World Bank Group

06/11/2026 | Press release | Archived content

Maldives Development Update 2026

The Maldives Development Update (MDU) has two main goals. First, it takes the pulse of the Maldivian economy by providing key developments over the past 12 months. Placing these in a global context, and based on recent developments, it analyzes the outlook over the medium term. Second, every other edition of the MDU provides a more in-depth investigation of selected economic and policy issues. It has a wide audience including policymakers, policy analysts from think tanks or non-governmental organizations, and business and financial sector professionals interested in Maldives' economic development.

Click here to download the latest Maldives Development Update (June 2026)

RECENT ECONOMIC DEVELOPMENTS

Growth picked up in 2025 but is expected to moderate sharply in 2026. Real GDP grew by an estimated 6.3 percent in 2025, driven by strong tourist arrivals and a recovery in fisheries. Tourist arrivals increased by 9.8 percent and reached an all-time high of 2.25 million in 2025, although the average duration of stay slightly declined. Fish exports recovered strongly, following sectoral disruptions in 2024.

Tourism performance weakened in early 2026 after a strong start to the year. Arrivals increased by 4.6 percent in January and 15.7 percent in February year-on-year, but declined by 20.7 percent in March and 24.4 percent in April due to disruptions linked to the conflict in the Middle East, including airspace closures and flight cancellations. As of May 13, 2026, tourist arrivals were down by 5.4 percent year-on-year.

Headline inflation accelerated in 2025. Consumer price inflation increased from 1.4 percent in 2024 to an average of 4.0 percent in 2025, driven by higher food, fish and tobacco prices. Inflation was more pronounced in the atolls, averaging 4.9 percent compared with 3.5 percent in Male. Continued subsidies on a wide range of items helped contain further price pressures, but they also added to fiscal costs.

Household welfare remains vulnerable to price shocks. The MDU estimates that a 10 percent increase in food prices would raise the poverty rate by 1.6 percentage points and vulnerability to poverty by 2.1 percentage points. Recent price shocks linked to the conflict in the Middle East are estimated to have increased poverty by 0.5 percentage points and vulnerability to poverty by 1.5 percentage points, mainly through declines in the real value of labor and non-labor income.

The fiscal deficit narrowed in 2025, but structural vulnerabilities remain. The overall fiscal deficit fell to MVR 5.1 billion, or 4.3 percent of GDP, from MVR 10.8 billion, or 9.9 percent of GDP, in 2024. Revenue increased by 12.0 percent to 33 percent of GDP, supported by tourism-related revenues and non-tax revenues. Expenditure declined by 8.3 percent, largely due to a 48.9 percent fall in capital expenditure on a cash basis. However, the report notes that this compression in cash outlays may have contributed to expenditure arrears, as commitments were not reported to have fallen by the same extent.

Public debt and external debt service pressures remain high. Total public and publicly guaranteed debt reached an estimated 129.7 percent of GDP in 2025. External debt service needs are estimated at $1.7 billion in 2026, compared with $630 million in 2025. Despite the settlement of the $500 million sovereign Sukuk and the repayment of the $400 million currency swap in April 2026, remaining external debt service needs for the year are estimated at around $1.0 billion.

The current account deficit narrowed significantly in 2025 but is expected to widen in 2026. The current account deficit is estimated to have narrowed to 7.5 percent of GDP in 2025 from 21.2 percent of GDP in 2024, supported by higher travel receipts, a recovery in fish exports and a modest decline in goods imports. However, it is projected to widen to 20.6 percent of GDP in 2026, driven by reduced tourism receipts and higher import costs due to the conflict in the Middle East.

Official reserves recovered from critically low levels but remain under pressure. Reserves increased to $1.3 billion, equivalent to 2.6 months of imports of goods and services, in March 2026 from $371.2 million in September 2024. They then declined to $717.9 million, or 1.4 months of imports, in April 2026 following the Sukuk and currency swap repayments. Foreign exchange liquidity constraints remain significant, reflected in the widening parallel exchange rate premium.

CHALLENGES

Downside risks to the outlook remain severe. A prolonged conflict in the Middle East poses the most immediate external risk, with potential to further disrupt tourism flows, strain supply chains and increase the cost of essential imports, including fuel, food and medicine. Foreign exchange constraints could also affect access to critical imports.

Maldives remains at high risk of debt distress and continues to face significant fiscal and debt sustainability risks. Limited progress has been made in government's homegrown reform agenda and delayed fiscal reforms continue to weigh on the outlook. Financing sources remain constrained, with limited access to international markets and dependency on selected bilateral financing arrangements, expensive commercial loans, and borrowing from the domestic banking sector. The high sovereign-bank nexus continues to amplify macro-financial risks. Reserves coverage remains limited and foreign exchange pressures are expected to intensify in the near term, straining macroeconomic instability.

OUTLOOK

The outlook is expected to be negatively affected by tourism disruptions, higher fuel prices and tighter financing conditions. Growth is projected to decline sharply to 0.7 percent in 2026 before rebounding to 6.7 percent in 2027 and moderating to 4.0 percent in 2028. Inflation is projected to rise to 6.0 percent in 2026 and remain above 4 percent through 2028 . The fiscal deficit is projected to widen to 10.9 percent of GDP in 2026, and to remain elevated at around 9.6 percent of GDP in 2027-28 in the absence of major fiscal consolidation. Public debt is projected to exceed 140 percent of GDP over the medium term. The current account deficit is expected to expand sharply to 20.6 percent of GDP in 2026, before easing to about 16 percent over 2027-28. High external financing needs, debt service obligations and import demand are expected to sustain pressure on the balance of payments and official reserves.

A large and sustained fiscal adjustment, combined with a realistic financing strategy, remains the most urgent policy priority. The report calls for immediate implementation of the government's homegrown reform agenda, including phasing out blanket subsidies and replacing them with targeted cash transfers, improving efficiency in the Aasandha health insurance scheme, reforming state-owned enterprises, and rationalizing capital expenditure and the Public Sector Investment Program. Continued efforts to absorb excess local currency liquidity and address foreign exchange shortages also remain essential.

PAST ISSUES

CONTACTS

Richard Walker

Senior Country Economist | [email protected]

Erdem Atas

Senior Country Economist and Resident Coordinator | [email protected]

Ruijie Cheng

Country Economist | [email protected]

Buddhi Feelixge

External Affairs Officer | [email protected]

World Bank Group published this content on June 11, 2026, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 17, 2026 at 07:59 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]