2020 Index of Economic Freedom

Maldives

OVERALL SCORE56.5
WORLD RANK119
Rule of Law

Property Rights48.5

Judicial Effectiveness31.7

Government Integrity39.2

Government Size

Tax Burden95.8

Government Spending67.9

Fiscal Health42.9

Regulatory Efficiency

Business Freedom78.7

Labor Freedom70.6

Monetary Freedom77.0

Open Markets

Trade Freedom61.0

Investment Freedom35.0

Financial Freedom30.0

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Quick Facts
  • Population:
    • 0.4 million
  • GDP (PPP):
    • $8.0 billion
    • 7.0% growth
    • 6.3% 5-year compound annual growth
    • $21,760 per capita
  • Unemployment:
    • 6.1%
  • Inflation (CPI):
    • 1.5%
  • FDI Inflow:
    • $551.8 million

The Maldives’ economic freedom score is 56.5, making its economy the 119th freest in the 2020 Index. Its overall score has increased by 3.3 points due to a large increase in the fiscal health score. The Maldives is ranked 27th among 42 countries in the Asia–Pacific region, and its overall score is well below the regional and world averages.

The economy of the Maldives has been mostly unfree for the past seven years. GDP growth, on the other hand, has been robust because of strong tourism receipts.

To enhance economic freedom, the government must confront weakness across many Index indicators including inadequate rule of law (property rights, judicial effectiveness, and government integrity); still-poor fiscal health; and a general lack of investment freedom and financial freedom. Improvement in these areas would help the government to deliver on its promises to reduce debt, tackle corruption and human rights abuses, and reform the judiciary.

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Background

The Muslim-majority Maldives archipelago lies southwest of India in the Arabian Sea. Ibrahim Mohamed Solih handily defeated incumbent President Abdulla Yameen in the 2018 elections with a surprising 58 percent of the vote. Solih’s Maldivian Democratic Party also won the most seats during the April 2019 parliamentary elections. In 2015, Yameen’s government sentenced Solih’s close friend, former President Mohamed Nasheed, to a long prison term on dubious charges. Political tensions increased when Yameen took actions that appeared to weaken democratic institutions, curtail civil liberties, and tilt the country away from India and toward China, from which he borrowed heavily. Driven by the rapid growth of its tourism and fisheries sectors, the Maldives has rapidly become a middle-income country.

Rule of LawView Methodology

Property Rights 48.5 Create a Graph using this measurement

Judicial Effectiveness 31.7 Create a Graph using this measurement

Government Integrity 39.2 Create a Graph using this measurement

Secured interests in property are recognized and enforced, but overall property rights are generally weak, with most land owned by the government and then leased to private owners or developers. Judicial independence is seriously compromised. Many judges are unqualified, and the courts are widely viewed as vulnerable to corruption or political influence. Corruption pervades the government, and a quarter of all judges have criminal records.

Government SizeView Methodology

The Maldives’ government levies no personal income or corporate tax. Bank profits are subject to a profits tax. The overall tax burden equals 20.5 percent of total domestic income, with significant revenue coming from import tariffs. Government spending has amounted to 32.7 percent of the country’s output (GDP) over the past three years, and budget deficits have averaged 5.6 percent of GDP. Public debt is equivalent to 61.5 percent of GDP.

Regulatory EfficiencyView Methodology

Strengthening the relatively weak legal and regulatory environment would improve the business climate. The recently passed Special Economic Zones Act includes numerous tax incentives for developers and investors in the zones. The labor market is highly dependent on the tourism sector. Higher government subsidies have decreased prices to consumers for food and electricity.

Open MarketsView Methodology

The total value of exports and imports of goods and services equals 139.9 percent of GDP. The average applied tariff rate is 12.0 percent, and nontariff barriers further increase the cost of trade. Bureaucracy in the investment approval process hampers the investment regime. Banking has expanded, but high costs and limited access to financial services contribute to the overall shallowness of the financial sector.

Country's Score Over Time

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Regional Ranking

RANK COUNTRY OVERALL CHANGE
1Singapore89.40.0
2Hong Kong89.1-1.1
3New Zealand84.1-0.3
4Australia82.61.7
5Taiwan77.1-0.2
6Malaysia 74.70.7
7South Korea741.7
8Japan73.31.2
9Macau70.3-0.7
10Kazakhstan69.64.2
11Thailand 69.41.1
12Indonesia67.21.4
13Brunei Darussalam66.61.5
14Philippines64.50.7
15Fiji63.41.2
16Kyrgyz Republic 62.90.6
17Bhutan62.1-0.8
18Samoa62.1-0.1
19Vanuatu60.74.3
20China59.51.1
21Vietnam58.83.5
22Tonga58.81.1
23Papua New Guinea58.40.0
24Sri Lanka57.41.0
25Cambodia57.3-0.5
26Uzbekistan57.23.9
27Maldives56.53.3
28India56.51.3
29Bangladesh 56.40.8
30Mongolia55.90.5
31Laos55.5-1.9
32Pakistan 54.8-0.2
33Afghanistan54.73.2
34Nepal54.20.4
35Burma540.4
36Solomon Islands52.9-1.7
37Tajikistan52.2-3.4
38Micronesia520.1
39Turkmenistan46.5-1.9
40Timor-Leste45.91.7
41Kiribati45.2-2.1
42North Korea4.2-1.7
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