Abstract
IMF Country Report No. 23/365
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IMF Country Report No. 23/365
MALDIVES
2021 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR MALDIVES
November 2023
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2021 Article IV consultation with Maldives, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its September 10, 2021 consideration of the staff report that concluded the Article IV consultation with Maldives.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on September 10, 2021, following discussions that ended on June 17, 2021, with the officials of Maldives on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on July 29, 2021.
An Informational Annex prepared by the IMF staff.
A Debt Sustainability Analysis prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA).
A Staff Supplement updating information on recent developments.
A Statement by the Executive Director for Maldives.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2023 International Monetary Fund
Press Release
PRESS RELEASE
PR/21/287
IMF Executive Board Concludes 2021 Article IV Consultation with Maldives
FOR IMMEDIATE RELEASE
Washington, DC - September 10, 2021: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Maldives.
The economy is recovering after an unprecedented pandemic-induced fall in tourism. Real GDP contracted by 32 percent in 2020. The authorities deployed a prompt and comprehensive set of policy responses starting early 2020 that have helped to partially mitigate the socio-economic impact of the pandemic and maintain financial stability. These measures were complemented with a rapid rollout of the COVID-19 vaccination program. Low aggregate demand, low oil prices, and price subsidies on utilities put inflation at -1.6 percent in 2020. A moderate economic recovery started with the reopening of the country to tourism since mid-July 2020, while both a longer than initially expected global pandemic and an ambitious infrastructure plan are further contributing to large pre-pandemic fiscal and external vulnerabilities.
The strong but still partial recovery in tourism has improved the growth outlook. Growth is projected at about 19 percent in 2021, and medium-term prospects remain positive. Inflation is projected at 1.4 percent in 2021 and to increase to 2.3 in 2022 on the back of higher commodity and food prices. Nonetheless, fiscal and external positions are projected to remain weak over the medium term, underpinned by capital expenditure plans. The Maldives remains at a high risk of external debt distress and a high overall risk of debt distress. The total public and publicly guaranteed (PPG) debt-to-GDP ratio increased from 78 percent in 2019 to 146 percent in 2020, reflecting mostly the contraction in nominal GDP, but also an expansion in nominal debt. PPG debt is projected at 123 percent of GDP in 2026. External financing needs have been large and dollar shortages have persisted, as reflected in large spreads in the parallel foreign exchange market. The recent USD 200 million Sukuk bond issuance on September 3, 2021 covers unsecured financing needs for 2021. The risks to the outlook are tilted to the downside with COVID-19 variants increasing the possibility of a protracted global pandemic, expenditure and policy pressures related to the 2023 presidential electoral cycle, and the uncertainty of vaccine coverage in many source tourism economies.
Executive Board Assessment2
Executive Directors noted that the pandemic has hit the Maldives hard and welcomed the authorities’ prompt response to the pandemic as well as the rapid rollout of the COVID-19 vaccination program, which helped save lives and alleviate the impact of the crisis on households and businesses. However, Directors noted that risks to the outlook are substantial. They called for prudent and well-coordinated fiscal and monetary policies to safeguard macroeconomic stability, restore debt sustainability and sustain the current exchange rate peg, while supporting sustainable growth.
Directors stressed the importance of ensuring fiscal and debt sustainability over the medium term. They noted that a combination of revenue and expenditure measures is needed to achieve a growth-friendly fiscal consolidation. In this context, Directors emphasized the need to mobilize revenue and diversify the tax base toward domestic sources once the current crisis abates. They recommended rationalizing capital spending plans, further controlling current spending, and containing external and domestic borrowing. Directors cautioned against central bank financing of the government and encouraged developing a comprehensive debt management strategy, coupled with public financial management reforms, to manage the risks from large infrastructure projects and state-owned enterprises. They also saw the need to develop contingency plans in case downside risks materialize.
Directors agreed that a tighter monetary policy stance may 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.
Directors welcomed the steps to safeguard financial stability and encouraged further efforts to strengthen bank supervision, governance, transparency, and the AML/CFT framework. They welcomed that the Maldives has undertaken a Fiscal Transparency Evaluation mission and commended the authorities for their continued collaboration during capacity development activities.
Directors underscored the importance of addressing climate change-related vulnerabilities. In this regard, they welcomed the Strategic Action Plan, which sets goals on the blue economy, climate resilience and sustainability, and good governance, and their links to the sustainable development goals. However, Directors agreed with the authorities on the need to secure grants and concessional financing to address climate resilient investment needs in a sustainable manner given limited fiscal resources.
