 7.5-13.0 7.5-13.0 5.5-13.0   .. 
Savings deposit rate  2-5  1.5-3.0  1.5-3.0  1.5-3.0  1.5-3.0   1.25-3.0  .. 
Money and credit (end period)c (Percentage change) 
Narrow money (M1) 11.5 19.7 22.5 22.2 18.8 38.1  .. 
Broad money (M2) 14.5 32.8 11.7 20.6 23.7 23.6  .. 
Credit to private sector (households) 6.8 57.6 54.5 49.5 49.2 33.0  .. 
Exchange rate        
Rf/US$ (annual average) 12.8 12.8 12.8 12.8 12.8  12.8   .. 
 (Per cent of GDP, unless otherwise indicated) 
Overall fiscal balance -3.4 -1.6 -10.9 -6.8 -4.7  -12.6  -7.4 
Current balance 6.7 5.5 -9.3 -3.2 -0.5  -4.9  -17.3 
Total revenue and grants 34.8 34.5 48.1 52.5 56.1  48.1  59.6 
Current revenue 33.1 33.5 39.1 44.7 48.1  44.4  33.5 
Tax revenue 14.3 16.6 18.0 20.2 21.2  21.0  16.3 
Capital revenue 0.3 0.2 0.4 0.4 0.3  0.3  22.7 
Grants 1.4 0.7 8.6 7.4 7.7  3.5  3.3 
Expenditure and net lending 38.2 36.0 59.0 59.3 60.8  60.7  67.0 
Current expenditure 26.5 28.1 48.4 47.9 48.6  49.2  50.9 
Capital expenditure 13.6 10.0 11.8 12.4 13.1  12.5  16.2 
Net lending -1.8 -2.0 -1.2 -1.0 -0.9  -1.1  -0.0 
Government total debt (end-period)  46.1 43.1 52.6 50.9 52.3  53.9  52.5 
Domestic debt  16.5 12.6 18.7 18.5 19.0  22.7  14.0 
Table I.1 (cont'd) 
                                                      
5 The Maldives consists of nearly 1,200 islands, of which 200 are inhabited and support a population of 
approximately 305,000.  The average height of the Mald ives is 1.5 metres above sea level making it susceptible 
to rising sea levels (which are simulated to rise by 0. 15-1.0 metres between 2000 and 2100), cyclones, and tidal 
tsunamis.  Biodiversity Maldives online information.   Viewed at:  http://www.biodiversity.mv/environment/ 
index.php?option=com_content&view=article&id=44&Itemid= [14 July 2009]. Maldives WT/TPR/S/221 
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   2003 2004 2005 2006 2007 2008a 2009b 
External sector        
Current account balance  -4.5 -15.8 -36.4 -33.0 -41.5  -51.7  -35.9 
Net merchandise trade  -37.9 -49.4 -65.9 -64.5 -69.9  -70.7  -51.2 
Merchandise exports 22.0 23.3 21.6 24.6 21.6  26.2  19.9 
Merchandise imports 59.8 72.7 87.4 89.1 91.5  96.9  71.2 
Services balance 45.0 45.1 14.6 35.0 36.0  28.2  20.1 
Financial account 7.3 19.7 35.2 32.1 41.9  39.6  46.8 
Direct investmentd 1.9 1.9 1.3 1.5 1.4  1.2  1.0 
Balance of payments  3.8 5.7 -2.3 4.9 7.3  -5.4  10.9 
Merchandise exports (% change) 14. 9 19.1 -10.7 39.4 1.2  45.0  -20.1 
Merchandise imports (% change) 20.2 36.3 16.1 24.4 18.3  26.6  -22.7 
Service credit (% change) 19.0 17.6 -36.4 70.9 17.6  8.5  -20.8 
Tourism (% change) 19.1 17.3 -39.1 78.8 17.6  5.6  -22.3 
Service debit (% change) 8.3 30.8 35.4 8.5 16.5  29.3  -16.4 
Gross international reserves (US$ million) 160.3 204.4 187.1 232.2 309.1  241.3   .. 
in months of imports 4.1 3.8 3.0 3.0 3.4  2.1   .. 
