Maldives: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
Author:
International Monetary Fund. Asia and Pacific Dept
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Publication Date:
11 Nov 2023
eISBN:
9798400258442
Language:
English
Keywords:
MMA advance; MMA liability; private sector; public finance; lender of last resort policy; Tourism; COVID-19; South Asia
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1. The Maldives is a fast-developing country that entered the COVID-19 pandemic with large pre-existing vulnerabilities. Real GDP growth averaged around 7 percent during 2006-19, mostly driven by a buoyant tourism sector. This has improved Maldivian standards of living, and reduced poverty and inequality. Large fiscal and external vulnerabilities are factors that have impeded the Maldives from graduating from the PRGT, despite an income per capita above USD 10,000 since 2014. Addressing the Maldives’ exposure to natural disasters and climate change remains a long-term concern that also increases the need for well-planned climate-change adaptation investments.

Abstract

1. The Maldives is a fast-developing country that entered the COVID-19 pandemic with large pre-existing vulnerabilities. Real GDP growth averaged around 7 percent during 2006-19, mostly driven by a buoyant tourism sector. This has improved Maldivian standards of living, and reduced poverty and inequality. Large fiscal and external vulnerabilities are factors that have impeded the Maldives from graduating from the PRGT, despite an income per capita above USD 10,000 since 2014. Addressing the Maldives’ exposure to natural disasters and climate change remains a long-term concern that also increases the need for well-planned climate-change adaptation investments.

Introduction

1. The Maldives is a fast-developing country that entered the COVID-19 pandemic with large pre-existing vulnerabilities. Real GDP growth averaged around 7 percent during 2006-19, mostly driven by a buoyant tourism sector. This has improved Maldivian standards of living, and reduced poverty and inequality. Large fiscal and external vulnerabilities are factors that have impeded the Maldives from graduating from the PRGT, despite an income per capita above USD 10,000 since 2014. Addressing the Maldives’ exposure to natural disasters and climate change remains a long-term concern that also increases the need for well-planned climate-change adaptation investments.

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Maldives: Economic Performance During 2001-2019

(In percent, average over relevant period)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: MMA. Maldives MoF, ILO and IMF Staff Estimates.

2. Fiscal vulnerabilities increased prior to the pandemic. The budget deficit was on average 6 percent of GDP during 2015-19, largely due to high capital spending that averaged 10 percent of GDP. Public and publicly guaranteed (PPG) debt increased by 23 percentage points of GDP between 2015 and 2019, reaching 78 percent of GDP in 2019. More than half was due to increases in guaranteed debt, owing mostly to state-owned enterprise (SOE)’s housing projects, borrowing outside the central government budget.

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Maldives: Budget Balance and Grants, 2004-19

(In percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Ministry of Finance.
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Current Account Balance

(in percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Maldives Monetary Authorty

The Maldives and the Pandemic

3. The COVID-19 shock led to an unprecedented 32 percent contraction in GDP in 2020. The contraction eclipses those experienced in the aftermath of the 2004 tsunami and the 2009 global financial crisis. Tourism is a major contributor to this contraction. Between March 26 and July 15, 2020 tourist arrivals were halted to combat the spread of the virus (Appendix 1). Domestically, various containment measures (Appendix 2) led to a slowdown in domestic activity, especially in construction, manufacturing, and trade. Low aggregate demand, low oil prices, and price subsidies on utilities put inflation at -1.6 percent in 2020, despite food inflation at 3.3 percent.

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Tourism Contribution to Real GDP Growth

(in percent)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives National Bureau of Statistics and IMF staff projections

4. Despite limited policy space, the authorities reacted promptly to the crisis with fiscal and monetary support. To support the healthcare system and the economy, since March 2020, the government allocated budgetary resources for the COVID-19 Health and Social Response of about 3 percent of GDP and an “Economic Relief Package” of about 3.1 percent of GDP to be partly financed by savings on public salaries and other current spending. The actual spending of the two packages amounted to 6.1 percent of GDP as of June 24, 2021. The packages included a combination of fiscal, monetary, and financial measures, targeting those most affected (Text Table). The budgetary allocation was increased for the health sector to account for the higher cost of treatment and medical consumables, and for the higher capital expenses required to establish quarantine facilities, upgrade regional hospitals, and procure diagnostic and treatment machinery.

5. Fiscal revenue was hit hard by the losses in tourism. Government revenue relies heavily, both directly and indirectly, on the performance of the tourism sector. Tax revenue declined sharply due to the collapse in tourism and the disruption of supply chains. Total revenue declined by 32 percent in 2020 relative to 2019, despite the introduction of a Personal Income Tax (PIT).

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Fiscal Revenue and Tourism Expenditure, 2011 -20

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldivian Authorities and Staff Calculations,

Maldives. Summary of COVID-19 Stimulus as of June 24, 2021

article image
1/ Spending data are likely to vary as reconciliation work is ongoing. The ERP spending reflects the actual execution in the Public Bank Account. The HSR spending includes committed spending amounting to 41.1 percent of the total HSR amount. Sources: Ministry of Finance, Maldives Monetary Authority and IMF staff estimates.

6. Fiscal expenditures, particularly capital spending, remained high during the pandemic, leading to a further weakening of the fiscal position. Capital spending trended upward after the lockdown eased in July, and by end-2020 was higher by 11 percent relative to 2019, but underexecuted by 38 percent compared to the 2020 approved budget. The revenue losses combined with higher capital spending increased the deficit to MVR 13.1 billion (22.7 percent of GDP), despite the efforts to contain wages and current spending. The deficit turned out higher than anticipated at the April 2020 RCF-request. The more prolonged than expected pandemic increased current and transitory capital expenditure related to health and social responses, and project grants were lower due to COVID-19 implementation delays.

Maldives: Central Government Finances, 2019-20

(In millions of Rufiyaa)

article image
Sources: Maldivian authorities; and IMF staff projections.