Maldives: Selected Economic Indicators, 2017-2026 1/
Maldives: Selected Economic Indicators, 2017-2026 1/
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |
| Prel. | Proj. | |||||||||
| Output and prices | (Annual percentage change) | |||||||||
| Real GDP | 7.2 | 8.1 | 7.0 | -32.0 | 18.9 | 13.2 | 12.1 | 6.1 | 5.4 | 5.4 |
| Inflation (end-of-period) 2/ | 2.2 | 0.5 | 1.7 | -2.0 | 2.9 | 1.1 | 2.0 | 2.0 | 2.0 | 2.0 |
| Inflation (period average) 2/ | 2.3 | 1.4 | 1.3 | -1.6 | 1.4 | 2.3 | 1.9 | 1.8 | 2.0 | 2.0 |
| GDP deflator | 1.4 | 3.1 | -0.5 | -2.4 | 2.9 | 2.3 | 1.9 | 1.8 | 2.0 | 2.0 |
| Central government finances | (In percent of GDP) | |||||||||
| Revenue and grants | 27.7 | 27.2 | 26.4 | 27.2 | 27.9 | 28.4 | 28.0 | 27.9 | 27.3 | 27.2 |
| Expenditure and net lending | 30.8 | 32.5 | 33.0 | 50.0 | 46.0 | 41.2 | 37.2 | 35.1 | 33.9 | 34.3 |
| Overall balance | -3.1 | -5.3 | -6.6 | -22.7 | -18.1 | -12.8 | -9.1 | -7.3 | -6.6 | -7.1 |
| Overall balance excl. grants | -3.5 | -6.3 | -7.9 | -25.2 | -20.2 | -15.5 | -11.4 | -8.7 | -7.5 | -7.8 |
| Financing | 3.1 | 5.3 | 6.6 | 22.7 | 18.1 | 12.8 | 9.1 | 7.3 | 6.6 | 7.1 |
| Foreign | 4.2 | 7.0 | 1.1 | 3.5 | 7.1 | 4.8 | 6.1 | 3.5 | 4.1 | -3.1 |
| Domestic 3/ | -1.1 | -1.7 | 5.5 | 19.2 | 7.2 | 5.2 | 3.0 | 3.8 | 2.6 | 7.3 |
| Unsecured financing 4/ | 3.7 | 2.8 | 2.9 | |||||||
| Primary balance | -1.6 | -3.5 | -4.8 | -20.0 | -14.2 | -9.0 | -5.7 | -3.9 | -3.3 | -4.0 |
| Public and publicly guaranteed debt | 64.6 | 72.0 | 78.3 | 146.0 | 137.2 | 133.3 | 128.2 | 128.4 | 126.8 | 122.9 |
| Monetary accounts | (Annual percentage change) | |||||||||
| Broad money | 5.2 | 3.4 | 9.6 | 14.2 | 10.7 | 9.0 | 9.1 | 8.0 | 7.6 | 7.5 |
| Domestic credit | 1.7 | 5.2 | 5.6 | 35.6 | 11.2 | 8.5 | 6.0 | 6.2 | 5.9 | 7.7 |
| Balance of payments | (In percent of GDP, unless otherwise indicated) | |||||||||
| Current account | -21.6 | -28.4 | -26.5 | -29.9 | -15.9 | -13.9 | -8.9 | -9.0 | -8.6 | -8.1 |
| Of which: | ||||||||||
| Exports | 6.7 | 6.4 | 6.4 | 6.9 | 6.7 | 6.4 | 5.9 | 5.4 | 5.3 | 5.3 |
| Imports | -46.9 | -52.2 | -48.9 | -45.7 | -47.2 | -43.7 | -39.3 | -39.5 | -39.8 | -40.2 |
| Tourism receipts (in nonfactor services, net | 57.8 | 57.2 | 56.1 | 37.4 | 59.4 | 61.4 | 63.1 | 65.5 | 66.4 | 67.8 |
| Income (net) | -7.9 | -9.3 | -9.9 | -7.6 | -9.7 | -8.9 | -8.6 | -8.7 | -8.6 | -8.4 |
| Current transfers | -9.9 | -9.3 | -10.3 | -5.0 | -3.4 | -7.3 | -7.7 | -7.4 | -7.7 | -7.6 |
| Capital and financial account (including e&o) | 24.2 | 30.8 | 27.2 | 35.3 | 4.8 | 14.7 | 15.9 | 13.2 | 12.1 | 4.5 |
| Of which: | ||||||||||
| General government, net | 7.0 | 3.0 | 1.9 | 3.9 | 5.4 | 5.6 | 7.0 | 4.6 | 3.7 | -3.4 |
| Banks and other sectors, net | -7.5 | 17.0 | 3.9 | 15.3 | 0.7 | 1.1 | 0.9 | 0.6 | 0.5 | 0.5 |
