ADB Warns of Sharp Economic Slowdown in Maldives as Middle East Conflict Hits Tourism and Public Finances

ADB forecasts economic growth to plunge to 1.0% in 2026, a sharp decline from 5.4% in 2025, before recovering modestly to 3.0% in 2027 as tourism stabilises and global oil prices ease.

The Maldives is set to face a significant economic slowdown in 2026, as global uncertainties—particularly the ongoing conflict in the Middle East—begin to weigh heavily on tourism, energy costs, and the country’s already fragile fiscal position, according to the Asian Development Bank’s (ADB) Asian Development Outlook (ADO) April 2026.

ADB forecasts economic growth to plunge to 1.0% in 2026, a sharp decline from 5.4% in 2025, before recovering modestly to 3.0% in 2027 as tourism stabilises and global oil prices ease.

Tourism Slowdown at the Heart of Economic Weakness

Tourism, the backbone of the Maldivian economy, remains the key driver behind the outlook. While tourist arrivals grew by 10% in 2025, supported by the opening of the new Malé airport terminal, early signs of strain are emerging.

Visitors are staying for shorter durations, limiting overall tourism revenue despite higher arrival numbers. In 2026, arrivals are expected to continue growing—but at a slower pace, reflecting the impact of geopolitical tensions and global uncertainty.

The Middle East conflict, in particular, poses a significant risk, given its potential to:

• Disrupt global travel demand

• Increase fuel costs, raising travel and operational expenses

• Affect key tourist markets and airline connectivity

ADB notes that the tourism outlook remains highly uncertain, with risks tilted to the downside.

Rising Inflation Driven by Import Costs

Inflation is projected to increase to 5.0% in 2026, driven primarily by:

• Higher global oil prices

• Increased import costs for goods and services

• Rising transportation and energy expenses

As a heavily import-dependent economy, the Maldives is especially vulnerable to external price shocks, which are expected to feed into domestic inflation and reduce purchasing power.

Fiscal Pressures Intensify Despite Debt Repayment

The country recently achieved a major financial milestone by repaying its sovereign sukuk on 2 April 2026, easing immediate debt obligations. However, underlying fiscal challenges remain significant.

“Maldives successfully repaid its sukuk, but challenges remain,” said ADB Senior Economist Jules Hugot. “Lower tourism revenue and higher fuel prices are increasing pressure on the government budget, making fiscal reforms more urgent.”

Key fiscal concerns include:

• Public debt nearing 130% of GDP, even after repayment

• Rising recurrent expenditure, despite cuts in capital spending

• Increased costs of energy subsidies due to higher oil prices

• Declining tax revenues linked to weaker tourism performance

These pressures are further compounded by limited access to external financing.

External Buffers Remain Critically Thin

Although the current account deficit narrowed in 2025—thanks to improved tourism receipts and reduced imports—external vulnerabilities persist.

Foreign exchange reserves saw a temporary boost from:

• Stronger travel-related inflows

• Tighter foreign exchange regulations

However, following the sukuk repayment, reserve levels have declined, leaving the country with limited capacity to absorb external shocks, particularly those stemming from global energy markets and geopolitical tensions.

Delicate Recovery Hinges on Tourism and Oil Prices

ADB expects a gradual recovery in 2027, with growth rising to 3.0%, contingent on:

• A rebound in global tourism demand

• Stabilisation of oil prices

• Continued fiscal consolidation efforts

However, the pace of recovery will depend heavily on external conditions beyond the country’s control.

Urgent Need for Fiscal Reforms and Economic Resilience

The report underscores the urgency of implementing structural fiscal reforms to stabilise public finances and reduce vulnerability to external shocks.

Priority areas include:

• Strengthening revenue collection

• Rationalising public spending, particularly subsidies

• Enhancing debt sustainability

• Building foreign exchange reserves

• Diversifying the economy beyond tourism

Without these reforms, the Maldives risks prolonged fiscal stress and reduced economic resilience.

High Risks Cloud Outlook

The economic outlook remains highly exposed to global developments, particularly:

• Escalation of the Middle East conflict

• Sustained high oil prices

• Slower-than-expected recovery in tourism

As a small, open, and tourism-dependent economy, the Maldives faces a challenging path ahead—balancing short-term shocks with the need for long-term structural stability.