The World Bank has reported that the surge in global commodity prices has put pressure on domestic inflation, the government’s fiscal position and balance of payments in its twice-a-year update.
However, it is reported that Maldives’ economy is continuing a good recovery due to a rebound in tourism.  The most recent South Asia Economic Focus, Coping with Shocks: Migration and the Road to Resilience, which was published today, revised its June prediction of regional growth to an average of 5.8 percent this year, a decrease of 1 percentage point. This comes after expansion of 7.8% in 2021, when most nations were recovering from the pandemic slump.
The most recent Maldives Development Update (MDU), which was also published today as a companion item, forecasts real GDP growth to reach 12.4% in 2022, which is 4.8 percentage points higher than the prediction in early 2022. This is due to the tourism industry’s quicker than anticipated recovery. In the years 2023 to 2024, the GDP is expected to expand by an average of 8.1% as tourism is anticipated to promote economic activity. 
Moreover, a generalized scheme of fuel and food subsidies is anticipated to keep recurrent spending high. As a result, it is advised to implement a better targeted subsidy scheme to lessen the total financial load.
While austerity measures might reduce some of the growth in spending, impending election-related spending might offset this. The Maldivian economy will remain vulnerable to both internal and external shocks as long as governmental spending continues, especially on ambitious large-scale projects like social housing that are mostly supported by borrowing from abroad. 
Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka, stated that cautious debt management remains a primary goal for the Maldives to maintain fiscal sustainability despite increasing GDP and fiscal prospects. The government’s proposed general GST and tourism GST rate increases are a significant start towards a fiscal adjustment, but more is needed, especially on the spending side, including reducing the fiscal burden of state-owned firms and better controlling the government’s expenditures.
Furthermore, the special focus section of the MDU, Towards Resilient and Affordable Housing, sheds attention on the problems with the government’s policies and programs for affordable housing. Maldives experiences particular institutional limitations that result in a substantial gap in the availability of affordable housing. The difficulties persist despite the Government increasing public investment over the past ten years with a combined exposure of external loans and guarantees estimated at US$1 billion. Prioritizing the Government’s subsidy support may be made easier by reviewing the targeting mechanism to concentrate on household segments with urgent housing requirements. The various income sectors of the households can be matched with various housing interventions, payment contract types, and incentives through a redesign of the rent-to-own housing programs.
In the meantime, inflation in South Asia is anticipated to reach 9.2 percent this year before gradually declining due to high global food and energy prices as well as trade restrictions that exacerbated food insecurity in the region. As a result, actual income is severely squeezed.
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Ibrahim Yaafiu
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