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Asia and Pacific > Maldives

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Cover IMF Staff Country Reports
Maldives: Financial System Stability Assessment; and Press Release
International Monetary Fund. Monetary and Capital Markets Department
This paper presents financial system stability assessment (FSSA) report for Maldives. Maldives is a tourism dependent economy with a small financial sector dominated by state-owned banks. Systemic risks stem largely from a growing sovereign-bank nexus, high dollarization, and a shortage of foreign exchange. The Financial Sector Assessment Program concluded that further strengthening of financial sector policies is needed to improve the resilience of the financial system. The authorities should adopt regulation to address frictions in the foreign exchange market, resume liquidity management operations and develop systemic risk indicators. Priority should also be given to establishing a macroprudential framework along with instruments, publishing a financial stability report, and ensuring full reporting of non-bank payment obligations. The financial safety net and crisis management arrangements should be enhanced by improving early intervention mechanisms, introducing recovery and resolution planning, and enhancing the deposit insurance system. In addition, an effective liquidity assistance framework should be established.
Keywords:
World Bank FSAP mission; risk analysis; IMF FSAP stress test result; MMA central government debt holding; FSAP finding; bank capitalization; Financial Sector Assessment Program; Stress testing; Financial sector stability; Global; Asia and Pacific
Cover IMF Staff Country Reports
Maldives: 2022 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
The 2022 Article IV Consultation discusses that Maldives’ economic activity rebounded strongly from the pandemic-induced contraction, supported by the authorities’ decisive policy measures. Fiscal and external vulnerabilities remain elevated due to rising subsidies, high capital spending, and an increased interest burden. The Maldives has a high risk of external debt distress and a high overall risk of debt distress. Inflation has risen but is relatively contained due to price subsidies. Risks to the outlook are tilted to the downside, including a possible sharp slowdown in key source markets for tourism, high commodity prices, and tighter global financial conditions. A resumption of tourist arrivals from China is an upside risk to growth. The ongoing economic recovery provides an opportunity to swiftly implement a comprehensive set of reforms to reduce fiscal, debt, and external vulnerabilities, and strengthen economic resilience. The report recommends that financial sector policies should remain vigilant to safeguard financial stability considering the large exposure of the banking sector to the sovereign and the expiration of pandemic-related lending support schemes.
Keywords:
parliament approval; MMA authorities; staff appraisal; market in the Maldives; SARTTAC mission; government policy; Government debt management; Capital spending; Global
Cover IMF Staff Country Reports
Maldives: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
The 2021 Article IV Consultation highlights that the Maldives is recovering after the historical 2020 fall in tourism, aided by a rapid coronavirus disease 2019-vaccination program rollout. While the prompt and comprehensive policy approach in early 2020 was effective, a more prolonged pandemic and ambitious infrastructure projects are further weakening large pre-pandemic fiscal and external vulnerabilities. The strong (but still partial) recovery in tourism since 2020Q4 has improved the outlook, but fiscal and external positions are projected to remain weak over the medium term, underpinned by current capital expenditure plans. The Maldives has both a high risk of external debt distress and high overall risk of debt distress. The team agreed that a tighter monetary policy stance might be needed to ensure compatibility with the exchange rate peg, lower external imbalances and build-up reserves. They supported the Maldives Monetary Authority’s ongoing efforts to modernize monetary policy and the foreign exchange operations framework, including those aimed at eliminating exchange rate restrictions and multiple currency practices.
Keywords:
positivity rate; program rollout; MMA authorities; staff projection; staff supplement; Maldivian authorities; MMA advance; COVID-19; Capital spending; South Asia; Global; Asia and Pacific
Cover IMF Staff Country Reports
Maldives: 2002 Article IV Consultation-Public Information Notice; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
This 2002 Article IV Consultation with Maldives discusses that the performance of the Maldivian economy was strong through most of the past decade, despite handicaps arising from its small size and vulnerability to external developments. The devaluation and the weaker dollar have brought the effective real exchange rate closer to that of main competitors. Reserves have clawed back some of the losses in the aftermath of the devaluation. The 2002 Article IV discussions presented the opportunity to reassess progress toward restoring the soundness of macroeconomic and structural policies. In order to ensure a favorable medium-term performance for the Maldives, policies need to support the fixed exchange rate and adapt to ongoing structural changes—notably, the progressive liberalization of the financial sector, further private sector participation in activities still dominated by state-owned enterprises, and the likely tapering off of external assistance. The authorities have made some progress in responding to key policy challenges. Recent consultations have stressed the need for a stronger fiscal position and independent monetary management.
Keywords:
ISCR; CR; authority; financing; deficit; central bank financing; staffs appraisal; percentage points of GDP; government activity; Maldivian authorities; capital revenue; automatic resort; Exports; Global; Asia and Pacific
Cover IMF Staff Country Reports
Maldives: 2012 Article IV Consultation-Public Information Notice; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
This 2012 Article IV Consultation with Maldives discusses that fiscal position is weak, and its external reserves are critically low. The country has a long history of fiscal and external imbalances. Macroeconomic policies need adjustment. The authorities have taken important steps in the 2013 budget to reduce the fiscal deficit, but further consolidation is needed, both to ensure debt sustainability and to strengthen the balance of payments. That latter goal would be aided by devaluation, combined with a restrictive incomes and subsidy policy, which would address the current overvaluation of the rufiyaa and help to curb imports. Monetary tightening would help to prevent the need for a further devaluation. Financial supervision, particularly with regard to the state bank, also needs strengthening. Given the track record, a Staff Monitored Program could be the appropriate starting point for any renewed engagement, however, in order to begin discussions, there would need to be a clear commitment on the authorities’ part to implementing a comprehensive set of policy adjustments.