7. Several exceptional measures were taken to raise budget financing and boost gross reserves. Total financing to the central government from domestic sources was USD 803 million in 2020. The largest source of domestic financing was from commercial banks, supported by growing local currency deposits and State Bank of India (SBI) headquarter support (USD 250 million linked to Government of India support to the Maldives). MMA advances have fluctuated since April 2020 and stood at around MVR 3.6 billion at end-June 2021, increasing from 3.3 billion at end-December 2020.1 External financing sources included COVID-19 related loans and grants from bilateral and multilateral partners (e.g., USD 28.9 million from the IMF April 2020 Rapid Credit Facility (RCF)), the Debt Service Suspension Initiative (DSSI), and more recently in April 2021 the placement a five-year USD Sukuk, with a 10.5 percent yield at issuance, of about USD 300 million (about USD 200 million of the issuance was used to repay 77 percent of the maiden USD 250 million bond due in 2022, easing rollover risks). A USD 400 million swap balance with the Reserve Bank of India (RBI) boosted reserves as of end-2020, of which USD 150 million were repaid in February 2021 and the remaining USD 250 million will expire in December 2021. The SDR allocation will add USD 29 million, boosting gross and net international reserves.

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Financing 2020 from Domestic and External Sources

(in USD million)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authority and Maldives Minstry of Finance
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MMA Advances to the Government

(In billions of MVR)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authorities and IMF staff calculations.

8. Banks’ high capitalization and support from headquarters helped credit expansion. Banking sector claims on the central government substantially increased over the year to 27.5 percent of total commercial bank assets in 2021Q1 (from 21.5 percent in 2020Q1), with significant funding support from SBI headquarters. While part of the bank credit growth (at 9 percent in 2021Q1) reflects the accruing of interest of loans under moratorium, banks also provided working capital loans, mainly to the tourism sector, using funding from external donors (e.g., EIB), government programs, and deposits—from the recycling of MMA advances and some depositors’ precautionary motives during the pandemic. While there was a small increase in non-performing loans (NPLs), banks increased their provisions for loan losses. A significant portion of loans were placed in moratorium during 2020, where loans are not repaid but they accrue interest during a period of six months. As of end-March 2021, 18 percent were in moratorium and another 9 percent of total value of loans was rescheduled.

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Credit

(Year-on-year change, in percent)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldivian authorities; and IMF staff estimates.

Outlook and Risks

9. Driven by the tourism recovery, growth in 2021 is projected at 18.9 percent. Arrivals in 2021 up to end-June stood at around 510 thousand, 59 percent of pre-COVID-19 levels. Tourism in the Maldives is unique in offering a high-end, one island, one resort experience and catering to diverse tourists. The successful vaccination program in the Maldives, which also prioritized workers in the tourism sector, helped to provide confidence among tourists, but the COVID-19 surge in South Asia, including in the Maldives, is slowing the recovery. Medium-term tourism prospects remain positive, with the airport expansion set to increase airplane arrivals. Arrivals are projected to reach pre-COVID-19 projections for 2020, around 2 million, in 2023. Inflation is projected at 1.4 percent in 2021 accounting for discounts on utilities in May, to increase to 2.3 in 2022 on the back of higher commodity and food prices, and to decline to 2 percent over the medium-term.

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Tourist Arrivals by Year

(in thousands)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authority

10. The fiscal position is projected to remain weak in 2021 and over the medium term in the baseline scenario, reflecting the authorities’ plans. Despite the revenue shortfall in 2020 and an uncertain tourism recovery, the authorities envision an ambitious expansion of capital spending over the medium-term in contrast to their 2020 RCF commitment to keep it within historical averages. If executed as planned, capital spending is set to reach 15.6 percent of GDP in 2021 before declining to 13.9 and 12.4 percent of GDP in 2022 and 2023, and it is assumed to return to historical averages starting in 2027. Substantial budget allocations are envisaged for infrastructure megaprojects, which include the Greater-Male Connectivity project, the Maldives International Port Development, the National Social Housing Project, the Gulhifalhu land reclamation project, and finishing upgrades in the Velana International Airport. Several of these projects are financed by the India Exim Bank.2 In addition, current spending is projected to exceed revenue by 4.5 and 1.7 percent of GDP in 2021 and 2022, respectively, as revenue are expected to remain below their pre-pandemic level (roughly constant as percent of GDP).

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Budgetary Revenue and Expenditure, 2015-23

(percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Ministry of Finance, staff calculation

11. External financing needs are large and dollar shortages have persisted, as reflected in large spreads in the parallel foreign exchange (FX) market. Tourism is the main source of FX, but until fully recovered, FX shortages should be expected. The COVID-19 shock led to a 25 percent contraction in the 2020 current account deficit (CAD) driven by lower imports, though the CAD as a percent of GDP remained elevated at 30 percent. The CAD has been elevated for several years owing in part to the high import content of major capital expenditure projects. The CAD is mostly financed by FDI and PPG external debt. Gross official reserves covered around 3.7 months of prospective imports, bolstered by USD 400 million RBI swap, and are projected to decline in 2021 and 2022 before increasing as tourist arrivals recover.

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Parallel Exchange Rates - Estimates

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

12. The Maldives has a high risk of external debt distress and a high overall risk of debt distress (See DSA). The total PPG debt-to-GDP ratio increased from 78 percent in 2019 to 146 percent in 2020, reflecting both the contraction in nominal GDP by about 34 percent and an expansion in PPG nominal debt by 24 percent.3 This is the largest increase in public debt to GDP across similar island developing states. Under current policies, debt is expected to remain high over the medium-term. Without significant fiscal adjustment, public debt is on an unsustainable path in the baseline scenario. While the recent Sukuk issuance mitigates rollover risks for 2022, securing debt sustainability requires balanced and sustained fiscal consolidation and continued strong growth.

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Public Debt

(In percent of fiscal year GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: World Economic Outlook; IMF staff calculation.Notes: Peer countries include Cabo Verde, Barbados, Antigua and Barbuda, Jamaica, Sri Lanka, Dominica, Seychelles, St. Vincent and the Grenadines, Mauritius, St. Lucia, Fiji, Grenada, St Kitts and Nevis, Dominican Republic, the Bahamas, Samoa, Haiti, Vanuatu, Tonga, and Timor-Leste.

13. The risks to the outlook are tilted to the downside, and they require prompt action given vulnerabilities.

  • On the downside, external risks include a slowdown in the tourism recovery because of additional COVID-19 variants/travel restrictions, and a tightening in international financial conditions that could limit access to low cost external financing. Domestically, risks stem from a protracted high level of COVID-19 cases that could delay the recovery. Several fiscal risks (including SOE liquidity risk, FX risks, and limited coordination across line ministries and SOEs) could materialize at a time when the policy space remains constrained by high deficits and debt, very low FX reserve buffers, and a difficult external financing environment (Appendices 3 and 4). Pressures related to the electoral cycle could trigger the fast implementation of an overcomplicated minimum wage structure and public wage harmonization process in a context of high economic uncertainty and limited fiscal space.4 Further deterioration of the fiscal or real sector would endanger trust in the financial sector and the sustainability of the current exchange rate peg.