| Overall balance | 2.5 | 2.4 | 0.7 | 5.4 | -11.1 | 0.9 | 7.0 | 4.2 | 3.5 | -3.6 |
| Gross international reserves (in millions of US$; e.o.p.) | 587 | 712 | 754 | 985 | 508 | 553 | 976 | 1,251 | 1,496 | 1,220 |
| In months of GNFS imports | 1.7 | 2.1 | 3.7 | 3.7 | 1.7 | 1.8 | 2.8 | 3.3 | 3.6 | 2.8 |
| Exchange rate (rufyiaa/US$, e.o.p.) | 15.41 | 15.41 | 15.41 | 15.41 | ... | ... | ... | ... | ... | ... |
| Memorandum items: | ||||||||||
| GDP (in millions of rufiyaa) | 73,155 | 81,568 | 86,788 | 57,603 | 70,478 | 81,608 | 93,219 | 100,676 | 108,280 | 116,392 |
| GDP (in millions of U.S. dollars) | 4,747 | 5,293 | 5,632 | 3,738 | 4,573 | 5,296 | 6,049 | 6,533 | 7,027 | 7,553 |
| Tourism bednights (000’) | 8,596 | 9,477 | 10,689 | 4,500 | 8,500 | 10,179 | 11,957 | 13,394 | 14,613 | 15,872 |
| Tourist arrivals (000’) | 1,386 | 1,484 | 1,703 | 555 | 1,000 | 1,434 | 1,960 | 2,196 | 2,396 | 2,602 |
| Tourism bednights (% change) | 10.6 | 10.2 | 12.8 | -57.9 | 88.9 | 19.8 | 17.5 | 12.0 | 9.1 | 8.6 |
| Tourist arrivals (% change) | 7.8 | 7.1 | 14.7 | -67.4 | 80.0 | 43.4 | 36.7 | 12.0 | 9.1 | 8.6 |
| Dollarization ratio (FC deposits in percent of broad money) | 48.7 | 48.8 | 52.9 | 45.8 | ... | ... | ... | ... | ... | ... |
Maldives: Selected Economic Indicators, 2017-2026 1/
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | |
| Prel. | Proj. | |||||||||
| Output and prices | (Annual percentage change) | |||||||||
| Real GDP | 7.2 | 8.1 | 7.0 | -32.0 | 18.9 | 13.2 | 12.1 | 6.1 | 5.4 | 5.4 |
| Inflation (end-of-period) 2/ | 2.2 | 0.5 | 1.7 | -2.0 | 2.9 | 1.1 | 2.0 | 2.0 | 2.0 | 2.0 |
| Inflation (period average) 2/ | 2.3 | 1.4 | 1.3 | -1.6 | 1.4 | 2.3 | 1.9 | 1.8 | 2.0 | 2.0 |
| GDP deflator | 1.4 | 3.1 | -0.5 | -2.4 | 2.9 | 2.3 | 1.9 | 1.8 | 2.0 | 2.0 |
| Central government finances | (In percent of GDP) | |||||||||
| Revenue and grants | 27.7 | 27.2 | 26.4 | 27.2 | 27.9 | 28.4 | 28.0 | 27.9 | 27.3 | 27.2 |
| Expenditure and net lending | 30.8 | 32.5 | 33.0 | 50.0 | 46.0 | 41.2 | 37.2 | 35.1 | 33.9 | 34.3 |
| Overall balance | -3.1 | -5.3 | -6.6 | -22.7 | -18.1 | -12.8 | -9.1 | -7.3 | -6.6 | -7.1 |
| Overall balance excl. grants | -3.5 | -6.3 | -7.9 | -25.2 | -20.2 | -15.5 | -11.4 | -8.7 | -7.5 | -7.8 |
| Financing | 3.1 | 5.3 | 6.6 | 22.7 | 18.1 | 12.8 | 9.1 | 7.3 | 6.6 | 7.1 |
| Foreign | 4.2 | 7.0 | 1.1 | 3.5 | 7.1 | 4.8 | 6.1 | 3.5 | 4.1 | -3.1 |
| Domestic 3/ | -1.1 | -1.7 | 5.5 | 19.2 | 7.2 | 5.2 | 3.0 | 3.8 | 2.6 | 7.3 |
| Unsecured financing 4/ | 3.7 | 2.8 | 2.9 | |||||||
| Primary balance | -1.6 | -3.5 | -4.8 | -20.0 | -14.2 | -9.0 | -5.7 | -3.9 | -3.3 | -4.0 |
| Public and publicly guaranteed debt | 64.6 | 72.0 | 78.3 | 146.0 | 137.2 | 133.3 | 128.2 | 128.4 | 126.8 | 122.9 |
