Numbers & Statistics

IMF Executive Board Concludes 2019 Article IV Consultation with Maldives

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Via IMF (Den Internationale Valutafond)

On May 29, 2019, the Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation

[1]

with Maldives.

The Maldives’ growth has been strong in recent years, driven by
tourism, commerce, and construction. Real GDP growth reached 6.9
percent in 2017 and an average of 9.1 percent in the first three
quarters of 2018 (y/y), led by strong investment in tourism, commerce,
and construction. Inflation has decelerated to 0.2 percent in early
2019 driven by a decrease in administered prices for staples in April
2018 and reinstatement of staple food subsidies.

However,
the Maldives continues to face large and growing public debt and a high
current account deficit. The 2018 fiscal deficit (including grants) is
estimated at 4.3 percent of GDP, compared to 3 percent of GDP in 2017,
and public and publicly guaranteed debt continued to increase, to over
70 percent of GDP in 2018, partly reflecting government guarantees to external borrowing by
state-owned enterprises.
The widening of the deficit reflects mainly an accelerated growth in
social welfare contributions, subsidies, health, and student loan
scheme spending. Monetary policy has been accommodative and growth of
credit to private sector has picked up. Despite strong growth in
tourism revenues, the current account deficit reached 24 percent of GDP
in 2018, reflecting higher imports associated with increased public
infrastructure investment and new resort developments.

The outlook is for continued strong growth and moderate inflation, and
only a gradual improvement in fiscal and current account deficits. Real
GDP growth is projected to reach 7.5 percent in 2018 and to remain
strong at 6.5 percent in 2019, driven by government infrastructure
investment, tourism, and construction. Inflation is forecast to
increase moderately in 2019. As major infrastructure projects will
gradually start to unwind, the current account deficit will begin to
narrow. Under the current policies, the fiscal deficit is projected to
remain elevated. However, successful implementation of tax reforms and
improved tax administration, together with measures to contain
budgetary spending, would result in a narrowing of both fiscal and
current account deficits and mitigate the risks posed by high and
rising public and external debt.

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Executive Board Assessment

[2]

Executive Directors welcomed the strong growth of the Maldives’
economy, supported by tourism, commerce, and construction and indicated
that the medium‑term growth outlook remains positive. Noting Maldives’
high and growing public and external debt, moderate foreign reserves,
and vulnerabilities to shocks, Directors called for policies to reduce
fiscal and external imbalances, build resilience to shocks, including
from natural disasters and climate change, and that foster sustained
and inclusive growth.

Directors welcomed the authorities’ commitment to fiscal consolidation
to restore fiscal and debt sustainability and reduce external
imbalances. They noted that a combination of revenue and expenditure
measures is needed to achieve a growth‑friendly fiscal consolidation.
In this context, Directors welcomed the authorities’ intention to
introduce a personal income tax and emphasized the need for
strengthened tax administration. Directors also called for keeping
current spending under control, investment spending prioritization and
continuous improvements in public financial management and budget
control. Directors also noted the potential fiscal risks associated
with external borrowing by state‑owned enterprises (SOEs) and
associated public guarantees and stressed the need for a strengthening
of debt management, including the oversight and institutional framework
of the SOE activities.

Directors indicated that a tighter monetary policy stance would ensure
compatibility with the exchange rate peg, and together with fiscal
consolidation would contribute to lower external imbalances and a
build‑up in reserves. They noted that the authorities’ decision to
establish the Sovereign Development Fund was a welcome development.
Directors encouraged increasing technical assistance to support the
Maldives Monetary Authority’s ongoing efforts to modernize monetary
policy and the foreign exchange operations framework.

Directors commended the authorities’ efforts in making growth more
inclusive and diversifying the economy, while ensuring financial
resilience. They welcomed the formation of the National Development
Strategy focusing on building resilience and creating economic
opportunities and encouraged the authorities to implement structural
reforms, such as strengthening the rule of law, property rights, and
the legal and regulatory environment, to improve the business climate
and boost competitiveness. On the financial sector, while noting strong
capital positions and profitability of banks, they encouraged the
authorities to address supervisory data gaps and enhance financial
inclusion.