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    Daily New Covid Cases, Vaccination Rate and Positive Rate

    Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

    Sources: Johns Hopkins University CSSE Covid-19 Data and IMF staff estimates.

  • On the upside, Maldives has a high vaccination rate and the tourism recovery could be larger than anticipated if some important European and Asian markets, such as China, Germany, Italy, Japan, and the UK, allow their nationals to travel more flexibly in the second half of 2021.

Authorities’ Views

14. The authorities highlighted that the COVID-19 shock was unprecedented and the first time that the Maldives had to remain closed to tourists. They broadly concur with staff’s growth and inflation baseline, and the evolution of the fiscal balances over the medium-term. The impact of the pandemic has been more protracted and severe than initially envisaged, but the recovery is ongoing and with significant upside. The authorities also highlighted that completion of COVID-19 vaccination in the Maldives is another important upside; around 70 percent of the adult population have already received at least one dose of the COVID-19 vaccine. The authorities attribute the ongoing capital spending expansion to a large extent to the infrastructure projects initiated in 2019 and their associated large disbursements materializing over the medium-term. The additional financing to manage the budget and address the revenue losses and spending needs during the pandemic resulted in the accumulation of further debt in 2020. This is despite the authorities’ efforts to contain non-priority spending relative to the approved 2020 budget.

15. The authorities emphasized that understanding the context of the COVID-19 shock is important in making an assessment on debt sustainability. Given that the shock to GDP was severe and caused an upward movement of the ratios to GDP across many economies, the authorities suggested that a more nuanced view beyond the Low-Income Country Debt Sustainability Framework is needed. The authorities highlighted that any assessment on debt sustainability should give credit to the highly concessional nature of the existing debt stock and the access that the country has to the international financial market. The authorities emphasized as an upside their role in proactively managing rollover risks from their outstanding Eurobonds, in 2019 by extending the maturity of the privately placed USD 100 million Eurobond by three years, and in 2021 by rolling over 77 percent of the maiden Eurobond. They note that the Sukuk issuance was oversubscribed signaling healthy demand for the sovereign debt of the Maldives in international markets. The authorities also highlighted that Sukuk bonds were currently trading at a premium. Moving forward, the authorities expect to take advantage of the favorable financing terms secured for the completion of the infrastructure mega-projects, while they are actively managing debt and liquidity to address potential rollover risks, as evidenced by the issuance of Sukuk bonds in April 2021.

Policy Recommendations

16. A comprehensive and coordinated approach across all policies is essential given high vulnerabilities. Both urgent and medium-term policies are needed to manage risks, help the recovery, and reduce vulnerabilities. Policy measures taken as part of a well-communicated and comprehensive package would be preferable since vulnerabilities across the public sector are interlinked and a continued coordinated approach by both the government and the central bank, as during the early part of the crisis, would contribute to better controlling expectations. The global uncertainty triggered by the pandemic remains elevated and a more prudent spending policy approach is needed.

A. Budget Realism and Fiscal Rebalancing is Imperative

17. A multipronged adjustment strategy is needed to restore sustainability to public finances. The high deficits and elevated debt positions over the medium-term call into question fiscal sustainability. Despite the recovery in tourism receipts and the improvement in public revenue, the fiscal deficit is projected to remain in double-digits as a percent of GDP until 2022. Stronger public financial and investment management along with revenue mobilization is required to support a sustainably financed increase in infrastructure spending that can promote inclusive and climate change resilient growth. For the short term, staff recommend rationalizing capital spending plans starting in 2021, including cuts and/or delays on some large investment projects. This includes the capital spending of SOEs, since any weakened financial position will result in extra government support and would further stress the high level of debt and FX shortages.

18. Deficit plans should be securely financed prior to embarking on higher spending. The deficit financing sources for the next two years have not been firmly secured, as the authorities have planned but not secured Sukuk, blue, and green international issuances. Unsecured financing of the deficits for 2021 and 2022 amounts to 3.7 and 2.8 percent of GDP, per staff estimations, while the high amortizations in 2026 could require additional unsecured financing of 2.9 percent of GDP. In addition, current spending is projected to exceed revenue over the next two years, adding to concerns from high capital spending plans over the medium term.

19. Recurrent spending pressures should be contained and capital spending rationalized. Current expenditures are in line with peers, while capital spending is on the upper range of their distribution. The level of current spending before the pandemic was slightly lower than that of the median tourist dependent peer economy, and the wage bill spending was almost at par. However, capital spending was close to the top 10th percentile, so that the envisaged increases in capital spending may render the Maldives among the top 10th percentile capital spenders in its group.5 In this context, staff advises the authorities to recalibrate their fiscal strategy to ensure sustainable financing of both current and capital spending. Efforts should continue on reducing non-priority current spending as well as containing wage bill pressures, including from the implementation of a complicated minimum wage structure and public wage harmonization process—especially over the next two years, until tourism receipts have fully recovered.

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Current, Capital and Wage Bill Spending

(In percent of fiscal year GDP, 2019)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: World Economic Outlook: IMF staff calculation.Notes: Peer countries include Cabo Verde. Barbados. Antigua and Barbuda, Jamaica, Dominica, Seychelles, St, Vincent and the Grenadines, Mauritius, St Lucia, Grenada, St. Kitts and Nevis, Dominica Dominican Republic, the Bahamas, Haiti, Vanuatu, Tonga, and Timor-Leste.

20. Reforms are ongoing to address weaknesses in the public investment management (PIM) system with the aim of enhancing transparency. The 2019 Public Investment Management Assessment (PIMA) report identified several weaknesses in the PIM system, including poor planning, weak project appraisal and selection, and the lack of a project pipeline, which combined, result in unrealistic capital budgets. Weaknesses in the overall strategic framework for public investment, aggravated by a challenging fiscal environment, affect the government’s ability to plan sustainable levels of investment across the public sector. Since fiscal space is limited, efficient public investment requires a more strategic and focused Public Sector Investment Program. Preparing a costed medium-term national development strategy that focuses on public investment requirements within a realistic overall resource envelope is key for translating infrastructure spending into growth.6 Following the 2019 report, reforms are ongoing to address weaknesses and combatting corruption in order to improve the planning and transparency process, such as reforms in the procurement system (harmonizing the procurement guidelines for SOEs) and the reporting (detailed database on awarded projects is published on the Ministry’s website). Further open and competitive procurement would help ensure that resources are used effectively, and that waste and inefficiency are avoided.