| Monetary accounts | (Annual percentage change) | |||||||||
| Broad money | 5.2 | 3.4 | 9.6 | 14.2 | 10.7 | 9.0 | 9.1 | 8.0 | 7.6 | 7.5 |
| Domestic credit | 1.7 | 5.2 | 5.6 | 35.6 | 11.2 | 8.5 | 6.0 | 6.2 | 5.9 | 7.7 |
| Balance of payments | (In percent of GDP, unless otherwise indicated) | |||||||||
| Current account | -21.6 | -28.4 | -26.5 | -29.9 | -15.9 | -13.9 | -8.9 | -9.0 | -8.6 | -8.1 |
| Of which: | ||||||||||
| Exports | 6.7 | 6.4 | 6.4 | 6.9 | 6.7 | 6.4 | 5.9 | 5.4 | 5.3 | 5.3 |
| Imports | -46.9 | -52.2 | -48.9 | -45.7 | -47.2 | -43.7 | -39.3 | -39.5 | -39.8 | -40.2 |
| Tourism receipts (in nonfactor services, net | 57.8 | 57.2 | 56.1 | 37.4 | 59.4 | 61.4 | 63.1 | 65.5 | 66.4 | 67.8 |
| Income (net) | -7.9 | -9.3 | -9.9 | -7.6 | -9.7 | -8.9 | -8.6 | -8.7 | -8.6 | -8.4 |
| Current transfers | -9.9 | -9.3 | -10.3 | -5.0 | -3.4 | -7.3 | -7.7 | -7.4 | -7.7 | -7.6 |
| Capital and financial account (including e&o) | 24.2 | 30.8 | 27.2 | 35.3 | 4.8 | 14.7 | 15.9 | 13.2 | 12.1 | 4.5 |
| Of which: | ||||||||||
| General government, net | 7.0 | 3.0 | 1.9 | 3.9 | 5.4 | 5.6 | 7.0 | 4.6 | 3.7 | -3.4 |
| Banks and other sectors, net | -7.5 | 17.0 | 3.9 | 15.3 | 0.7 | 1.1 | 0.9 | 0.6 | 0.5 | 0.5 |
| Overall balance | 2.5 | 2.4 | 0.7 | 5.4 | -11.1 | 0.9 | 7.0 | 4.2 | 3.5 | -3.6 |
| Gross international reserves (in millions of US$; e.o.p.) | 587 | 712 | 754 | 985 | 508 | 553 | 976 | 1,251 | 1,496 | 1,220 |
| In months of GNFS imports | 1.7 | 2.1 | 3.7 | 3.7 | 1.7 | 1.8 | 2.8 | 3.3 | 3.6 | 2.8 |
| Exchange rate (rufyiaa/US$, e.o.p.) | 15.41 | 15.41 | 15.41 | 15.41 | ... | ... | ... | ... | ... | ... |
| Memorandum items: | ||||||||||
| GDP (in millions of rufiyaa) | 73,155 | 81,568 | 86,788 | 57,603 | 70,478 | 81,608 | 93,219 | 100,676 | 108,280 | 116,392 |
| GDP (in millions of U.S. dollars) | 4,747 | 5,293 | 5,632 | 3,738 | 4,573 | 5,296 | 6,049 | 6,533 | 7,027 | 7,553 |
| Tourism bednights (000’) | 8,596 | 9,477 | 10,689 | 4,500 | 8,500 | 10,179 | 11,957 | 13,394 | 14,613 | 15,872 |
| Tourist arrivals (000’) | 1,386 | 1,484 | 1,703 | 555 | 1,000 | 1,434 | 1,960 | 2,196 | 2,396 | 2,602 |
| Tourism bednights (% change) | 10.6 | 10.2 | 12.8 | -57.9 | 88.9 | 19.8 | 17.5 | 12.0 | 9.1 | 8.6 |
| Tourist arrivals (% change) | 7.8 | 7.1 | 14.7 | -67.4 | 80.0 | 43.4 | 36.7 | 12.0 | 9.1 | 8.6 |
| Dollarization ratio (FC deposits in percent of broad money) | 48.7 | 48.8 | 52.9 | 45.8 | ... | ... | ... | ... | ... | ... |
Title Page
MALDIVES
STAFF REPORT FOR THE 2021 ARTICLE IV CONSULTATION
July 29, 2021
KEY ISSUES
Context. The Maldives is recovering after the historical 2020 fall in tourism, aided by a rapid COVID-19 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.
