The Republic of Maldives was in the news as the Russian Ambassador to Sri Lanka and Maldives scolded former President Nasheed for publicly supporting a resolution in the United Nations that asked for peace in Ukraine . He reminded Nasheed it is Russian tourists and not Ukrainians who inflate the Maldives’s GDP (gross domestic product). A similar incident occurred in 2024 when Prime Minister Modi visited Lakshadweep, which was seen by three Maldivian deputy ministers as a direct challenge to the Maldives’s tourism industry. So, they made defamatory comments against PM Modi and its tourism, which led to a boycott of Maldives trending in Indian social media. Then again, the Maldives had to apologize like Nasheed did, showcasing the limitations of small island states depending on one specific sector.

The Maldives is located about 450 miles westward of Sri Lanka. The northern extent of the sea-locked Maldives is 300 miles southwest of Cape Comorin; it is separated from India’s Lakshadweep Islands by eight-degree channels, and the southernmost tip of Gan Island is 240 miles away from the US base of Diego Garcia. This explains how insular the Maldives has been, and for such remote small island states, the chief objective is survival, followed by development. The idea is that the Maldives is grouped as atolls, as there are twenty in number and grouped in thirteen divisions.

Tourism-Led Growth: Economic Gains or Dependency Trap?

The economy is primarily dependent on tourism, followed by fishing and shipping. Tourism generates almost 47.5% of the revenue for the Maldives, whereas tourism contributes to almost half of the Maldives tax and non-tax revenues. The Maldives’ primary product is sand and the sea, which are at risk due to climate change, pandemics, and geopolitical shifts. This dependence also risks putting the Maldives’ foreign policy at the mercy of the countries sending it more tourists, like China, India, and Europe, and via tourism-related investments.

Maldives has a land area of 298 square kilometers and a minuscule cultivable land area of 27 square kilometers, including 18 square kilometers of inhabited islands and 9 square kilometers of uninhabited islands.  This makes Maldives highly import-dependent, with around 61% of its GDP being dependent on imports. The Maldives dependence was tested during the COVID-19 pandemic, which showed tourism, which constitutes around 30% of the GDP and 60% of foreign reserves, can be hit badly with economic contraction. The Maldives joining China’s Belt and Road Initiative (Belt and Road Initiative) in 2014 by borrowing USD 1.4 billion from Chinese banks has already led to problems in debt sustainability for the Maldives, with 149 billion MVR of debt. Then the Maldives occupies a geopolitically important location in the central Indian Ocean, spanning critical sea lanes of communication (SLOCs) that facilitate a substantial portion of global energy and trade flows. The Maldives exclusive economic zone is around a million square kilometers, and its territorial sea is around 90,000 square kilometers. The Maldives serves as a strategic outpost for the United States of America (USA) in the broader Indo-Pacific. The Maldives’ economic resilience and democratic viability align with the USA’s goals of ensuring a free and open Indo-Pacific.

But the biggest question is why did the Maldives have this economic dependency on tourism? The answer lies in limited capacities and opportunities for the Small Island States due to limitations of geography and deficits of visions and competencies. Maldives has very little cultivable land and hardly any minerals, which creates restrictions on industrialization, as Maldives is a coral island made up of limestone. Maldives’ top occupations, as per the 2022 census, were cleaners and helpers in offices, hotels, and other establishments. Agriculture is now going on a downward graph as the Maldives continues its struggle with sandy soil with less water-holding capabilities of the soil, limited irrigation, minimal fertility, etc. of the soil.

Decline of Traditional Sectors: The Silent Collapse of Fisheries and Shipping

Maldives big revenue, nutrition, and employment generator since time immemorial was the fisheries sector, which now brings in 11-15% of Maldives GDP as export earnings. But fisheries saw a limited growth rate of 1% per annum, which is leading to a slow decline of this sector due to the lack of a union to represent the fishermen, vagaries of fish’ presence in various atolls, dependency on prices fixed by foreign companies, absentee owners extorting 50% of the produce in mechanized vessels, and wrong incentivization by the Maldivian government to land-based jobs, which sound more lucrative than the risks of fishing in the deep ocean.

