Abstract
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.
1. This supplement reports on information that has become available since the Staff Report was issued to the Executive Board on April 7. It does not alter staff’s broad assessment of policy issues and recommendations contained in the report.
2. Published data for 2015 are slightly softer than staff’s projections but latest monthly indicators continue to point to a pick up in activity this year.
GDP. The preliminary estimate for GDP growth in 2015 is a little weaker than projected by staff at 1.5 percent compared to 1.9 percent. Tourism activity contracted a little more than expected; and other sectors were subdued apart from transport and construction. However, the latest monthly indicators are positive—tourism arrivals picked up by 4.3 percent in January-March 2016 compared to the same period last year, with higher arrivals from Europe (perhaps reflecting re-established airline routes) making up for a continued decline in arrivals from Asia.
Inflation. Inflation has remained contained, rising by 1.4 percent year on year in March and continues to benefit from the pass through of lower oil prices, plus declining communications costs.
Current account and reserves. The 2015 current account deficit widened to 8.8 percent of GDP compared to staff’s projection of 8 percent of GDP. Against a backdrop of steady imports since the start of the year and some increase in tourism exports, gross and usable reserves rose to $685 million and $225 million respectively in early May (2.9 and 1 months of import cover). However, the parallel market premium has remained higher, hovering between 6 and 7 percent.
The fiscal position. Based on the latest available information, staff assesses the 2015 fiscal position to be broadly in line with projections (overall deficit 8.4 percent of GDP)—a slightly weaker outturn for revenues is offset by modestly lower current spending. However, the estimates are still preliminary and data, especially on expenditures and grants will be verified further ahead of November’s Budget.
3. Climate change. Maldives was one of the fifteen countries who were first to ratify the Paris Agreement on April 22.