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Dotted with island resorts and blessed with white sandy beaches and turquoise seas, the Maldives has always presented itself as a leading tourist destination.

But the coronavirus pandemic crippled the global travel and tourism industry last year, forcing the island nation to step up efforts at economic diversification by expanding other sectors.

Tourism represents more than 28% of the gross domestic product of the small archipelago and brings about 60% of foreign exchange earnings, according to Michigan State University.

“As an economy heavily dependent on international tourism, restrictions on global travel and other protective measures against the Covid-19 pandemic have had a significant impact on the Maldives,” President Ibrahim Mohamed said Solih to CNBC in a recent interview.

The closure of the borders meant that tourist arrivals were effectively nil during this period, a first since the start of modern tourism in the late 1970s.

Ibrahim Mohamed Solih

President, Maldives

Last year, the Maldives closed its borders between March and July, which temporarily shut down the tourism sector, leading to the layoff of thousands of workers. Some of them have lost their jobs for good. This has resulted in a drastic drop in the foreign exchange earnings that the Maldives rely on to pay for their imports.

“The border closures meant that tourist arrivals were actually zero during this period, a first since modern tourism began in the late 1970s,” Solih said via email.

Last year, the Maldives welcomed just over half a million tourists. This is a drop of 67.4% in tourist arrivals from 2019, which saw 1.7 million visitors pass.

Diversification

The Maldives reopened its borders in mid-July, but tourist arrivals have yet to reach pre-pandemic levels.

Solih said he was optimistic and pointed out that by mid-December 100,000 people had already visited the island nation since the borders reopened.

Tourists are issued a 30-day visa upon arrival. Quarantine is not mandatory if they complete an online health declaration form and show negative results for pre-departure polymerase chain reaction (PCR) tests, which are widely used to detect Covid.

With around 1,200 islands across the country, it is possible to socialize with tourists as each island functions as its own resort.

We are currently working on economic diversification by developing the fisheries and agriculture sectors, establishing a decentralized network to provide public services.

Ibrahim Mohamed Solih

President, Maldives

Yet more than 19,500 people in the country – just under 4% of the population – have tested positive for the coronavirus and 61 of them have died, according to data from Johns Hopkins University.

As the tourism sector recovers, the Maldives is also working to boost other sectors of the economy, according to Solih.

“We are currently working on economic diversification by developing the fisheries and agriculture sectors, establishing a decentralized network to provide public services,” he said.

The president added that the country is also working on initiatives that take into account the nature conservation and climate action of the Maldives.

Combating climate change is one of the government’s priorities, as rising sea levels constitute a physical vulnerability for the island state.

Economic measures

Solih said his government responded to the economic crisis with a variety of measures, including income support, loans to troubled businesses with an interest-free grace period, and delayed debt payments for individuals, households and businesses.

The Maldives benefited from a temporary suspension of debt service payments owed to creditors under the G-20 Debt Service Suspension Initiative until mid-year. It has also been granted a debt moratorium by other major development partners, which has allowed the government to redirect $ 24 million towards its Covid response efforts, according to the president.

“We are in discussions with creditors to request additional debt service suspensions where possible,” Solih said.

Yet the budget deficit remains a matter of concern. Rating agency Fitch downgraded Maldives from “B” to “CCC” in November and said it expects the country’s debt burden to rise sharply due to the Covid shock and the lawsuit debt-financed infrastructure spending.