21. Further revenue mobilization is required to expand capital spending, and to mitigate the risks related to high public debt. High capital spending has deteriorated fiscal balances over recent years, while revenue as a share of GDP has been declining since 2017. Since 2019, the Maldives undertook notable tax policy reforms, such as (i) establishing a Tax Policy Unit (TPU); (ii) introducing a PIT in 2020; (iii) abolishing a preferential tax regime; (iv) abolishing all tax exemptions and incentives under the foreign investment act (FIA); (v) introducing transfer pricing rules and limiting interest deductions; and (vi) introducing a cross-border withholding tax on all sources of capital income and technical and management fees. As the Maldives recovers from the COVID-19 shock, it is imperative that such tax policy reforms continue to bolster dwindling revenues.

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Total Tax and Nontax Revenue, 2009-20

(In percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Ministry of Finance; and IMF staff calculations.

22. Over the medium term, the policy focus could shift to diversifying the tax base toward domestic sources. Staff suggest the following medium-term (starting in 2023) revenue measures: (i) raising the top marginal income tax rate and lowering income thresholds; (ii) rationalizing Business Profit Tax (BPT) related tax expenditures; (iii) moving towards equalizing the domestic and tourist GST rates; and (iv) other measures such as excises on tobacco, alcoholic products, fuels, and motor vehicles. Staff’s proposed fiscal package includes rationalizing capital expenditure as of 2021 and would substantially improve projected budget deficits and debt levels during the next few years (Appendix 5).

Maldives: Central Government Finances, 2021-24

(In percent of GDP, with and without measures)

article image
Sources: Maldivian authorities; and IMF staff projections.

23. Fiscal stability will require other improvements in the public financial framework.

  • Various diagnostic missions led by technical partners and the IMF highlighted the efforts of the ongoing reforms and the progress achieved in improving public finance management (PFM), and the areas where further improvements are needed: (i) 2019 PIMA, (ii) the Public Expenditure and Financial Accountability (PEFA, 2021), and (iii) the Fiscal Transparency Evaluation (FTE, 2021), with the Maldives being the first small island state to undertake an FTE. As a result, ongoing work is being undertaken to prepare a PFM roadmap prioritizing these PFM reforms (Appendix 6).

  • A holistic approach is needed to strengthen the public financial framework across all the public sector: (i) Many SOEs suffer from weak corporate governance, and rely excessively on government transfers in the form of subsidies and capital contributions of about 2.5 percent of GDP by end of 2020.7 SOEs also undertake non-commercial activities that involve cross-subsidization, while some remain unfunded or under-funded. Fiscal risks posed by SOEs vary by entity and include government guarantees of external debt (HDC, STO) and the need for capital injections or subsidies to support the provision of goods and utilities at fixed prices (STO, FENAKA, and STELCO). Further strengthening oversight and more comprehensive coordination with SOEs are needed to synchronize expenditure, cash flow, and FX needs (Appendix 4); (ii) The 8th amendment of the Decentralization Act came into effect in 2020 giving local councils more power to conduct their own operations. Although the current level of borrowing of local councils is insignificant, the constitution empowers local councils to own property and to incur liabilities. As such, it is critical that robust systems are put in place to carefully monitor local council finances to ensure their sustainability and limit fiscal risks.

24. The numerical targets for fiscal deficits and public debt set in the current 2013 Fiscal Responsibility Act (FRA) have not been met since its inception. Noncompliance is linked to design weakness including unrealistic and multiple fiscal targets, unclear coverage of fiscal aggregates, and inadequate accountability. As discussed with Fund experts during a recent TA mission, high uncertainty on the economic and macro-fiscal outlook, calls for flexibility in the medium-term trajectory of key fiscal aggregates. However, with the flexibility to respond to adverse macroeconomic developments, it is important to set and publicly disclose appropriate objectives and targets with public sector coverage and require strong accountability in reporting any deviations. We encourage the authorities to finish the reform of the FRA.

Authorities’ Views

25. The authorities emphasized that budget deficits are inevitable in the short term as revenue has not recovered to pre-pandemic levels, but considerable progress is being made in various areas. To improve fiscal performance, the authorities have reduced and/or delayed specific capital spending. Moving forward they are working to reduce non-priority spending and rely further on foreign financed projects that are backed by secured financing at favorable rates to improve the financing of the deficit over the medium-term. The authorities noted that rescheduling ongoing capital spending further postpones the associated social and economic benefits and may increase costs due to implementation delays. The authorities expressed concerns over the regressivity aspects of raising the domestic GST rate to equate with tourism GST rates, and intend to mobilize revenue—including the restructuring of the airport service charge and airport development fee which will come into effect on January 1, 2022, developing real-estate tourism and resorts, and allocating a percentage of reclaimed land on different islands to be sold. The authorities consider that significant progress has been made on managing public investment execution to achieve greater transparency. Mechanisms and guidelines have been enhanced with the support of technical partners, in particular the World Bank, leading to greater competitiveness and transparency. Some of the recent developments on this front includes standardizing the SOEs’ procurement guidelines, publication of information of large procurements on the Ministry of Finance website, publication of information on small procurements by government agencies on the government gazette, changes to the public finance regulation to facilitate a bid protesting mechanism and independent review, and publication of information on ongoing and planned public investment projects on the isles.gov.mv portal. The authorities remain committed to improving the fiscal framework by further enhancing the oversight of SOEs and moving forward with a better designed Fiscal Responsibility Act.

B. Adjusting Monetary Policy and Enhancing Exchange Rate Markets

26. The MMA should stand ready to tighten monetary policy to ensure that inflation remains stable and the parallel market exchange rate premium limited. While inflation is yet to pick up, the parallel FX market spread seems to be persistent. The MMA increased the rufiyaa minimum reserve requirement back to 10 percent from 7.5 percent on June 3, 2021. The MMA could consider using open market operations, in rufiyaa, should inflation pick up and/or the parallel spread widens.

27. MMA advances should be used as a last resort and kept within the current approved ceiling. The macroeconomic conditions during the post-pandemic recovery will be substantially different. The COVID-19 shock triggered a large negative demand shock that depressed prices as well as increased liquidity demand due to agents’ precautionary motives. Those aspects will change during the recovery, especially for a country with a de-facto peg and low reserves, putting pressure on prices from both the demand side recovery and higher pressure on the FX parallel rate and passthrough due to larger import demand.

