India and Maldives Bury The Hatchet

Tourism is the single most important source of livelihood in Maldives, directly contributing close to 30% to the GDP and generating more than 60% of foreign currency earnings. However, the Maldives Association of Tourism Industry reported in April 2024 that the tourism sector experienced a notable downturn in revenue in 2023.

The figures reveal a decline in resort revenue by US$ 529 million. In 2023, total resort revenue had already plunged to US$ 3.9 billion from 2022’s US$ 4.4 billion.

In recent times, Maldivian tourism had suffered two significant shocks: the first from COVID 19 which brought down arrivals by 67%, and the second from an unofficial Indian boycott for a few months in 2003-2024, which led to a loss of US$ 158 million in earnings. Even today, there is a shortfall of 55,000 in Indian arrivals, Ibrahim H. Sihab stated, in a report in Maldives Republic.

The unofficial Indian boycott began in January 2024, as President Mohamed Muizzu tried to oust Indian military personnel from the country and revisit agreements entered into with India by his predecessor Ibrahim Solih. Some uncharitable remarks made by three junior Maldivian Ministers against Indian Prime Minister Narendra Modi added fuel to fire.

Seeing the consequences of these for the Maldivian economy, President Muizzu mended fences with India. The Ministry of Tourism launched campaigns such as “Welcome India” and held roadshows in Indian cities. The President entered into a compromise with India on the question of the Indian military’s operating the inter-island emergency medical evacuation service by allowing the Indian military to be replaced by Indian civilians.

The three junior ministers who made insulting remarks against Modi left the council of ministers. Further, the President prevailed upon the parliamentary committee set up to go into past agreements with India to suspend its work. Muizzu also met Modi in New Delhi in June when the latter took oaths as Indian Prime Minister for the third term in succession.

Muizzu described the visit as a “success” as India buried the hatchet. To prevent the Maldivians from going back to China’s embrace, India extended much needed financial help to the Maldives as it was teetering at the edge of default due to a severe foreign exchange shortage. To avoid a default, Maldives needed to pay US$ 114 million in 2024, US$ 557 million in 2025, and US$ 1.07 billion in 2026. This was a tall order when the gross foreign currency reserves in August were only US$ 437 million, enough only for 1.5 months of imports.

Maldives received a US$ 50 million emergency loan in September. It is to get a U$ 400 million currency swap arrangement. The swap deal would effectively be an Indian bailout to help the Maldives make impending interest payments.

Meanwhile, Maldivian tourism was able to increase arrivals from China and Western Europe. President Muizzu had visited Beijing in January and sought enhanced Chinese arrivals. As a result, as of September 25, 1.47 million tourists had visited Maldives, a 10% increase from last year. On an average, 5,457 tourists arrived daily, with average stays recorded as 7.7 days per visitor.

There was an increase in Indian visitors too. It rose from 209,198 in 2023 to 214,780 in 2024 so far. But still the top market was China, which accounted for 14.6% of the arrivals while India accounted for just 6.05%.

According to the Ministry of Tourism in September 2024, there were 43, 009 beds in 175 resorts for international tourists; 1956 beds in 14 hotels; and 2968 beds in 152 Safari Vessels.

President Muizzu anticipates two million tourists this year, with an expected average annual growth rate of 10.3% in the medium term. He had announced the “Asseyri Tourism project” in Addu City, aiming to diversify and expand the tourism sector. This initiative includes the establishment of a seaplane hub in Addu City, the inauguration of 20 new resorts, and the revitalisation of non-operational resorts, according to Corporate Maldives.

The government, collaborating with various ministries and councils, is also working on completing 63 tourism development projects across different islands. Additionally, the ‘Visitor Economy Council’ has been established to broaden tourism services, with a focus on MICE tourism, education, culture, heritage, health, and environmental tourism.

In transportation, President Muizzu disclosed plans to construct two new airports and introduce advanced, secure helicopter services. The ongoing projects for building domestic airports are nearing completion, enhancing the country’s transport infrastructure. Additionally, the national airline, Maldivian, plans to acquire two new wide-body aircraft and introduce seven new international destinations, Corporate Maldives says.

The Muizzu administration has amended the ‘Regulation Governing Foreign Tourist Vessels Cruising and Harbouring in Maldivian Waters’. It stipulates that only Maldivians can serve as agents for foreign tourist vessels arriving in the country. Under the new amendment only companies with Maldivian shareholders are permitted to act as agents for foreign vessels.

India has invested around US$ 220 million in Addu. It has partnered with Maldives on the Addu Reclamation and Shore Protection Project to find a sustainable way to develop Addu as a regional hub.

The reclamation of 184 hectares of land was concluded earlier this year. This ambitious program of US$ 80 million involves reclamation for tourism development purposes as well as for the overall economic development of Addu.

Another important project is the redevelopment of the Addu roads and Drainage Development with an outlay of US$ 70 million. India constructed the Addu Detour link road.

With Indian funding, Maldives is redeveloping the Gan International Airport, a connectivity project with an outlay of US$ 29 million that will bridge the gap between Addu atoll and Maldives and the rest of the world. It will boost tourism in Gan and southern atolls. .

Maldives already has a detailed blueprint worked out during Ibrahim Solih’s Presidency – the Fifth Tourism Master Plan 2023-2027 (5TMP), done with the assistance of the Asian Development Bank (ADB).

By incorporating recommendations from the UN Sustainable Development Goals and international best practices, the 5TMP’s vision was to position Maldives as the world’s leading destination in sustainable tourism. The aim is to double income from tourism to US$ 6 billion by 2027. The 5TMP envisages a 50-60% increase in accommodation and 25 to 40% increase in international air connectivity.

The 5TMP envisages an increase in the range of tourism products taking care to include Maldivian native specialities and keeping the environment safe from degradation. Net zero emission is the aim as the Maldives is already exposed to a variety of environmental threats.

Resorts should be facilitated to use solar power instead of diesel. As of now, each room, each day, uses 46 litres of diesel, which is too much, 5TMP points out.

One of the important areas of development envisaged is the recruitment of highly motivated young people to opt to work in the tourism sector instead of going for desk jobs in Male. Motivational and training programmes have been recommended.

Maldives is keen that tourism be accessible to all classes of society so that it becomes a societal movement. Societal norms developed around tourism will greatly contribute to its development and sustainability.

Community-participation in maintaining the right environment for international tourism is a must and for this, awareness should be created and incentives given, the 5TMP states. Further, the atolls must be encouraged and facilitated to opt for organic agriculture and locals motivated to keep the atolls clean with proper sanitation. Proper water and waste management and also power management techniques must be adopted in the resorts and atolls.

Research, data analytics and a “whole of government” approach are urged to get accurate assessments, and ensure effective execution with the best results.

Tourism needs investment especially in far off atolls and for this incentives like tax concessions could be considered. But care should be taken to see that the desired results are attained and the foreign exchange earned is kept in the Maldives, 5TMP states.

Since tourism improvement and expansion needs funds, the government should issue Treasury Bills and bonds and take steps to retain foreign exchange earned by the sector, the 5TMP states.

It should also take steps to attract tourists from the non-traditional markets like Hungary, Ireland, Brazil, Saudi Arabia, UAE and of course China, which is still not measuring up to its potential. The industry and government should also devise means to attract tourists during the off season (June to September), the 5TMP states.