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Directors also welcomed the authorities’ commitment to strengthening
governance and transparency. They noted that further improvement is
needed to strengthen AML/CFT compliance and to improve the
anti‑corruption framework.


Table 1. Maldives: Selected Economic Indicators,
2016–2023

2016

2017

2018

2019

2020

2021

2022

2023

Proj.

Output and prices

(Annual percentage change)

Real GDP

7.3

6.9

7.5

6.5

6.0

5.5

5.5

5.5

Inflation (end-of-period) 1/

1.8

2.2

0.5

2.1

2.4

2.5

2.6

2.6

Inflation (period average) 1/

0.8

2.3

1.4

1.5

2.3

2.5

2.5

2.5

GDP deflator

0.1

3.2

2.0

2.0

2.4

2.5

2.5

2.5

Central government finances

(In percent of GDP)

Revenue and grants

27.3

27.1

26.5

26.0

26.0

25.8

25.8

25.8

Expenditure and net lending

36.6

30.1

30.8

31.0

31.5

31.0

30.7

30.4

Overall balance

-9.3

-3.0

-4.3

-4.9

-5.5

-5.2

-4.9

-4.6

Overall balance excl. grants

-9.6

-3.3

-4.8

-5.6

-6.1

-5.7

-5.5

-5.0

Financing

9.3

3.0

4.3

4.9

5.5

5.2

4.9

4.6

Foreign

5.9

4.1

3.9

2.4

2.4

1.5

-1.9

-0.1

Primary balance

-7.4

-1.5

-2.6

-3.0

-3.2

-2.6

-2.2

-1.8

Public and publicly guaranteed debt

59.4

61.6

71.4

76.8

80.7

83.1

81.5

81.4

Monetary accounts

(Annual percentage change)

Broad money

-0.2

5.2

3.4

8.6

8.6

8.1

8.1

8.0

Domestic credit

19.7

1.7

5.2

4.4

6.0

5.8

5.9

5.9

Balance of payments

(In percent of GDP, unless
otherwise indicated)

Current account

-23.2

-21.9

-23.9

-19.5

-15.1

-13.4

-11.4

-9.8

Of which:

Exports

5.8

6.6

5.9

5.7

5.9

6.1

6.1

5.7

Imports

-47.6

-45.8

-48.2

-43.4

-40.8

-39.7

-38.7

-35.8

Tourism receipts (in nonfactor
services, net)

56.9

56.4

54.9

58.1

59.2

60.6

62.0

57.4

Income (net)

-7.8

-8.1

-7.7

-9.8

-9.6

-9.3

-8.7

-8.0

Current transfers

-14.3

-9.2

-9.5

-9.2

-9.0

-8.8

-8.7

-8.0

Capital and financial account
(including e&o)

21.0

24.4

27.1

16.4

15.6

15.1

11.1

10.3

Of which:

General government, net

5.9

3.7

9.8

3.6

2.4

1.5

-1.9

-1.8

Banks and other sectors, net

-0.1

3.5

0.7

2.8

1.7

1.8

1.7

1.5

Overall balance

-2.2

2.5

3.2

-3.1

0.5

1.7

-0.3

-0.2

Gross international reserves (in
millions of US$; e.o.p.)

467

586

754

576

609

725

706

913

In months of GNFS imports

1.8

2.0

2.4

1.8

1.9

2.1

1.9

2.4

Memorandum items:

GDP (in millions of rufiyaa)

67,837

74,866

82,101

89,158

96,817

104,706

113,236

122,310

GDP (in millions of U.S. dollars)

4,402

4,858

5,328

5,789

6,283

6,795

7,348

7,937

Tourism bednights (000′)

7,771

8,596

9,472

10,230

11,048

11,932

12,887

13,917

Tourist arrivals (000′)

1,286

1,386

1,553

1,677

1,811

1,956

2,113

2,282

Tourism bednights (% change)

6.1

10.6

10.2

8.0

8.0

8.0

8.0

8.0

Tourist arrivals (% change)

4.2

7.8

12.0

8.0

8.0

8.0

8.0

8.0

Dollarization ratio (FC deposits in
percent of broad money)

48.5

48.7

48.8

Sources: Maldivian authorities and
IMF staff projections.

1/ CPI-Male definition.


[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.

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