The Joint Staff Advisory Note report assesses that Maldives has achieved notable development progress through sound macroeconomic management, tourism development, and public service provision improvement under the Poverty Reduction Strategy Paper (PRSP). Executive Directors emphasized the need to strengthen the fiscal policy framework, develop institutions, implement structural reforms and a realistic budget to mitigating risks, and ensure macroeconomic stability. Directors welcomed the Seventh National Development Plan, the new Poverty Reduction Strategy Paper, and stressed the need for significant efforts to ensure the successful implementation of the economic development program.
International Monetary Fund. Asia and Pacific Dept
Maldives living standards have risen to middle income levels over the past two decades driven by tourism development. The country's geography-with a widely dispersed population across small far flung islands-creates fiscal challenges and the economy has faced persistent fiscal deficits over the past decade. The economy is highly exposed to climate change which further adds to fiscal costs.
This 2008 Article IV Consultation highlights that the main challenge for Maldives is to contain fiscal expenditures that have increased sharply following the tsunami. Expenditure has reached extraordinarily high levels by international and historical standards, with the majority of the increase in domestically financed expenditure unrelated to the tsunami. Executive Directors were encouraged that Maldives’ economy has rebounded strongly from the December 2004 tsunami. Directors have commended the authorities for implementing the Maldives Monetary Authority Act by appointing an independent governor.
This paper reviews the Maldives’s Use of IMF Resources and Request for Emergency Assistance. The authorities have requested a purchase of an amount equivalent to SDR 4.1 million (50 percent of quota) under the IMF’s policy on emergency assistance related to natural disasters. The authorities have requested the provision of subsidies to reduce the rate of charge on these resources. IMF staff supports these requests given the exceptional severity of the tsunami’s economic impact and the authorities’ record of sound macroeconomic management and good cooperation with the IMF.