Total external debt (US$ million)  289.5 331.8 397.1 574.8 840.1  969.2   .. 
of which medium- and long-term 272.9 311.6 309.6 362.3 420.0  471.7  591.8 
Debt service ratioe 3.7 4.2 6.4 4.1 4.5  4.5  10.1 
.. Not available. 
a Revised estimates. 
b Projections by the Medium-Term Expenditure Framework (MTEF). 
c M1 equals the sum of currency outside deposit money banks and demand deposits other than those of the central government;  
M2 equals the sum of M1 + time, savings, and foreign currency deposits of resident sectors ot her than the central government. 
d Refers to direct investment in Maldives only. 
e Ratio of debt service to exports of goods and services. 
Source:   Maldives Monetary Authority (2009), Monthly Statistics,  April, Vol. 10, No. 4. 
(2) RECENT ECONOMIC DEVELOPMENTS  
6. After reaching a recent peak of 18% in 2006, r eal GDP growth has been decelerating and was 
5.8% in 2008, with a contraction of 1.3% expected  in 2009.  In the aftermath of the 2004 tsunami, a 
resurgence in both tourism and construction activity,  due to rebuilding needs, resulted in the high 
growth rate.  However, the recent slowdown in gr owth can be attributed to a fall-off in tourism 
activity due to the global economic conditions and, to  a certain extent, the decline in the fish catch, 
which (according to the authorities) fell by 22% in 2007 and by 3% in 2008.  Construction activity 
was also sluggish as resort development and tsunami reconstruction neared completion. 
7. The shares of primary activities (agriculture, fi sheries, and mining) in GDP has declined 
during the period under review (Table I.2), mainly due to declining fish catches.  In contrast, the 
shares of construction and services (mainly transport, communications, and government 
administration) increased.  
8. Inflation, as measured by the Consumer Price Index (CPI) has shown a marked increase since 
2007, reaching a high of 12.9% in  September 2008 before subsiding to 11.9% in February 2009.  
Inflation has been driven mainly  by increases in food prices, which have a 33% weight in the CPI WT/TPR/S/221 Trade Policy Review 
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 basket.6  Rising oil prices had also fuelled the increase in domestic prices, although the oil products 
have a smaller share in the CPI basket than food. 
Table I.2 
Basic economic and social indicators, 2003-09 
 2003 2004 2005 2006 2007 2008a 2009b 
Real GDP, market prices (Rf million, 1995 prices) 7,589.9  8,311.2  7,926.2  9,351.1 10,026.3  10,611.4  10,476.7 
Real GDP, market price (US$ million, 1995 prices)  644.8  706.1  673.4  794.5  851.9   901.6   890.1 
Current GDP, market price (Rf million)  8,863.2  9,938.7  9,596.1 11,717.4 13,493.3  16,137.2  16,968.0 
Current GDP, market price (US$ million)  692.4  776.5  749.7  915.4  1,054.2   1,260.7   1,325.6 
GDP per capita , current market price (Rf) 30,978.1 34,202.3 32,496.4 39,020.0 44,159.8  52,055.5  54,735.5 
GDP per capita, current market price (US$)  2,429.0  2,672.1  2,538.8  3,048.4  3,450.0   4,072.0   4,214 
GDP by economic activity at constant 1995 prices                               (Annual percentage change) 
Agriculture 4.1 4.2 -0.5 0.3 0.4 0.7 1.1 
Fisheries 0.7 1.8 17.6 -1.0 -21.8 -2.6 15.4 
Coral and sand mining 5.3 9.2 3.8 5.3 2.5 1.9 -2.9 
Manufacturing 4.5 2.7 -10.1 14.6 3.4 4.6 -0.4 
Electricity, gas, and water 11.1 13.7 16.2 12.5 9.2 4.3 4.1 
Construction 15.7 36.7 15.2 20.5 19.6 16.3 -24.2 
Services 9.6 9.7 -8.2 21.3 9.1 5.8 -0.9 
 Wholesale and retail trade 4.3 5.8 3.0 6.3 8.5 4.2 -3.1 
 Tourism 14.8 8.3 -33.1 42.3 9.4 3.0 -10.5 
 Transport and communication 8.1 17.0 15.4 18.5 8.3 6.3 1.1 