28. Along with reforms to the monetary and fiscal framework to establish credibility in the nominal anchor, the intensification of FX shortages highlights the need for long overdue structural changes in FX markets. To address foreign currency liquidity and due to the shortage of FX, the MMA reduced the USD reserve requirement for banks from 10 to 5 percent and increased the monthly allocation to banks and prioritized the availability of FX to SOEs for the repayment of loans and the import of essentials. The FX rationing to banks, despite recent easing, involves measures inconsistent with Article VIII of the IMF Articles of Agreement. The FX shortage has historically impacted banks’ FX intermediation, leading to the emergence of the parallel market, with significant deviations in recent months given the impact of the pandemic on tourism.8,9

29. Careful management of FX is necessary to ensure the compatibility of policies with the current exchange rate peg. This would include better coordination within the public sector (e.g., to avoid a SOE going to the parallel FX market, as happened in early 2021) as well as taking into account the potential impact of different measures under consideration (e.g., even the minimum wage proposal could have FX repercussions through increased outward remittances). The increase in the negative net currency exposure of the banking system, especially among large banks, suggests, that the capacity to finance the government and SOEs in foreign currency is limited.

30. Staff assess that the external position in the Maldives is substantially weaker than the level implied by fundamentals and desirable policies (Appendix 7). The EBA-lite current account (CA) methodology suggests that the CA was below the norm in 2020 by around 11 percent of GDP after using the COVID-19 adjustor (implying an exchange rate more appreciated than fundamentals by around 20 percent).10 Implementing fiscal adjustment and building reserve buffers are essential to improving the external position. The CA is projected to remain below the norm until 2023. Gross reserve coverage in 2020 was bolstered by grants and multilateral/bilateral foreign financing inflows and the temporary measure of a USD 400 million SWAP with the RBI and will decrease at end-2021.

Authorities’ Views

31. The authorities are proactively managing the system rufiyaa liquidity and are working towards FX market reforms to address dollar shortages and long-lived structural inefficiencies. MMA could consider open market operations in the future, but the current focus is on using minimum reserve requirements. The MMA is closely coordinating, together with the MoF, the access of SOEs to FX for essential needs. The swap facility of USD 250 million has been rolled over for another 6 months on June 28, before the expiration of the bilateral Swap Agreement with the RBI (on July 21, 2021). The swap will mature at the end of December 2021. The authorities highlighted that the CA gap suggested by the EBA-lite CA methodology seems very large.

C. Safeguarding Financial Stability

32. The MMA should remain vigilant about the underlying build-up of financial vulnerabilities, especially exposures to the government that have increased substantially during the crisis. Although a large part of sovereign domestic financing was supported by a concessional USD 250 million loan from the SBI headquarters, intermediated through SBI Male, lending capacity in FX is especially limited, and risks of crowding out of private sector lending could appear in the medium term.

33. The authorities have taken welcome steps to safeguard financial stability, but additional efforts to preserve banks’ financial health, including foreign currency exposures, are needed. A large part of banks portfolio corresponds to loans that benefitted from moratorium initiatives and working capital loans that helped to protect banks’ loan portfolio and borrowers to tide over the income shock linked to the pandemic shock. While the banks on average have strong capital buffers (47 percent capital adequacy in March 2021), the extent of banks’ asset quality problems will only be revealed once the full impact of the pandemic is realized and after supportive and forbearance policy measures are fully unwound. In this context, staff support the MMA policy of allowing regulatory moratorium measures to expire as scheduled in March 2021 and recommend that MMA requires banks to keep a forward-looking provisioning approach because NPL ratios might still have optimistic biases due to remaining moratorium windows. The increase in the negative net FX exposure of the banking system, especially among large banks, is something that MMA should carefully monitor. Strengthening the financial sector by addressing supervision data gaps and making progress on introducing a comprehensive crisis management framework by operationalizing a bank resolution framework and aligning the MMA’s lender of last resort policy are remaining priorities.

Authorities’ Views

34. The authorities reiterated that the MMA is closely monitoring financing stability. They highlighted that current loan classification and provisioning requirements are very prudent. The MMA has also at its disposal macro prudential policies such as reserve requirements in both rufiyaa and foreign currency, foreign currency open position limits, interbank limits, and leverage capital requirements. There are plans to review and introduce other macro prudential requirements and liquidity regulations in the future. The authorities have requested a full FSAP.

D. Structural and Governance Policies

35. There have been actions towards strengthening governance and transparency, including with respect to COVID-19 spending, but further measures could be implemented. The Auditor General Office (AGO), with a mandate from the Parliament, conducted performance audits on all COVID-19 related spending financed by the budget or donors’ funded projects, operations executed by SOEs, and welfare and unemployment schemes.11 Some of these audits are still ongoing, while for the completed ones the AGO noted that there was a high degree of compliance and reports were made public. In a few instances where irregularities were noted, the files were transferred to the Anti-Corruption Commission (ACC)12 for further investigation. While the website of MoF publishes a detailed database on awarded projects, the data do not include a detailed list of beneficial ownership which is recommended. The authorities are also making progress in procuring a consultant to conduct a national risk assessment (NRA) for AML/CFT expected to be completed by June 2022. The NRA will help with the preparations for the AML/CFT assessment of the Maldives by the Asia/Pacific Group on Money Laundering now postponed to 2024, but in preparation the authorities should also take measures to mitigate the risks identified in the NRA, and take other legislative and implementation (effectiveness) measures. Reform proposals and the authorities’ efforts to strengthen governance and transparency in SOEs and PFM institutions are discussed in Appendices 4 and 6.

36. Staff commends the authorities’ aspirations to take forward several long-term visions set in the Strategic Action Plan (SAP) on the blue economy, climate resilience and sustainability, and good governance. The proposed activities to manage the SAP aims to lay the foundation for a more institutionalized planning process with standardized methods and tools for the Maldives. The authorities aim to shift towards full-fledged results-based budgeting and embed the SDGs as part of this process, expected to be put in place in 2022 budget. The main purpose of this is to improve effectiveness of budgeting and to better understand the results achieved from the public investments in key sectors. The authorities acknowledge that one of the barriers to implementing program budgeting is the limited results-based planning and targeting that is practiced within implementing agencies. The SAP bridges this gap by introducing a results matrix that implementing agencies can use and provides the framework for alignment of budgets to results. Staff supports the central bank’s initiative to further advance the implementation of the instant payment system, which could facilitate access to affordable financial services through innovative mechanisms that allow competition, efficiency, and inclusion in the financial sector.