Outlook and risks. 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. Public debt is on an unsustainable path in the baseline scenario. The risks to the outlook are tilted to the downside given the recent COVID-19 outbreak in South Asia, the possibility of a protracted global pandemic, and the uncertainty of vaccine coverage in many source tourism economies.
Policy Recommendations.
A comprehensive, coordinated, and well-communicated approach across all policies is necessary since vulnerabilities are interlinked.
Budget realism and fiscal rebalancing is imperative. A multipronged fiscal adjustment strategy, with measures to strengthen transparency and governance of core fiscal institutions. Urgent rationalization of capital expenditure plans, including cuts and/or delays on some large investment projects. Tax base diversification toward domestic revenue sources, over the medium-term.
Inflation stability and the sustainability of the exchange rate peg need to be ensured. Under the current baseline, Maldives Monetary Authority (MMA) advances should not exceed current limits, and pandemic linked supportive forbearance policy measures should be unwound as planned.
Structural changes to the foreign exchange market and amendments to the fiscal legal framework are core to a comprehensive strategy. Further advances on strengthening governance, implementation of the instant payment system, and on other sustainable development goals, including building resilient climate change infrastructure and investment in renewables, are also needed.
Approved By
Ranil Salgado (APD) and Chad Steinberg (SPR)
An IMF team consisting of E. Cerutti (head), R. Basu, E. Kitsios, and R. Moussa (all APD), M. El Rayess (FAD) and T. Feridhanusetyawan (Res. Rep.) and M. Abeyawickrama (Res. Rep. office) held discussions with the Maldivian authorities by teleconferences led by MoF, MMA, and other senior government officials during May 30 - June 17, 2021. M. Mohieldin and M. Merhi (all OED) participated in the policy discussions. G. Gamwalla-Khadivi and B. Zhu (both APD) collaborated in preparing this report.
Contents
INTRODUCTION
THE MALDIVES AND THE PANDEMIC
OUTLOOK AND RISKS
POLICY RECOMMENDATIONS
A. Budget Realism and Fiscal Rebalancing is Imperative
B. Adjusting Monetary Policy and Enhancing Exchange Rate Markets
C. Safeguarding Financial Stability
D. Structural and Governance Policies
E. Climate and Others
STAFF APPRAISAL
FIGURES
1. Summary of Recent Developments
2. External Sector Developments
3. Fiscal Developments
4. Money and Credit Developments
5. Financial Developments
TABLES
1. Selected Economic Indicators, 2017-2026
2a. Central Government Finances, 2017-2026 (In millions of Rufiyaa)
2b. Central Government Finances, 2017-2026 (In percent of GDP)
3. Monetary Accounts, 2017-2026
4. Balance of Payments, 2017-2026
5. Selected Financial Soundness Indicators, 2013-2021
6. 2019 Article IV Recommendations and Related Policy Actions
APPENDICES
I. Tourism Recovery Underway
II. COVID-19 Evolution and Measures
III. Risk Assessment Matrix
IV. Fiscal Risks of Non-financial State-Owned Enterprises
V. Medium-Term Measures to Increase Revenues
VI. Enhancing Transparency and Improving Sustainability of the Public Finances
VII. External Sector Assessment
VIII. A Framework for Sustainable and Climate Resilient Development in the Maldives
IX. Draft Press Release
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.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