 Financial services 6.8 7.3 -2.8 9.4 4.3 2.4 -1.7 
 Real estate 3.6 3.9 0.6 3.5 2.5 2.1 0.0 
 Business services 5.0 5.4 0.0 4.9 2.4 1.7 -1.2 
 Government administration 6.7 12.6 14.2 13.8 15.7 13.7 12.5 
 Education, health and social work 1.6 1.5 1.4 2.2 1.8 1.9 1.8 
Share of main sectors in GDP, constant 1995 prices                                             (Per cent)  
Agriculture 2.6 2.5 2.6 2.2 2.0 1.9 2.0 
Fisheries 6.6 6.1 7.5 6.3 4.6 4.2 5.0 
Coral and sand mining 0.6 0.6 0.6 0.6 0.5 0.5 0.5 
Manufacturing 8.5 7.9 7.5 7.3 7.0 6.9 7.0 
Electricity, gas, and water 3.6 3.8 4.6 4.4 4.5 4.4 4.6 
Construction 3.5 4.4 5.3 5.4 6.0 6.6 5.1 
Services 78.6 78.8 75.8 77.9 79.3 79.3 79.7 
 Wholesale and retail trade 4.1 3.9 4.2 3.8 3.9 3.8 3.7 
 Tourism 32.7 32.4 22.7 27.4 27.9 27.2 24.6 
 Transport and communication 14.2 15.2 18.4 18.5 18.6 18.7 19.2 
 Financial services 3.3 3.2 3.3 3.1 3.0 2.9 2.9 
 Real estate 7.2 6.9 7.2 6.4 6.1 5.9 5.9 
 Business services 2.8 2.7 2.8 2.5 2.4 2.3 2.3 
 Government administration 12.4 12.8 15.3 14.8 15.9 17.1 19.5 
 Education, health and social work 1.9 1.8 1.9 1.6 1.5 1.5 1.5 
Financial services indirectly measured  -4.0 -4.0 -3.9 -4.0 -4.0 -3.9 -3.8 
a Estimates. 
b Projections. 
Source: Maldives Monetary Authority (2009), Monthly Statistics,  April, Vol. 10, No. 4;  and data provided by the 
 authorities.  
                                                      
6 The rise in fish prices due to the fall in  the domestic catch was especially large. Maldives WT/TPR/S/221 
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 (3) MACROECONOMIC POLICIES AND DEVELOPMENTS  
(i) Fiscal policy 
9. In the absence of corporate and personal inco me taxes as well as excises and sales tax, the 
Maldives has a very narrow tax base.7  It relies mainly on import tariffs and, to a lesser extent, on a 
tourism tax (charged on a per night basis) for its  tax revenue;  it also relies on land lease payments.8  
Tax and non-tax revenue growth has been robust, with total revenue and grants increasing from nearly 
35% of GDP in 2003 to 48% of GDP in 2008.  The gr owth in revenue has been fuelled by both import 
tariffs and lease payments, some of which are ad hoc .  In addition, the Government is reliant on other 
ad hoc revenue measures;  for example, the budget for 2008 initially incorporated a 37% increase in domestic revenue, based mainly on a lease payment e quivalent to 26% of domestic revenue for a new 
transshipment port.
9  With the project delayed by a year, the Government wanted instead to make up 
the shortfall by leasing out an additional 30 islands;  however, they were not leased out.  According to 
the authorities the resulting revenue shortfall was made  up to a certain extent by lease payments from 
existing resorts and transfers from state-owned enterprises (SOEs). 
10. Expenditure outstripped revenue growth by a considerable margin;  expenditure and net 
lending increased from 38.2% of GDP in 2003 to ne arly 61% of GDP in 2008 .  Expenditure growth 
was driven mainly by wage and salary payments to  the civil service and social welfare payments, 
which accounted for 20.6% and 10.4% of GDP, respectiv ely, in 2007.  Furthermore, expenditure was 
budgeted to rise by over 27% in 2008 , with over two thirds of the increase attributed to current 
expenditure.  The civil service wage bill rose by  55% and subsidies to SOEs saw a four-fold 
increase.10  The latter is due in large part to administered electricity prices, which are significantly 
below market prices.11  Since 2004, tsunami-related spending h as been responsible for only about 5% 
of domestically financed expenditure.  