Maldives: SDG Monitoring Table

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Source: Maldives: Data Update for SDGs 2018, National Bureau of Statistics. 1/ Percent of boy/girl under 5 that are stunted. 2/ Atoll/Male access to desalinated water.

Authorities’ Views

37. The authorities are committed to enhancing governance. A number of measures have been introduced in recent years to enhance governance. In 2019 the State Internal Audit function was established to verify the reliability of public financial records, to establish a system to identify the risks in various operations of public offices and to verify that records are maintained in accordance with the public finance rules and regulation. In 2019 a Corporate Governance Code was introduced for state owned enterprises, to ensure that these enterprises operate efficiently, transparently, and in an accountable manner. Under a Public Finance Circular issued in December 2020, all state agencies are now required to publish information on all procurement contracts on the government gazette on a weekly or monthly basis, depending on the size of the procurement. Many of the budget processes have been automated to improve efficiency of budget implementation, while ruled regulations and guidelines have been strengthened to enhance budget credibility. Furthermore, the Ministry is currently in the process of training and certifying financial executives as government agencies to improve accountability at a decentralized level. To enhance the National Resilience and Recovery Plan 2020-2022 and prepare for results-based budgeting framework, the authorities are reprioritizing the SDG goals and targets, including on climate issues, to reflect urgent pandemic related developmental needs.

E. Climate and Others

38. While the authorities have an ambitious agenda on both mitigation and adaptation, securing climate change financing has been difficult (Appendix 8). The authorities noted the large financing needs for investment in renewables and climate resilient infrastructure, to support the transition to the recently announced net zero emission goal for 2030 and large adaptation needs. Staff commends the adoption of the Climate Emergency Act on April 29, 2021, which sets out ambitious conditional plans to achieve net-zero carbon emissions by 2030. The Act mandates to submit the subsequent year’s national carbon budget to the Parliament for approval three months before the end of each year. Lack of capacity to satisfy preconditions for climate finance, including provision of scientific evidence, are some of the main obstacles to timely access to the global climate fund. The authorities also emphasized the need to secure grants and concessional financing to address climate needs in a sustainable manner given limited fiscal resources.

39. Staff looks forward to continued collaboration on capacity development (CD) to implement the ambitious agenda of reforms that the government has set in various sectors. In public finance management this collaboration is focusing on updating the PFM roadmap, managing fiscal risks mainly from SOEs, and updating the legal framework related to debt management. Extensive support is being provided in various aspects on enhancing revenue administration and collection, as well as providing advice on implementing reforms in tax policy. In macroeconomic statistics, ongoing support is being provided to produce supply-use tables and the producer price index, construct a monthly index of economic activity, and government finance statistics following the Government Finance Statistics Manual 2014. Technical assistance is also planned and/or evolving in improving the ITRS system, debt management, domestic debt market development, FX market reforms, and banking supervision and regulation.

Authorities’ Views

40. The authorities welcomed the continuous support from the IMF on capacity development and look forward to the proposed agenda of activities. The authorities clarified that so far, climate financing is offered at the same market rates as conventional instruments, with additional climate mitigating conditionalities, and it did not make for a meaningful alternative available among the financing choices. The authorities expressed the need for Fund assistance with accessing concessional climate finance and capacity development to facilitate their ease of access to climate change financing in general.

Staff Appraisal

41. The Maldivian economy has been hard hit by the COVID-19 outbreak. As elsewhere, the pandemic has led to socio economic hardship and an economic downturn, but the Maldives was particularly susceptible to the COVID-19 shock given its dependance on tourism. The 2020 policy response was broad and coordinated, involving health, fiscal, monetary, and financial policies, which have helped to save lives and livelihoods, and to preserve macro-financial stability.

42. The 2021 economic recovery is projected to be strong, but still fragile and partial. The Maldives successfully opened to tourism in mid-July 2020 and it implemented a successful vaccination plan that helped keep hospitalization rates low during the recent COVID-19 surge in South Asia. Medium-term tourism prospects remain positive, with the airport expansion set to increase capacity.

43. The economic outlook and vulnerabilities are challenging amid large fiscal and external deficits. Financing the planned fiscal deficit would require external budget support in 2021 and 2022. Under current policies, the external position is expected to remain substantially weaker than the level implied by fundamentals, and debt is on an unsustainable path. Risks are tilted to the downside given the recent COVID-19 outbreak in South Asia, uncertainty about economic recovery and of vaccine coverage in many tourist source countries, and political economy dynamics before the 2023 presidential election. Further deterioration in the fiscal and real sectors could also endanger trust in the financial sector.

44. A comprehensive and coordinated approach across all policies is essential given high vulnerabilities. Both urgent and medium-term policies are needed to manage fiscal, external and FX risks, help the recovery, and reduce vulnerabilities. Even well-intentioned policy measures could trigger vulnerabilities if not comprehensive enough and/or untimely.

45. Budget realism and fiscal rebalancing is imperative. While the fiscal deficit and public debt rose sharply mostly due to the pandemic, ambitious spending plans are further putting fiscal sustainability at high risk. For the short-term, and in line with the April 2020 RCF report, staff recommend the rationalization of capital spending plans, including cuts and/or delays to some large public investment projects, carried by either the central government or SOEs. Financing for any higher current or capital spending should also be secured prior to commitments or contractual agreements. Over the medium term, further revenue mobilization is required to support the expansion in capital spending, and to mitigate the risks related to high public debt. There is room to diversify the tax base toward domestic resources.

46. Tightening monetary policy to ensure both that inflation remains stable, and the parallel market exchange rate premium limited, may be needed if pressures increase. The MMA could consider using open market operations should inflation begin to pick up and/or the parallel spread widens. MMA advances should be used as a last resort and kept within the current approved ceiling, since they would involve more risks during the recovery than in 2020, especially for a country with a de-facto peg and low reserves.

47. The authorities have taken welcome steps to safeguard financial stability, and they should remain vigilant about the underlying build-up of financial vulnerabilities. Prudential regulation and supervision (including addressing data gaps) as well as introducing a comprehensive crisis management framework by operationalizing a bank resolution framework could be further advanced to promote the health of the banking system amid higher asset quality risks.

