Country Risk Rating

A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high. - Source: Coface

Business Climate Rating

The business environment is difficult. Corporate financial information is often unavailable and when available often unreliable. Debt collection is unpredictable. The institutional framework has many troublesome weaknesses. Intercompany transactions run major risks in the difficult environments rated C.


  • Growing bilateral relations with China and Saudi Arabia
  • Growth of tourist activity on uninhabited islands
  • Airport infrastructure
  • Support from the World Bank and the Asian Development Bank (ADB)


  • Dependence on the international economy due to the scale of tourism in the national economy
  • Insularity
  • Chronic budget deficit and growing dynamic of public debt
  • Political instability
  • Vulnerability to natural disasters and the negative effects of climate change

Current Trends

Increased Growth Through Tourism and Infrastructure Projects

Economic growth, highly dependent on that of the tourism sector (24% of the GDP), should stabilize at a fairly high level in 2018. It will likely be supported by the increase in the number of visitors from European countries (largest regional market, 49%), but it will also depend on the situation in China (largest national market, 21.5%).

The tourism drive will be supported by the massive investment in dedicated infrastructure. The project for an international terminal at the country’s main airport has been awarded to a Saudi company, and accounts for almost 10% of the GDP. It will accommodate more than 7 million passengers per year compared to the current 1.5 million. The construction of a bridge linking Malé, the capital, to the airport has been financed by a loan from China, and it should be operational in mid-2018. The construction sector is therefore expecting a strong increase in activity, and more than 75% of business leaders plan to increase their workforce, which should have a positive effect on domestic consumption. Nevertheless, payment deadlines in the sector remain lengthy, which can discourage companies. The fishing sector, a major source of employment in the archipelago, remains archaic.

Inflation is expected to be very low in 2018 and is expected to return to the rate seen in previous years, fueled by quota and tax policies on imported products.

Public and Current Account Deficits Fueled by Investments

The public investment program is expected to keep the budget deficit high in 2018. Tax revenues are expected to increase in 2018, driven by tax reforms on imported products, as well as the payment of an airport tax by tourists since June 2017. Subsidies, particularly on electricity and food products, are set to be phased out, and spending by the Asandha social security system should fall.

The current account deficit is likely to remain large. The country’s lack of a manufacturing industry compels it to massively import and places a strain on the balance of trade (pertaining to goods). Imports are expected to increase with increasing demand for building materials as part of new investment. The share of commodities in imports is also expected to grow, and the extent of the current account deficit will be determined by their market prices, notably that of oil.

Exports, mainly fish, are expected to increase slightly, driven by growth in the frozen tuna trade, which in turn should offset the decline in fresh tuna trade. Tourism revenue, which enters in the balance of services, constitutes the main positive contribution to the current account balance. Thus, the archipelago has a need for significant external financing, which makes the country dependent on the support of international donors. Nevertheless, reserves have moderately increased thanks to tourism growth and large FDI flows (10% of the GDP). These two sources help reduce the pressure on the Maldivian currency, the rufiyaa, and therefore the risk of a currency crisis.

Increasingly Significant Demonstrations and Anti-Democratic Measures

Since the election in 2013 of President Abdullah Yameen, half-brother of former President Mamoon Gayoom (from 1978 to 2008), the regime has become more and more authoritarian. Many arrests have taken place, which has led to many citizens’ demonstrations, which are firmly repressed. Even the judiciary is not spared: 56 lawyers have been suspended from their activity for demanding respect for the rule of law.

The president is now able to employ the army to face the opposition. As a result, in July 2017, the military blocked access to the Majlis, the Maldivian parliament, to prevent a vote on censorship concerning an individual close to the head of state. The elections in late 2018 will be opposed by the two main political forces of the country: the Progressive Party of the outgoing president, and the Democratic Party of the Maldives, led by exiled dissident Mohamed Nasheed (who has requested political asylum in the United Kingdom after having been sentenced in the Maldives). If the electoral process is properly carried out, it seems that it would be difficult for the current president to remain in power.

With the exception of tourist islands, which Maldivians are barred from visiting, the safety situation in Malé and other islands could become worrisome in 2018 with the threat of terrorism and demonstrations of the opposition.

The business climate in the country seems to be deteriorating continuously due to, among other aspects, growing instability, corruption, and the authoritarianism of the regime. The country was demoted by more than 100 places out of 190 in the Doing Business ranking of the World Bank over ten years, falling from 31st to 135th place).


Coface (01/2018)