11. Consequently, the Maldives has registered a fiscal deficit in every year of the review period 
(Table I.1), with a peak of 12.6% of GDP in 20 08.  According to the authorities, the deficit is 
expected to decline to 7.4% of GDP in 2009 under the new revised budget estimates, mainly on 
account of a considerable projected rise in capital revenue.12  Rising and sustained fiscal deficits have 
resulted in government debt (both domestic and fo reign) rising from approximately 46% of GDP in 
2003 to around 54% in 2008 (it was expected to swell to 73% of GDP in 2009 under the old estimates 
but has been revised downwards to 52.5%). 
12. The rising fiscal deficit threatens the Maldives' growth prospects.  The fundamental issue is 
the Government's inability to meet its developmen tal expenditure needs on account of insufficient 
revenue due to its narrow tax base.  Furthermore, th e continued fiscal deficits have also resulted in 
significant current account deficits.  Insofar as the G overnment needs to borrow externally to finance 
                                                      
7 In the absence of income tax – to the extent that income earned in the Maldives by foreign investors is 
taxed instead in the investors' country of residence – tax revenues are transferred from the Maldives' to foreign 
treasuries. 
8 Tariffs accounted for 29% of total revenue and 71% of tax revenue in 2009;  lease payments on 
resorts and commercial land accounted for 59% and 35% of non-tax revenue and total re venue, respectively, in 
2009. 
9 IMF (2009). 
10 IMF (2009). 
11 Electricity generation in the Maldives is based on diesel powered plants.  During the period under 
review international diesel prices have risen significantly;  however electricity prices have not changed since 
2002.  Thus the increased cost of fuel and therefore generation is absorbed by the Government. 
12 Under the previous budget projections, the fiscal  deficit was expected to be over 28% of GDP. WT/TPR/S/221 Trade Policy Review 
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 the fiscal deficit, the current account will be unde r pressure as debt servicing payments need to be 
made.  Thus, it is essential to broaden the tax base and shift away from reliance on tariffs and ad hoc 
measures (Box III.1).  In this regard, the new Government has presented the Taxation on Business 
Profit Bill and the Administrative Bill on Taxation to the Parliament;  the two Bills are expected to 
pass in 2009 and be implemented in 2010. 
(ii) Monetary and exchange rate policies 
13. The Maldives' exchange rate re gime involves a fixed peg (of Rf 12.8) in relation to the 
U.S. dollar, which reduces the authorities' scope  to operate an independent monetary policy.13  
Reforms enacted in 2007 imparted greater autonom y to the Maldives Monetary Authority (MMA).  
However, the MMA needs approval from the President for any changes in the exchange rate, and the 
T-bill rate is set in consultation with the Ministry of Finance.   
14. Despite considerable credit growth, the MMA's  monetary policy stance remained mostly 
unchanged between 2003 and 2006.  In June 2007, howeve r, in order to reduce the cost of funding for 
banks and to ease the upward pressure on interest  rates, the MMA lowered the minimum reserve 
requirement (MRR) from 30% to 25%.  In a move towards financing the fiscal deficit through the 
market, the MMA replaced its certificates of depo sit with treasury bills of one- and three-month 
maturities with interest rates of 5% and 5.25%, respect ively.  In response to inflationary pressures, the 
rates were raised to 6% and 6.25%, respectively, in July 2007.  Additionally, in 2006, the MMA introduced a repurchase facility with a 12% interest ra te (raised to 13% in 2007, again in response to 
inflationary pressure).  With a view to creating a secondary market as well as promoting investment in 
treasury bills, the MMA also intr oduced re-discount facilities. 
15. Despite the recent rise in inflation, it appears that the Maldives has an adequate cushion of 
reserves (US$241.3 million in 2008) to maintain the pe g.  Most of the Maldives' exports receipts are 
euro-denominated
14, while its imports are mostly U.S. dolla r denominated.  Thus, the appreciation of 
the euro against the U.S. dollar in  recent years has aided the Maldives'  international competitiveness.  