48. Structural changes to the FX market, the amendments to the fiscal legal framework, and efforts to strengthen governance and transparency are core to a comprehensive strategy. As in previous Article IVs, staff does not recommend approval of existing exchange rate restrictions and multiple currency practices (MCPs) and advises the MMA to accept the obligations of Article VIII as a measurable goal of its FX market reforms under study. The intensification of FX shortages during the pandemic highlights the need for fiscal consolidation and long overdue structural changes in FX markets. Finishing the reforms around the FRA are essential for setting and publicly disclosing appropriate fiscal objectives and targets as well as improving accountability. There have been actions towards strengthening governance and transparency, including with respect to COVID-19 spending, but further advances could be implemented. AML/CFT_risk mitigation measures, including to further address corruption risks, and other legislative and implementation measures are also needed. Progress toward completing the authorities’ ambitious agenda on both adaptation and mitigation to climate change and budgetary implementation of climate and other SDG targets should continue.

49. It is recommended that the next Article IV consultation takes place on the standard 12-month cycle.

Figure 1.
Figure 1.

Maldives: Summary of Recent Developments

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Figure 2.
Figure 2.

Maldives: External Sector Developments

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Figure 3.
Figure 3.

Maldives: Fiscal Developments

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Figure 4.
Figure 4.

Maldives: Money and Credit Developments

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Figure 5.
Figure 5.

Maldives: Financial Developments

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Table 1.

Maldives: Selected Economic Indicators, 2017-2026

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Sources: Maldivian authorities and IMF staff projections. 1/ CPI-Male definition. 2/ Domestic financing includes MMA advances, SDF contribution and India’s USD 250 million bond from the State Bank of India branch in Male. 3/ Unsecured financing includes planned new issuances of Sukuk, green and blue bonds.
Table 2a.

Maldives: Central Government Finances, 2017-2026

(In millions of Rufiyaa)

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Sources: Maldivian authorities; and IMF staff projections. 1/ Transfers to the Sovereign Development Fund are recorded as negative domestic financing, and withdrawals as positive financing.
Table 2b.

Maldives: Central Government Finances, 2017-2026

(In percent of GDP, unless otherwise specified)

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Sources: Maldivian authorities; and IMF staff projections. 1/ Transfers to the Sovereign Development Fund are recorded as negative domestic financing, and withdrawals as positive financing.
Table 3.

Maldives: Monetary Accounts, 2017-2026

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Sources: Maldivian authorities; and IMF staff projections.
Table 4.

Maldives: Balance of Payments, 2017-2026

(In millions of U.S. dollars, unless otherwise indicated)

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Sources: Maldivian authorities; and IMF staff projections. 1/ There are no capital transfers. 2/ MMA liabilities include swaps with the RBI. 3/ These flows include external borrowing of the private sector. 4/ Public and private external debt includes IMF, but excludes domestic foreign-currency denominated debt.
Table 5.

Maldives: Selected Financial Soundness Indicators, 2013-2021

(In percent, unless otherwise specified)

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*data for Q1 2021 Sources: IMF Financial Soundness Indicators
Table 6.

Maldives: 2019 Article IV Recommendations and Related Policy Actions

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Appendix I. Tourism Recovery Underway1

1. COVID-19 derailed what was projected to be a high growth year for tourism in the Maldives. Arrivals were projected to grow by around 10 percent in 2020, from their record high level of 1,702,887 in 2019 (around 15 percent growth from 2018). To contain the spread of the virus the Maldives closed arrivals from China starting February 23, 2020 and eventually closed all tourist arrivals on March 27, effective until July 14, 2020.

uA001fig16

Evolution of Arrivals

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authority and IMF staff projections
uA001fig17

Maldives COVID-19 Cases

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Johns Hopkins and Maldives Monetary Authority

2. Since reopening to tourists on July 15, 2020 tourist arrivals have been steadily increasing, recording 59 percent of their pre-COVID levels in 2021 up to end-June. When the Maldives re-opened for visitors on July 15, 2020, average daily arrivals were below 10 percent of their pre-COVID 2019 levels until September 2020. Eventually, as COVID-19 cases globally moderated and flights became more available, arrivals during the peak season (December 2020 to February 2021) were around 60 percent of arrivals in the peak season pre-COVID 2019, despite the fact that important source countries in Asia, such as China were and are still closed. In the first two weeks of May, arrivals were 70 percent of their pre-COVID 2019 levels. The successful reopening to tourists is due in part to the unique one island, one resort model. Conditions of entry for tourists are minimal; entry is granted without quarantine with the presentation of a negative PCR test taken at the first port of embarkation to the Maldives and less than 96 hours prior to the scheduled departure time.2 Staff in resorts have been prioritized for COVID-19 vaccinations, increasing safety in resorts. The recent surge in COVID-19 in South Asia, including the Maldives, caused some countries, particularly in Europe (Germany, UK, Italy), to implement restrictions on travelers to the Maldives.

uA001fig18

Tourist Arrivals in percent of pre-COVID 2019

(in percent of 2019)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Maldives Monetary Authority
uA001fig19

Occupancy Rate

(in percent, based on bed-nights)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Ministry of Tourism

3. The Maldives outperformed competitors, in part because it was able to lower earlier restrictions on tourists upon arrival. According to the Oxford Policy Tracker the entry requirements in the Maldives have been lower than most competitors since its reopening to tourists in July 2020. Relatedly, daily flight arrivals to the Maldives have recovered faster than most competitors.

uA001fig20

Tighter Restrictions on Arrivals Relative to Maldives*

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Oxford Policy Tracker*dots represent periods where restrictions were tighter than the Maldives
uA001fig21

Daily flight arrivals

(7 day rolling average)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: FlightRadar24

4. The composition of tourist arrivals post-COVID has changed with arrivals from India and Russia around 40 percent of all arrivals after reopening on July 15, 2020. Other European and non-Asian countries make up the bulk of the remaining arrivals. In contrast, before COVID-19, China and other Asia Pacific countries were major sources of tourists. Arrivals from these countries have dwindled given their restrictions on travel since the start of COVID-19. As these restrictions ease there will be an upside for the Maldives. On the other hand, risks have materialized from the recent surge of COVID cases in India, and across South Asia. On April 27th a temporary suspension was placed on visitors from India to hotels and guesthouses in locally populated islands. As of May 13, 2021, all tourist visas for travelers originating from South Asia were temporarily halted, causing arrivals to decline to 52 percent of their pre-COVID levels between May 13 to June 30, 2021. The halt was lifted for resorts on July 15, 2021 and planned for guesthouses and islands on July 31, 2021. Nonetheless, tourists from other regions continue to travel to the Maldives with arrivals from Russia and countries not in Asia or Europe increasing their share in arrivals to the Maldives post-COVID. Arrivals excluding those originating in India were 61.5 percent of pre-COVID levels between May 13 to June 30, 2021.

