Exchange Arrangements

Since April 2011, the rufiyaa has floated in a band of 20 percent on either side of Rf 12.85 per dollar. In practice, however, the rufiyaa has been virtually fixed at the band’s weaker end of Rf 15.42 per dollar. The de jure exchange rate arrangement is a pegged exchange rate within horizontal bands and the de facto exchange rate arrangement is classified as a stabilized exchange rate arrangement. Maldives continues to avail itself of the transitional provisions of Article XIV but no longer maintains any measures under this provision, and has not yet accepted the obligations of Article VIII, Sections 2, 3, and 4. It maintains an exchange restriction subject to IMF approval under Article VIII, Section 2(a) of the IMF’s Articles of Agreement arising from a shortage of foreign exchange (FX) at the official rate which leads to the Maldives Monetary Authority (MMA) rationing its supply of FX to commercial banks. This results in a channeling of FX transactions for current international transactions to the parallel market where transactions take place at an exchange rate that deviates by more than 2 percent from the prevailing market exchange rate. The greater than 2 percent spread gives rise to multiple currency practice subject to IMF approval under Article VIII, Section 3 and also to an exchange restriction, given the additional cost involved for obtaining foreign exchange. The extent of rationing has been eased over the past two years by increasing the amounts provided to commercial banks and adjusting amounts in line with seasonal patterns. The official exchange rate used by the MMA for government transactions is calculated based on the mid-point of the weighted average of the buying and selling rates of FX transactions conducted by commercial banks one day earlier. The lack of a mechanism to prevent the spread between this official exchange rate used by the MMA for government transactions and the prevailing market exchange rate from deviating by more than 2 percent gives rise to a multiple currency practice subject to IMF approval under Article VIII, Section 3.

Last Article IV Consultation

The 2017 Article IV consultation was concluded by the Executive Board on October 20, 2017.

Technical Assistance

FAD: FAD’s main areas of engagement in recent years have been on conducting a Public Expenditure and Financial Accountability (PEFA) assessment and providing TA on cash management and tax policy and tax administration. A joint IMF/WB-led PEFA assessment was carried out in February 2014 to gauge progress made since the 2009–2011 PFM Action Plan and identify remaining weaknesses at the time. As a follow-up to the PEFA, FAD in collaboration with the World Bank, developed a Public Financial Management Reform Plan (PFMRP) for the Government of Maldives (GoM) in June 2014. This was a broad PFM reform and consolidation plan aimed at improving the overall policy-making, coordination, implementation and monitoring framework in PFM. Three missions on cash management were carried out since FY14, which focused on developing a cash management manual for the GoM and related activities. In August 2015, a headquarters mission reviewed progress on cash management and broadened the scope of this TA to include expenditure and commitment controls. The mission developed an updated action plan to make the cash management unit functional, start using the cash flow forecasting model, and implement a commitment control system. Additional TA has also focused on the Chart of Accounts (CoA) and public investment. In September 2014, FAD carried out a review of the CoA used by the Ministry of Finance and Treasury and proposed a revised structure for the CoA along with an action plan to implement it. The mission was coordinated with an overlapping STA mission to review the mapping of the government CoA to GFSM 2014. A Public Investment Management Assessment (PIMA) was conducted by FAD in December 2016, which purpose was to identify, and propose improvements in, PFM practices that are associated with efficient public investment. October 2017 TA mission reviewed progress with the strategic priorities in the Maldives Inland Revenue Authority (MIRA) 2015–19 Strategic Plan. The January 2018 mission focused on budget formulation and public investment management. A follow-up mission on Strengthening Public Investment Management took place in June 2018. In July 2018, a TA mission MIRA focused on developing a risk management framework. A Tax Policy TA took place in February 2019, to asses the overall design of taxation in the Maldives and identify reform options to support revenue, efficiency and equity. Also, in February 2019, concurrent tax administration missions took place to advice MIRA on the development of the 2020–24 Strategic Plan and develop MIRA’s risk framework and improve the skills of staff.

LEG: In October 2003 provided TA on the revision of the MMA Act. A series of missions (March and September 2005, and April 2006) were provided to revamp the banking law. In August 2009, a mission provided assistance on the MMA Act (jointly with MCM). A follow-up mission in February 2011 focused on payments law. LEG conducted an AML/CFT assessment in October 2010 and conducted a desk-based review of the draft AML/CFT law in May 2012. In 2014 and 2015 LEG provided advice on the Special Economic Zones Law, offshore banking legislation and deposit insurance.