The real effective exchange rate depreciated by  27% between 2000 and 2008, and by 1.9% since 
2007.15  
(4) KEY STRUCTURAL POLICY CHALLENGES  
(i) Privatization and SOEs 
16. One of the main reasons for the Maldives vul nerability is its narrow economic base.  The 
Government needs to encourage priv ate-sector investment and participation to diversify the economy.  
However, the prevalence of state-owned enterprises (SOEs) in many sectors of the economy seems to 
have crowded out the private sector.  To motivate private-sector participation, the Government 
decided to create an enabling and economically viab le business environment;  this includes privatizing 
SOEs.  In 1999, the Government had launched a pr ivatization programme;  however, it seems that 
there has been little, if any, progress on th is front during the review period.   
17. In an effort to curtail expenditure (due to  subsidizing SOEs) and increase revenue, the new 
Government has embarked on a new privatization programme.  Expressions of interest have been 
                                                      
13 The peg is consistent with the authorities' limited institutional capacity to manage a foreign exchange 
market. 
14 Over three fourths of tourist arrivals are from the EC, while a large proportion of tuna exports are 
also destined for the EC. 
15 IMF (2009). Maldives WT/TPR/S/221 
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 sought for the sale of shares in the State Electri c Company, Maldives Water and Sewage Company, 
Maldives National Shipping Limited, Housing Deve lopment Corporation, and the Maldives Industrial 
Fishing Company.  The Government has also initiated a public/private partnership programme, 
whereby, inter alia , health, education, transport, and hous ing projects would be commissioned under 
agreements between the Government and qualified priv ate parties.  However, some SOEs, such as the 
electricity and water companies, both of whic h provide subsidized services, are loss-making 
enterprises, and are thus a drain on the Government's already limited resources, need to be made more 
efficient and competitive to improve their pros pects of becoming more profitable prior to 
privatization. 
(ii) Environment 
18. The Maldives faces several environmental cha llenges including:  rising sea levels due to 
global warming, natural calamities (such as the tsunami),  and erosion of beaches, reefs, and coral.  In 
addition to its already strict environmental c onditions on building and operating tourist resorts 
(Chapter IV), high import tariffs on goods deemed to be harmful to th e environment (plastic bags and 
motor vehicles (Chapter III)), and import restrictions  and prohibitions for en vironmental reasons, the 
Government has announced an ambitious new plan to make the Maldives carbon-neutral by 2019.  
The plan envisages a new, renewable electricity-generation and transmission infrastructure based on 
155 large wind turbines, half a square kilometre of  rooftop solar panels, and a coconut-husk-burning 
biomass plant.  Clean energy is expected to pow er homes, businesses, and vehicles.  The plan is 
estimated to cost US$110 million a year for 10 year s and would break even in 20 years at current oil 
prices.  It appears to be an ambitious undertak ing considering the Maldives' narrow tax base and 
precarious fiscal situation.  However, plausible fi nancing solutions could include pricing energy and 
water according to market principles and even impos ing green taxes on their use.  Furthermore, as 
already mentioned, the President has announced his intention to create a sovereign wealth fund from 
tourism proceeds to buy land abroad in order to  relocate the population of the inundated islands.   
(5) BALANCE OF PAYMENTS  
19. The Maldives' current account deficit was a bout US$651.3 million (or 51.7% of GDP) in 
2008 up from US$31.3 million (or 4.5% of GDP) in 2003 (Table I.3).16  This reflected a widening of 
the gap between gross national saving and gross dom estic investment.  The growing current account 
deficit during the review period was due main ly to a trade deficit on account of higher 
construction-related imports (for r esort and infrastructure developmen t) and high oil and food prices.  
The deficit was financed mainly through privat e capital inflows, including foreign borrowing by 
commercial banks.  Consequently, total external debt (both public and private) rose from US$289.5 million in 2003 (41.8% of GDP) to US$969.2 million in 2008 (76.9% of GDP) (Table I.1). 
20. On the other hand, the financial account surplus grew from US$50.7 million in 2003 to 
US$499.2 million in 2008, attributable mainly to increases in commercial bank borrowing from abroad and other investment inflows.
