The more the tourist resorts in the Maldives thrive – at the same time as the domestic economy struggles under the weight of rising import costs and soaring budget deficits – the more they become a target for new taxes.
In the early 1970s, the Maldives began transforming its collection of barren-but-beautiful tropical islands into what has become a prosperous tourism industry, now turning over $2.5-3 billion a year.
It was a smart choice. What little land was available on the country’s tiny islands was sandy with poor agricultural potential, and tertiary education opportunities for Maldivians were extremely limited, particularly outside the crowded capital, Malé.
Tourism was at first driven by the Italian market and a small number of early Maldivian resort innovators. As infrastructure developed, foreign investment and the introduction of seaplanes opened the country further.
With its ‘One island, One resort’ policy, the Maldives quickly drew the attention of high-end travellers seeking privacy.
While famously expensive, the premium branding has given the Maldives an exclusivity that appeals to aspirational middleclass types in search of a relaxing and unimaginative tropical holiday. The resorts are hedonistic microcosms of Western excess, with Michelin-star dining in the ocean, ice-cold air-conditioned water bungalows in the tropical sun, booze, bacon and bikinis. As this is in one of the world’s top six most religiously restrictive countries, where the import and sale of many commodities is banned by both the Quran and the Maldivian constitution, the contradictions are officially overlooked by designating such islands as ‘uninhabited’.
As a result, most tourists are completely insulated from the reality of the country. Landing on the separate airport island of Hulhulé, they are collected at the gate and whisked off to their resort, never so much as stepping on an ‘inhabited island’. Exposure to Maldivian culture is typically limited to an evening’s entertainment of boduberu (drumming) music, or traditional mezzestyle ‘short eats’ in a corner of the buffet.
The resorts have thrived while keeping the rest of the inhabited Maldives at a cautious distance – they are, in most respects, two completely different countries. The separation is not only physical and cultural, but also economic. The resorts are responsible for 70 percent of foreign exchange receipts, and charge guests directly in US dollars. The money is funnelled to financial hubs such as Singapore, in contravention of local rules that the central bank, the Maldives Monetary Authority (MMA), has so far failed to enforce.
The local shortage of dollars is of particular concern to importers. With little agriculture or local production, the islands are dependent on imports for the most basic commodities, and importers must rely on volatile black market currency exchange to purchase goods abroad.
At least tuna fishing still earns about $50 million a year and remains the largest employer, but in the last three years has contributed only 2 percent of the country’s GDP. An 8 percent decline in catches in 2011 was attributed to global warming and increased competition from the advanced fishing fleets of other nations.
Tourism has been insulated from the global economic crisis by a dramatic growth in arrivals from China. In June 2012, the Chinese market was already three times the size of the second largest, Germany. But the troubles in the domestic economy have been compounded with a sudden surge in government expenditure after the political events of early 2012 – including promotions for a third of the police force, lump sum bonuses for the military, international PR spending and subsidies for all and sundry. The increased expenditure was accompanied by a plunge in revenue. A shortening of lease extension periods for resorts – as demanded by a few wealthy Maldivian resort tycoons – immediately took $135 million out of the 2012 budget.
Foreign aid and access to concessional credit had already all but disappeared after the Maldives graduated in January 2011 from the UN’s definition of ‘least-developed’ to ‘middle-income’, while the climate change adaption and mitigation grants that arrived were dependent on former President Mohamed Nasheed’s international profile and moral grandstanding on the topic.
Investor confidence suffered heavily amid widespread concerns over the legitimacy of the new government, while the International Monetary Fund (IMF) began urging sharp and sudden tax increases for the tourism industry to avert a crisis as the country’s budget deficit soared towards 30 percent. “This is necessary for the nation. Immediate steps have to be taken. This is the reality, we have to face it,” explained Jonathan Dunn, the IMF’s mission chief for the Maldives.
So far, the new government has been drip-fed a series of generous $25 million credit instalments from India, and President Mohamed Waheed has appealed to both Saudi Arabia and China for urgent loans and financial assistance. The latter country provided $500 million, with the promise of more to come.
Tourism authorities have steadfastly presented an optimistic face, but cracks are starting to show. President Waheed’s special advisor, Dr Hassan Saeed, recently acknowledged to local media that, after February, “lenders became reluctant to invest, while some demanded borrowers take up political insurance as high as 5 percent of the total borrowings, making whole projects financially unfeasible, and some banks completely closed their doors to us.” As time goes by, the linkage between economic and political stability seems likely to become even clearer.