MCM: In 2006, two missions provided TA on monetary operations, financial market development, and banking issues. In 2007, TA on debt management, monetary policy and financial supervision was delivered. In 2008, three missions consulted on monetary operations and liquidity management, monetary policy and financial supervision issues. In November 2008 and March/May/August 2009, TA was provided on research capacity building, banking supervision, and monetary policy and reviewing of the MMA Act with recommendations. Furthermore, two missions also provided advice on monetary operations, liquidity management, and the development of a crisis management framework. In December 2010, MCM conducted a TA mission on crisis preparedness and management, bank restructuring, and monetary operations. In May and September 2011, TA on the development of debt markets and on-site banking supervision was provided and in February 2012, on assessing the FX operations framework. In the first half of 2014, MCM continued its TA delivery on banking supervision along with a joint MCM-APD mission on developing FX market. The Department also provided advice on deposit insurance schemes during 2014. Banking supervision (March) and FX reserve management (September) continued to be areas of priority to the authorities in 2015 with MCM TA responding with follow-up missions. In March 2016 further TA on FX and monetary policy operations was also provided. A follow-up mission on banking supervision with a focus on operational risk took place in May 2016. During 2017, two HQ missions covering accounting and auditing framework for MMA, and two SARTTAC missions establishing the work plan for monetary operations and banking supervision took place. Four TA missions took place during 2017–18 as part of the multi-year TA program to enhance the supervisory capacity of the Insurance Division of the MMA. In December 2018, a multitopic TA took place to formulate a TA roadmap to support MMA’s reforms, including central bank governance, monetary and FX operations and financial sector supervision and regulation. In January 2019, TA mission assisted the authorities in the application of International Financial Reporting Standard 9 – Financial Instruments and reviewing progress in the strengthening of their Internal Audit and Enterprise Risk Management practices. In February 2019, an external expert visited Maldives to advise the MMA governor on strengthening the MMA governance and internal organization.

STA: In May 2007, STA conducted a mission on money and banking statistics. In February and April 2011, STA offered TA on multiple topics covering improvements in balance of payments statistics, government financial statistics (GFS), monetary and financial statistics (MFS) and national accounts. In June and September 2011, STA conducted TA missions on improving price statistics and on the General Data Dissemination System (GDDS). In February, May, and October 2012 STA continued providing TA on improving price statistics. Similarly, in April 2012, a TA mission on improving national accounts covered constructing GDP from the expenditure side and compiling quarterly national accounts. Further advice on improving GDP and developing quarterly GDP was provided in November 2012, January and July, 2014, and April 2015, the latter jointly with APD. Subsequently, Maldives attended a workshop for the ICP-SNA project covering both national accounts and price statistics. Between March 2013 and January 2016, STA field eight TA missions on balance of payments statistics and two on government finance statistics, in the context of a project funded by the Government of Japan. A last TA mission was conducted in February 2017. April 2018 external sector statistics SARTTAC mission assessed data reliability and assisted in improving specific BOP components, advised on further developments in source data and statistical techniques to address existing data gaps., August 2018 SARTTAC mission has provided GFS and public sector debt statistics (PSDS) training – the onset of a broader SARTTAC training and technical assistance effort to enable the Maldives to improve and strengthen its fiscal reporting. January 2019 SARTTAC mission on GFS and PSDS focused on strengthening compilation and dissemination of the statistics in line with internationally accepted statistical standards. February 2019 SARTTAC missions assisted with the updating of the consumer price index and developing experimental annual GDP estimates by expenditure at current prices for 2017.

Safeguards Assessment

In line with the Fund’s safeguards assessments policy, an assessment of the MMA was concluded in March 2010. In addressing Fund’s recommendations, the MMA appointed an external auditor and strengthened controls over foreign payments through the automation of the authorization process. A Chief Internal Auditor was also appointed, while capacity in the internal audit function has continued to improve. In addition, to strengthen the legal framework, amendments to the MMA Act were drafted in 2011 in consultation with the Fund. While the MMA Act was amended in 2015, some safeguards recommendations on the establishment of an Audit Committee, limits on credit to government, and safeguards for personal autonomy of Board members have not been incorporated.