ECONOMIC FREEDOMS of Maldives

The Maldives’ economic freedom score is 48.3, making its economy the 154th freest in the 2010 Index. Its score has decreased by 0.7 point from last year, with modest declines in half of the 10 economic freedoms. The Maldives is ranked 34th out of 41 countries in the Asia–Pacific region, and its overall score is below the world and regional averages.

Despite the sharp downturn in 2009, the Maldives has undergone average economic growth of over 6 percent over the past five years. However, continuing measures to enhance competitiveness will be vital. The Maldives scores relatively well in business freedom and fiscal freedom. The overall regulatory environment is streamlined and transparent. With no system of direct taxation, government revenue relies on import taxes, tourism taxes, and income generated by state-owned enterprises.

The Maldives’ weaknesses include chronically high government spending, inefficiency of the outsized public sector, and widespread corruption. The government still plays a large role in the economy through state-owned enterprises, limiting and crowding out private-sector activity. Public ownership is widespread in every sector except tourism, and the public sector remains the largest source of employment, hiring over one-third of the labor force.

BACKGROUND
The Maldives held its first multi-party presidential elections in October 2008. President Mohammed Nasheed was sworn into office on November 11, 2008, succeeding Maumoon Abdul Gayoom, who had ruled the country for 30 years. The Maldives has largely recovered from the devastation caused by the 2004 Asian tsunami. Tourism is the centerpiece of the economy, contributing 30 percent of GDP in 2009. Fishing employs about 11 percent of the labor force, and manufacturing provides less than 7 percent of GDP.

BUSINESS FREEDOM

The Maldives’ regulatory framework has been streamlined and has become more conducive to entrepreneurial activity. However, impediments to sustained private-sector growth and diversification remain considerable, in large part due to other institutional deficiencies such as corruption and weak protection of property rights.

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