Maldives had a name even in shipping, but unfortunately, this sector saw the crest and trough throughout the years as the shipping industry started in 1948 with the name of Maldives National Trading Corporation (Ceylon) and it slowly rose under Gayoom with more ships being brought in, like the 39 ships owned by MSL (Maldives Shipping Limited) by 1982. There was an increase in earnings and tonnage as a few entrepreneurs made it big, like A.U. Maniku, and former President Gayoom even introduced sixty cargo ships when trade routes were shifted from the Maldives. But later on, this sector capsized too, even in the absence of a robust strategy, prioritization, and trade routes shifting from the Maldives.

The Mirage of Upward Mobility: Inequality in the Tourism Workforce

This made the tourism sector one of the most successful sectors of the Maldivian economy, with 168 resorts employing a total resident population of 52,128, of which only 35% are Maldivians. The tourism sector, unfortunately, is also not a great opportunity in terms of upward social mobility, as the employment profile shows us that managerial positions like head chef and general manager are held by foreigners, mid-level positions are staffed by South Asians, and lower-level ones like cleaners and helpers in offices and hotels are mostly Maldivians. The nation’s economy is characterized by dualism, where a highly developed luxury tourism sector exists alongside widespread underdevelopment in other sectors, such as agriculture and fisheries.

Debt, Diplomacy, and Development: China’s Footprint in the Maldivian Economy

But this dependency on tourism is dangerous for small island states like the Maldives, as it leads to the Maldives always being in firefighting mode to ensure nothing affects their tourist arrivals. The Maldives expects a growth of 5-10%, with around 2 million people visiting the Maldives in 2024. But this growth is threatened by traditional risks of geopolitical fallouts, as in the case of India and Russia, and non-traditional risks like pandemics, when China lowered their tourists to a minuscule, and climate change and even extremism-related risks due to Maldives’ culture, as in 2015 Maldives had to wind down from flogging a minor girl for fornication at European outrage, which even forced them to hire a PR agency to improve their image.

This calls for a path for diversification and resilience for the Maldives to reduce this dangerous dependency, as the Maldives risks moving closer to China with an increasing wave of investments and tourists, as President Muizzu asked for China to regain the top position in tourist arrivals in the Maldives. Moreover, the Maldives under Muizzu plans to undertake capital-intensive projects like bunkering, transshipment, and international financial services; monorails; increasing airports from 16 to 31; underwater tunnels; bridges; 100,000 houses; etc., which is going to endanger debt sustainability.

A Path Forward: Building Resilience through Diversification

This calls for India to collaborate with like-minded partners to ensure Maldives can be shown a sustainable eco-tourism model with a focus on a blue economy resonating with the USA’s vision of a Free and Open Indo-Pacific (FOIP) and India’s vision of Security and Growth for All in the Region (SAGAR). The fisheries section needs to be strengthened by solving the structural bottlenecks, and youth need to be educated with better facilities in atolls and skill development facilities by India and US funding to launch a scheme like the PM Internship Scheme or Prime Minister’s Skill Development Scheme of India to address the skill mismatch of Maldives, as 51% of Maldivian workforce skills don’t match with their jobs. Moreover, there needs to be a sectoral investment in areas such as fisheries, renewable energy, and digital infrastructure with India’s support by having a structured policy dialogue with Maldives.

The Maldives’ economic overdependence on tourism has created a development model where their economy becomes critically vulnerable to external shocks, with 90% of tourism infrastructure within 100 meters of the coastline, along with pandemics and geopolitical shifts. It is a fact that this sector has given Maldives impressive revenues, GDP growth, and foreign exchange earnings, but it has also given Maldives limited diversification, fiscal overexposure, rising external debt, and high vulnerability. This is not a merely domestic concern, as they carry regional and strategic implications, particularly as external actors like China leverage economic instruments to gain strategic influence.

The USA needs to move away from a security-centric view of the Indo-Pacific as Maldives interconnects with broader Indo-Pacific priorities of the USA like maritime security, democratic resilience, and sustainable development. The idea is to support Male towards a more diversified, climate-resilient future through Green Climate Finance, as Maldives’ territorial integrity and economy are linked with climate change. The case for Maldives offers a disclaimer notice to big states that Small Island Developing States (SIDS) must not be left to navigate their problems alone, as a little bit of proactive engagement through trilateral or multilateral coordination with India and like-minded partners like Europe can ensure that Maldives remains both a sovereign performer and a stable pillar in the Indo-Pacific.