Keywords:
ISCR; CR; deficit; Maldives economy; dollar; devaluation; exchange rate; MMA liability; targeted social assistance scheme; wage growth; financing climate; Imports; Tourism; Global; East Asia; South Asia; Europe
Cover IMF Staff Country Reports
Maldives: 2007 Article IV Consultation-Public Information Notice; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
This 2005 Article IV Consultation with Maldives discusses that Maldives has rebounded strongly from the tsunami of late 2004. Gross domestic product has grown rapidly, underpinned by a robust increase in tourist arrivals, and by construction activity pertaining to the development of new resorts. Inflation remains low although it is on a rising trend. The exchange rate peg continues to serve the country well. The main challenge for Maldives is to ensure that favorable growth prospects are not undermined by fiscal excesses and consequent macroeconomic instability. The IMF staff urged the authorities to prioritize expenditures in line with more realistic revenue estimates, so as to achieve the stated objective of zero domestic financing of the budget. There has been a recent increase in debt ratios due to construction of new resorts and the government’s ambitious infrastructure program. The new central bank act has separated the positions of finance minister and governor of the central bank and reorganized the governing body of the central bank. Going forward it will be important to entrench central bank independence.
Keywords:
ISCR; CR; government; deficit; staff assessment; fiscal policy; debt service; Maldivian authorities; Maldives economy; dollar peg; Tourism; South Asia; Global
Cover IMF Staff Country Reports
Maldives: 2001 Article IV Consultation-Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
This 2001 Article IV Consultation with Maldives highlights that the economic challenges faced by Maldives are strongly influenced by geography and environment. The government’s overarching development strategy consists of creating new growth centers in the north and the south of the country and massive land reclamation in the vicinity of Male. Notwithstanding a slowdown in growth in 2000, Maldives’ economy has prospered with the rapid expansion of tourism and the modernization of the fisheries. At the conclusion of the last Article IV consultation on November 9, 2000, Executive Directors praised Maldives’ overall performance, however, warned of emerging imbalances. Fiscal slippage, compounded by adverse external developments, has been the main cause of recent imbalances in the Maldivian economy, manifested in rapid monetary expansion and sustained pressure on the exchange rate. The report shows that monetary developments have been dominated by central bank financing of fiscal deficits and excess demand for foreign exchange. The IMF staff team concluded that an adjustment of the exchange rate was not warranted until other options had been explored more fully.
Keywords:
ISCR; CR; exchange rate; right; devaluation; exchange rate policy; U.S. dollar; tuna market; rufiyaa devaluation; monetary management system; Currency markets; Exchange rates; Real effective exchange rates; South Asia; Europe; Global
Cover IMF Staff Country Reports
Maldives: 2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
International Monetary Fund. Asia and Pacific Dept
This 2019 Article IV Consultation discusses that growth in Maldives has been strong and is projected to remain so in 2019 driven by tourism, commerce, and construction. Nonetheless, the Maldives remains highly vulnerable with reduced policy space due to large and growing public debt and rising pressures on external stability. The consultation focused on addressing external imbalances including offering advice on restoring fiscal buffers, strengthening public finance management, reforming the exchange rate regime, building international reserves, improving governance, implementing structural reforms, and encouraging diversification. The outlook is for continued strong growth and moderate inflation, and only a gradual improvement in fiscal and current account deficits. 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.
Keywords:
ISCR; CR; GDP; deficit; debt; IMF staff projection; SDF balance; government infrastructure investment; growth outlook; government's policy; financing pressure; Tourism; Global; IMF's transparency policy; IMF's articles of agreement; Exchange rate arrangements; Fiscal consolidation
Cover IMF Working Papers
Exchange Rate Pass Through to Prices in Maldives
Ms. Iyabo Masha
and
Mr. Chanho Park
This study examines the degree of exchange rate pass through (EPRT) into producer and consumer prices in Maldives. ERPT to consumer prices is first estimated using a nonparametric approach. A recursive vector autoregression is then used to model both consumer and producer price changes. The nonparametric estimation indicates that ERPT to consumer prices is very high, both in absolute terms and relative to other countries. The dynamics of ERPT as derived from the empirical estimation indicate that ERPT to consumer and producer prices is significant but not complete, and that the impact of exchange rate changes persists into the second year.
Keywords:
WP; consumer price; output gap; Inflation; Exchange Rate; Maldives; CPI coefficient; PPI price; exchange rate system; nontradable goods price; price development; exchange rate shock; oil price change; inflation outcome; price determination; rufiyaa exchange rate; CPI data; forecasting inflation; Exchange rate pass-through; Exchange rate adjustments; Exchange rates; Consumer price indexes; Global
Cover IMF Staff Country Reports
Maldives: 2010 Article IV Consultation: Staff Report; Staff Statement and Supplement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Maldives
International Monetary Fund
Owing to severe fiscal and external imbalances, the Maldives government adopted an IMF program in 2009. Despite some crucial initial actions, fiscal slippages and political polarization have undermined the restoration of sustainability. The key policy challenge is to prevent a fiscal crisis, achieve macroeconomic sustainability, and stimulate growth. The authorities concur with the need to tighten monetary policy. The authorities have welcomed the IMF program as a useful framework to guide and reinforce their efforts to restore external balance and fiscal sustainability.
Keywords:
ISCR; CR; consultation informational annex; consultation; expenditure information point; debt; financing; staff appraisal; outturn data; data revision; Fiscal consolidation; Public and publicly-guaranteed external debt; Global; Asia and Pacific; I. fund relation; World Bank-IMF Joint Management Action Plan; Debt sustainability analysis