Economy

Maldives Struggle with Its Tourism Dependent Economy

Tourism has always been a booming sector across the globe. No matter where you live, there will always be a group of people, big or small, who want to visit different countries and explore the beauty of various places. Tourism contributes to three high-priority goals of developing countries, i.e. the generation of income, employment, and foreign-exchange earnings. It helps the country with the invasion of money into a country’s economy, which is then spent on local tour operators, vendors, hotels, food, and transport, serving local businesses etc. It employs the local people that spread from the pilots who fly the tourists into dishwashers at restaurants who see a rise in customers at the height of the tourist season. It expands to local heritage sites and buildings that, in turn, keep the sites from being destroyed, securing the local community’s traditions in the process.

But the COVID-19 pandemic has dramatically impacted the tourism industry. It impacted the economies, livelihoods, public services and opportunities on all continents. All parts of its vast value chain, including the airlines, transportation, cruise lines, hotels, restaurants, attractions such as national parks and heritage sites, travel agencies, tour operators and online travel organisations, have been affected. In these circumstances, it is very inquisitive to know the situation of the Maldives, which highly relies on tourism for its income.

Role of Tourism in Maldives Economy

The Maldives is a group of islands scattered across the Indian Ocean. They are blessed for their beauty and the richness of the sea; in fact, 99% of its territory consists of water. As its islands are in the Indian ocean, people have a misconception that it belongs to India, but no, it is not. The Maldives is an independent country with 1192 islands, naturally divided into 26 chains of islands, very distinct from India. The economy is based on tourism, fishing, boatbuilding, and boat repairing. But tourism and fisheries sectors are the driving factors of the country’s economic growth. Agriculture is practised only on a limited scale, as the land is not very fertile. The essentials and consumer goods are not manufactured because of the lack of resources. Thus we could say the country is very much dependent on the neighbouring countries to satisfy its requirements through imports. Though the Maldives has traditionally relied on fishing, it also had developed a modest merchant fleet in the region called Maldives Shipping Limited (MSL). However, today shipping is a minor actor, but tourism and fishing are the main factors of its economic growth, where 70 per cent of its foreign exchange earnings and one-third of government revenue is linked to tourism.

Tourism in the Maldives began in the 1970s and has now evolved and matured into an industry, turning into a vital player in the domestic economy. The spectacular beauty of these coral islands made the Maldives one of the most popular holiday destinations in the world. So many people plan their holidays here to experience its various watersports, sunset fishing, dolphin watching, snorkelling trips, island hopping, shopping trips etc. It was recorded about 1.7 million tourist arrivals in 2019. This is the first time in the country’s history that such a large number of tourists visited the archipelago in one year. It is a 14.7% increment compared to the number of tourists who visited the Maldives in 2018. A significant increase in tourist arrivals from India was also recorded in 2019. The government achieved more than its goal of hosting a target of 1.5 million tourists in 2019. It was on the upward slope towards growth.

The Effect of Pandemic on Maldives Tourism Industry

On 12 March 2020, the Maldives government declared a public health emergency in response to the spread of the coronavirus pandemic in the islands. A nationwide shutdown of all guesthouses and city hotels was acknowledged. The country closed its borders, and there were no new tourist arrivals in the second quarter of 2020. As tourism is the single most significant growth driver, Maldives is among the worst-hit countries due to the COVID-19 pandemic because of its falling tourist arrivals by 55.6% in the first quarter of 2020. The GDP fell from 6.9% to -27.1% in 2020, with tourism fell from 15.1% to -50.2% in 2020. Besides affecting the country’s economy, a slump in the tourism sector has already started hitting hard a large number of people employed in this sector. It was indicated that 16% of employees were terminated while 84% were retained with reduced pay. Even with employees who were reserved up to June 2020, there is a potential risk of losing their jobs if resorts delay their reopening plans and choose minimal operations, given the slow recovery. This has a major impact on the income of households and families.
The decline in tourism is negatively affecting all other major sectors of the economy, such as transport and communications, construction and wholesale and retail trade. Thus, to reduce the economic impact of COVID-19 on the country’s economy, the government announced measures such as the injection of a stimulus package worth $23.3 million into the Maldivian economy, modification of the Bank of Maldives loan repayment structure, putting a moratorium of six months on all loan repayments and extension of repayment terms amongst several other waivers, apart from providing financial assistance to businesses through loan schemes. They announced a moratorium of six months on repayment of housing loans under the Housing Development Finance Corporation.

How the Government Is Fighting to Rebound

To assist the country deal with the economic challenges of the crisis, the World Bank has made available a further $10 million in emergency funds. Many neighbouring countries also extended financial help to the country, where even India had extended a USD 250 million loan to the Maldives government, in which the State Bank of India will subscribe to a Treasury Bond issued by the Government of Maldives with a 10-year tenor as the Maldives has been utilising all loans and assistance from other countries and international organisations to revive its economy. Due to the flow of loans, the Maldives was under total debt of over US$3.36 billion. In such a situation, the government has to make a direct intervention. It has to encourage the market by spending on construction and other sectors and providing tax-related and other relaxations to hotels and resorts so that they do not fire their employees and spend substantially on welfare measures such as giving unemployment benefits.

To revive their economy, the government took the risk of opening the borders and allow travelling from 15th July 2020. But still, the figures remain relatively low for the most part its borders, and a total of 27,217 tourists visited the country. With weak global demand and ongoing local transmission of the COVID-19 in the country, recovery is likely to be expected to slow. Nevertheless, it is good to see some visitors, as the Maldives has become in the minds of tourists a safe shelter away from the virus, a soothing place to forget the general anxiety, and indeed a sunny side of life to warm the heart and soul of distressed people. With the industry’s confidence being built continuously, there are now 143 resorts, 134 safari boats, and 318 guesthouses operational. Most importantly, when airports worldwide are going through such a dull period, as many as 27 airlines are operating their international routes to the Maldives. However, in the year 2021, especially in the month of April- May, numbers of cases suddenly saw a continuing rise from neighbouring countries. By seeing the risk, the country banned travelers from across South Asia. These restrictions apply to travelers originating from Afghanistan, Bangladesh, Bhutan, India, Nepal, Pakistan and Sri Lanka. Travelers from other countries are still permitted to travel to the Maldives with a negative coronavirus test but cannot contact the local population.

Thus, it could be inferred that it will take a long time for Maldives to get back its growth in the tourism industry. Until then, tourism and the related industries must adjust to the current norms of social distancing and reduced gatherings, which will indirectly reduce pollution, overfishing and habitat destruction – the activities that contributed to climate crisis and impacted its marine biodiversity. The pandemic also gives the nation an opportunity to develop a sustainable blue economy where environmental protection and economic activities go hand in hand. It must switch to renewable energy and transform its current business models from tourism to other small scale businesses. Although there are plans to develop agriculture and fishing to diversify the economy, the scarcity of arable land is a binding constraint.

Thus, the Maldives government must invest in human capital by retraining and upskilling workers to build new industries and services, and employ the unemployed. The government should also focus on innovative technologies like wave-tidal energy, algae production for bio-diesel productivity, advanced fishing gear and reestablish marine ecosystems to create new green jobs and businesses.

– Aishwarya Soman (Student of MA in Applied Economics at Christ University)

Picture Credits: trtworld.com / AP



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