17  By and large, the financial account surplus has been able to 
cover the current account deficit;  however, in 20 05 and 2008, the current  account deficit exceeded 
the financial account surplus and the Maldives had to draw down its foreign exchange reserves.  As of 
end 2008, the Maldives' foreign exchange reserv es were US$241.3 million, equivalent to 48.5% of 
short-term debt, and provided 2.1 months of im port cover.  Reserves are projected to increase to 
US$386 million, on the back of privatization proceeds, by the end of 2009.  
                                                      
16 The current account deficit is proj ected to decrease to US$475.4 milli on (or 35.9% of GDP) in 2009.   
17 These include mostly privat e capital flows into the Maldives for resort development. WT/TPR/S/221 Trade Policy Review 
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 Table I.3 
Balance of payments, 2003-09 
(US$ million) 
      2003 2004 2005 2006 2007 2008a 2009b 
Current account -31.3 -122.3 -273.0 -302.0 -437.8 -651.3 -475.4 
 Merchandise trade balance -262.3 -383.8 -493.8 -590.1 -736.8 -890.8 -679.2 
  Exports 152.0 181.0 161.6 225.2 228.0 330.5 264.2 
  Imports 414.3 564.8 655.5 815.3 964.7 1,221.2 943.4 
 Services, net balance 311.7 350.2 109.8 320.7 379.8 355.7 266.6 
  Exports 431.9 507.7 322.9 551.9 649.1 704.0 557.7 
     Travel 401.6 470.9 286.6 512.4 602.4 635.9 494.2 
  Imports 120.3 157.4 213.1 231.2 269.3 348.3 291.1 
 Income balance -38.4 -35.2 -31.0 -40.8 -67.2 -64.1 -40.9 
  Credit 6.2 9.8 10.9 15.6 21.7 17.7 5.2 
  Debit 44.6 44.9 41.8 56.3 88.9 81.7 46.2 
 Current transfer balance -42.2 -53.5 142.0 8.1 -13.7 -52.2 -21.9 
  Credit 12.7 7.6 211.5 91.3 91.5 76.2 68.1 
  Debit 54.9 61.1 69.5 83.2 105.2 128.4 89.9 
Financial account 50.7 153.2 263.8 294.2 442.0 499.2 620.1 
 Direct investment, net 13.5 14.7 9.5 13.9 15.0 15.4 13.0 
  Direct investment in Maldives 13.5 14.7 9.5 13.9 15.0 15.4 13.0 
 Other investment, net 37.2 138.5 254.3 280.3 427.0 483.8 607.1 
Net errors and omissions 7.0 13.3 -8.0 52.9 72.7 84.3 0.0 
 Overall balance 26.5 44.2 -17.3 45.1 76.9 -67.8 144.8 
Reserve assets -26.5 -44.2 17.3 -45.1 -76.9 67.8 -144.8 
a Estimates. 
b Projections. 
Source: Maldives Monetary Authority (2009), Monthly Statistics,  April, Vol. 10, No. 4. 
(6) DEVELOPMENTS IN TRADE  
21. The ratio of Maldives' total trade (import a nd exports) in goods and non-factor services to 
GDP rose from over 157% in 2003 to over 201% in 2008 (Table I.1), reflecting higher food, fuel, and construction-related imports.  Howe ver, the ratio is forecast to dr op to approximately 150% in 2009 
owing to declining commodity prices.  Between 2003 and 2008, imports grew at a much faster rate 
than exports, which led to a widening of the trade deficit, to over 70% of GDP.  On the other hand, 
barring the year of the tsunami, services exports s howed robust growth over the same period.  
Services exports, driven by tourism and travel-relate d activities, resulted in a surplus of nearly 29% of 
GDP in 2008. 
(i) Composition of trade 
22. Imports of manufactures and agricultural products declined, while imports of fuel rose, during 
the review period.  In 2003, the Maldives' main me rchandise exports were marine food and clothing.  
Following the termination of the Multi-Fibre Arrangement (MFA), which had set quotas on developing-country garment exports  to developed countries, the clothing industry in the Maldives 
collapsed in 2005.  Hence, merchandise exports in  2008 consisted almost entirely of marine food 
(Chart I.1).   Maldives WT/TPR/S/221 
 Page 9 
 
 
 Chart I.1
Product composition of merchandise trade, 2003 and 2008
2003 2008
(a)    Exports, domestic (f.o.b.)
