As tourism picks up again, Maldives steps up efforts to diversify its faltering economy

Dotted with island resorts and endowed with white sandy beaches and turquoise seas, the Maldives has always billed itself as a top tourist destination.

But the coronavirus pandemic brought the global travel and tourism industry to a grinding halt last year, forcing the island-nation to step up economic diversification efforts by expanding other sectors.

Tourism accounts for over 28% of gross domestic product in the small archipelago and brings in about 60% of foreign exchange receipts, according to the Michigan State University.

“As an economy heavily dependent on international tourism, the restrictions on global travel and other protective measures against the Covid-19 pandemic have had significant impact on the Maldives,” President Ibrahim Mohamed Solih told CNBC in a recent interview.

The Maldives last year closed its borders between March to July, which temporarily shut down the tourism sector that resulted in thousands of workers being laid off. Some of them lost their jobs permanently. It led to a drastic shortfall in foreign exchange receipts that the Maldives relies on to pay for imports.

“The closing of borders meant that tourist arrivals was effectively nil during that period, a first since modern day tourism began in the late 1970s,” Solih said by email.

Last year, the Maldives welcomed a little over half-a-million tourists. That’s a 67.4% plunge in tourist arrivals from 2019, which saw 1.7 million visitors come through.

Maldives reopened its borders in mid-July but tourist arrivals have yet to reach pre-pandemic levels.

Solih said he was optimistic and pointed out that by mid-December, 100,000 people had already visited the island-nation since borders reopened.

Tourists are given 30-day on-arrival visas. Quarantine is not mandatory if they complete an online health declaration form and show negative results for pre-departure polymerase chain reaction (PCR) tests, which are widely used to detect Covid.

With about 1,200 islands throughout the country, it’s possible for social distancing among tourists as each island operates like its own resort.

Still, more than 19,500 people in the country — or a little under 4% of the population — have tested positive for the coronavirus and 61 of them died, according to Johns Hopkins University data.

While the tourism sector recovers, the Maldives is also working to boost other sectors of the economy, according to Solih.

“We’re currently working on economic diversification through expanding the fisheries and agricultural sectors, establishing a decentralized network to provide public services,” he said.

The president added that the country is also working on initiatives that factor in Maldives’ nature conservation and climate action.

Tackling climate change is high on the government’s agenda as rising sea levels pose physical vulnerabilities to the island-state.

Solih said his government responded to the economic crisis through various measures including income support, loans for struggling businesses with interest-free grace period, and the delay of debt payments for individuals, households and companies.

The Maldives received temporary suspension of its debt-service payments owed to creditors through the G-20’s Debt Service Suspension Initiative until the middle of this year. It was also granted debt moratorium by other major development partners that allowed the government to redirect $24 million to its Covid response efforts, according to the president.

“We are in ongoing discussion with creditors to seek additional debt service suspensions where possible,” Solih said.

Still, fiscal deficit remains a point of concern. Ratings agency Fitch downgraded the Maldives from “B” to “CCC” in November and said it expects a sharp increase in the country’s debt burden due to the Covid shock and continued debt-funded infrastructure spending.