January 10, 2008 (LBO) — The World Bank warned Maldives, South Asia’s richest economy, that recent economic gains could unravel, if the atoll nation failed to tackle political instability and curb its budget deficit. “Constitutional changes, pressures for unsustainable fiscal deficits, and vulnerability to economic shocks could offset or potentially roll back some development gains,” Washington-based lender said announcing a new 45 million dollar five-year country assistance plan Wednesday.
Tourism and tuna, which accounts over two thirds of the economy of just under a billion dollars, has helped the Maldives move up to a middle-income nation enjoying the region’s highest per capita income of 2,674 dollars.
But President Maumoon Abdul Gayoom’s government has been on a spending spree ahead of a multi-party presidential poll in August, leading to a growing fiscal deficit.
The budget deficit, which was just 1.9 percent of the economy in 2004, has expanded to 7.3 percent in 2006 and is set balloon to 23.9 percent in 2007, according to the International Monetary Fund (IMF).
“External debt has risen from 43 percent of GDP in 2004 to about 65 percent in 2006, and it is expected to hit 80 perc