Total:   US$113.0 millionaTotal:  US$126.4 milliona
(b)    Imports (c.i.f.)
Chemicals
5.4Iron & steel
2.4Transport 
 equipment
10.3Manufactures
63.0
Electrical
machines  
9.3
Non-electrical 
machinery
7.6Non-electrical 
machinery
6.4Agri. raw
materials
3.2
Electrical 
machines
10.1
Other semi-manuf.
 10.3Transport equipment
10.2
Chemicals
5.1Manufactures
55.5Textiles & clothing
2.3
Total:   US$470.8 million Total:   US$1,387.5 millionPer cent
Marine food
98.4
Other consumer
 goods
8.0Other consumer goods 
8.5Clothing  
32.0Other
1.6
Marine food
67.7
Source :      UNSD, Comtrade database (SITC Rev.3).Textiles & clothing
10.7
Mining
25.4
Other semi-
manufactures
8.6Food
15.9Food
20.9
Mining
13.8
Iron & steel
3.3Other 
0.4
Fuels
22.7 Fuels
11.8
Other mining
2.7Other mining   2.0Agriculture
23.2Agriculture
19.0
Agric. raw
 materials
2.2
a     Including re-exports total exports represent US $152.0 million and US$327.6 million, respectively, for 2003 and 2008.
 WT/TPR/S/221 Trade Policy Review 
Page 10 
 
 
 Chart I.2
Direction of merchandise trade, 2003 and 2008
2003 2008
(a)    Exports, domestic (f.o.b.)
Total:   US$113.0 millionaTotal:  US$126.4 milliona
(b)    Imports (c.i.f.)
Other 
7.1India
10.1
EC27
11.3
United Arab Emirates
7.6Singapore
24.9EC27
11.5Malaysia
7.7    Thailand
4.3
Singapore
21.3Bahamas
4.2
Total:   US$470.8 million Total:   US$1,387.5 millionPer cent
Asia
64.8Japan
10.3
United Arab Emirates
18.0Other Asia
12.6United States
32.3Other Asia
10.6
United States
1.2Other   3.0
Source :  UNSD, Comtrade database (SITC Rev.3).India
10.4EC27
31.0Sri Lanka
13.6
Asia
60.9Asia
74.1Sri Lanka
13.7
Other
5.3Other Asia
11.3EC27
15.6Other
1.1
Japan
2.9Thailand
49.0
Other Asia 
3.4
Thailand 
5.1Sri Lanka
5.9Thailand
16.4
Sri Lanka
9.5
Asia
51.0
Malaysia
7.7
a     Including re-exports total exports represent US $152.0 million and US$327.6 million, respectively, for 2003 and 2008.
 Maldives WT/TPR/S/221 
 Page 11 
 
 
 (ii) Direction of trade 
23. Maldives major import suppliers in 2008 were Singapore, United Arab Emirates, EC27, and 
India (Chart I.2).  Since 2003, the shares of Singapor e and Sri Lanka have declined, while the share of 
the United Arab Emirates has incr eased markedly.  The main destination for Maldives exports in 2008 
were Thailand, EC27, and Sri Lanka.  Since 2003, the shares of the United States, Japan, and 
Sri Lanka have declined sharply, presumably due to  the collapse of the clot hing industry, as both the 
United States and Japan were quota destinations and the Sri Lankan clothing industry had relocated 
some of its factories to the Maldives to circumvent  the quota restrictions.  The shares of Thailand and 
EC27 rose significantly during the review period. 
(7) FOREIGN DIRECT INVESTMENT  
24. Foreign direct investment (FDI) statistics are not readily available;  consequently, it is 
difficult to ascertain the stock and flows of FDI.  Reinvested earnings of foreign enterprises in the 
Maldives rose from US$13.5 million in 2003 to US$15.4 million in 2008;  however, as a proportion of GDP they declined from nearly 2% to 1.2% over the same period.  The stock of such investment 
nearly doubled, from US$118 million in 2000 to US$209 million in 2007.
18  Most of the FDI is in 
tourism, telecommunica tions, and banking. 
 
                                                      
18 UNCTAD (2008).