Why Maldives to see highest growth among South Asian nations?

The World Bank has predicted 22.3% GDP growth, highest in South Asia, for the Maldives in the current fiscal year, thanks to tourism rebound in the country.

The Maldives is seeing optimistic results with recovery trends as tourists from around the world have started visiting the popular destinations there. The country's largest industry - tourism - directly and indirectly, accounts for two-thirds of its GDP.

According to the World Bank's "Shifting Gears: Digitization and Service-led Development" report, released on Thursday, visitor arrivals to the country recovered to over 60% of the pre-pandemic level by March.

However, the country's economy was also among those that were hit the hardest by the pandemic. As per the World Bank data, Maldives' GDP growth rate dipped down to a -33.6% in 2020 from the 7% growth observed in 2019. This happened because of Covid-19 pandemic ravaging the tourism industry, the key revenue generator for Maldives.

Updated poverty estimates of the World Bank based on the 2019 household survey indicate that poverty increased temporarily from 3.8% in 2019 to 14.3% in 2020 in Maldives.

After 2020, tourism rebound gained momentum in the island nation pulling up the economy. World Bank twice-yearly update on the Maldives said visitor arrivals were at 67% of 2019 levels, leading to a strong recovery in growth, revenues, and exports.

Wider vaccination coverage is a key factor behind the impressive growth of the Maldives economy.

As of the end of September, Maldives fully vaccinated more than 60% of its total population.

Data from a month before the period showed that in August, visitor arrivals reached 3.1% above the August 2019 level.

Thanks to higher collections of the tourism goods and services tax, total revenues and grants amounted to $632 million in the first half of 2021 that is 34% higher year on year and only 16% below 2019 levels, said the World Bank report.

Assuming borders remain fully open, Maldives is expected to welcome at least 1.1 million tourists in 2021, double the amount recorded last year and 65% of 2019 levels.

Meanwhile, the World Bank forecasted that the growth of Maldives' GDP will steady at 11% in 2022 and see a slight increase to 12% in 2023.

Sri Lanka, another island nation, is facing the polar opposite as per the World Bank data.

Its economy has been estimated to have the lowest growth in GDP among the South Asian countries. The prediction is 3.3% growth in 2021.

In 2020, Sri Lanka's economic growth slumped to a negative 3.6%.

A group of fishermen in Sri Lanka. Photo: Collected

World Bank suggested pre-existing macroeconomic weaknesses and the economic scarring from the Covid-19 pandemic caused the downturn.

It also predicted poverty in the country is projected to remain above pre-pandemic levels in 2021 due to the high unemployment rate.

The Sri Lankan economy showed signs of weakness already before the pandemic. Growth averaged only 3.1% between 2017 and 2019.

In addition, economic activity has been disrupted by frequent macroeconomic shocks, including a political crisis in 2018 and the Easter Sunday attacks in 2019, read the World Bank report.

Although the country vaccinated approximately 50% of its population till September 2021, Sri Lanka's economy did not reflect the progress.

The year-on-year inflation in Sri Lanka increased to 6% in August 2021 due to high food inflation and a fuel price hike in June.

The World Bank predicted the country, already in high debt, would require significant additional borrowings to close the external financing gap in 2021. It forecasted Sri Lanka's GDP growth will be down to 2.1% in 2022.

Meanwhile, the global lender projected a GDP growth of 6.4% in the current fiscal year for Bangladesh and growth for the next fiscal was forecasted at 6.9%.

Earlier in June, it had forecasted the country's growth at 5.1% for the current fiscal year.

But that figure has been revised and increased by 1.3 percentage points.

Among other South Asian countries, India is projected to see 7.5% GDP growth, Pakistan 3.4%, Bhutan 3.6% and Nepal 3.9% GDP growth in 2022.