uA001fig22

Share of Tourist Arrivals from Region

(in percent of total)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Maldives Monetary Authority*Pre-COVID : January 1, 2019 to March 26, 2020. Post-COVID: July 15, 2020 to June 30, 2021
uA001fig23

India

(7-day rolling average)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authority and Johns Hopkins
uA001fig24

Russia

(7-day rolling average)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Maldives Monetary Authority and Johns Hopkins

Appendix II. COVID-19 Evolution and Measures1

1. Evolution. After experiencing record cases of COVID-19 in mid-May 2021, cases have been declining since. New cases of COVID-19 declined to 105 on July 27, 2021 (the highest single-day spike to a record of 2194 was on May 20). The positivity rates have declined to about 1.8 percent as of July22, 2021 (31 percent on May 20). 16 people are currently hospitalized and220 deaths have been registered since the beginning of the pandemic. Hospital bed capacity for reating patients is 471, and together with the mostly expatriate health professionals capacity (many from India) seems adequate under current circumstances. Recent statistics indicate that COVID-19 incidence is highest among the 21-40 years group followed by children.2

uA001fig25

Daily New COVID-19 Cases

(Rolling 7-day average, cases per million)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Johns Hopkins University CSSE Covid-19 Data.
uA001fig26

The Share of Daily COVID-19 Tests that are Positive

(Rolling 7-day average)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Johns Hopkins University CSSE Covid-19 Data.

2. Containment measures and reopening the economy. Beyond the international travel measures noted in Appendix 1, the Maldives was placed on full lockdown from April 15 through May 28, 2020. The government has extended the nation’s ongoing state of public health emergency, originally implemented on March 12, 2020, through at least August 2, 2021. After being lifted on April 1, 2021, the COVID-19-related night curfew that had been in force across the Greater Malé region since Feb 2 was re-instated on May 6, including in several Atolls. Other localized and nationwide restrictions on travel, gatherings, business operations, in-person school and daycare are also in place.3 On April 16, 2021, the Ministry of Tourism announced that resort workers could travel to residential islands without the requirement to quarantine, if they have completed two weeks after their second COVID-19 vaccination. These and other travel relaxations for fully vaccinated people were suspended on May 3, 2021, and a negative PCR test requirement has been reinstated, due to the recent daily record high cases of COVID-19. All tourist visas for travelers originating from South Asia were also temporarily halted, but they resumed on July 15. Travel from Europe remains restricted as the number of cases remain above the European cut-off of travel of 50 cases during a week per 100,000 people.

3. Vaccination. The Maldives ranks high in terms of the percentage of population having received at least one dose of COVID-19 vaccine (mostly AstraZeneca, followed by Chinese Sinopharm, and a small proportion of Pfizer). The authorities have also acquired the recently approved Russian Sputnik vaccine. It ranks close to the US and UK in terms of doses administered per 100 people. Currently, about 37 percent of the Maldives’ population are fully vaccinated, and 59 percent of the population have received at least the first dose of the vaccine. About 99 percent of tourism workers have been vaccinated.

COVID-19 Vaccinations

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Sources: Our World in Data project, Univ. of Oxford.

Appendix III. Risk Assessment Matrix 1/

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1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. 2 The disease proves harder to eradicate (e.g., due to new virus strains, short effectiveness of vaccines, or widespread unwillingness to take them), requiring costly containment efforts and prompting persistent behavioral changes rendering many activities unviable. For countries with policy space, prolonged support—while needed to cushion the economy—exacerbates stretched asset valuations, fueling financial vulnerabilities. For those with limited space, especially EMs, policy support is insufficient. 3 Pandemic is contained faster than expected due to the rapid production and distribution of vaccines, boosting confidence and economic activity. 4 Limited access to, and longer-than-expected deployment of, vaccines in some countries—combined with dwindling policy space—prompt a reassessment of their growth prospects (for some Emerging and Frontier Markets triggering capital outflows, depreciation and inflation pressures, and debt defaults). 5 A reassessment of market fundamentals (e.g., in response to adverse COVID-19 developments) triggers a widespread risk-off event. Risk asset prices fall sharply and volatility spikes, leading to significant losses in major nonbank financial institutions. Higher risk premia generate financing difficulties for leveraged firms (including those operating in unviable activities) and households, and a wave of bankruptcies erode banks’ capital buffers. Financing difficulties extend to sovereigns with excessive public debt, leading to cascading debt defaults. 6 Despite renewed efforts to reach multilateral solutions to existing tensions, geopolitical competition leads to further fragmentation. Reshoring and less trade reduce potential growth.

Appendix IV. Fiscal Risks of Non-financial State-Owned Enterprises1

A country’s vulnerability to fiscal risks depends on the structure of its economy, the organization of the public sector, and the interlinkages between the public and private sectors. This appendix focuses on historical analysis of the fiscal risks of the nine main non-financial state-owned enterprises (SOEs), highlighting their composition, the probability of their being major sources of fiscal risks in the short and long term, and their relationship with the central government. Building on previous capacity development, the note proposes various measures for moving forward to better analyze and mitigate such fiscal risks.

1. SOEs play an important role in the economy of the Maldives. Their activities are diverse and cover strategic sectors such as housing, utilities, transportation, construction, trade, and banking. As of December 2020, the public sector of the Maldives comprises 32 SOEs, of which four are financial corporations including the Maldives Pension Administration Office (MPAO) while the others are non-financial corporations. Five are publicly listed. In 2019, the total unconsolidated assets of these SOEs represented 134 percent of GDP.

uA001fig27

Maldives: Sectoral Distribution of SOEs

(Percent of Total Assets)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: IMF Staff calculation and data from authorities

2. While the financial SOEs have relatively sound financial positions, the non-financial SOEs are a major source of fiscal risks for the government. The source of fiscal risks can be summarized by (i) excessive reliance on government support, (ii) soft SOE budget constraints mainly on guarantees, (iii) an increasing number of quasi-fiscal activities, and (iv) weak corporate governance. Ongoing reforms are taking place to address these weaknesses such as strengthening the implementation of the sovereign guarantees’ framework and the update for the privatization and corporatization of government businesses and monitoring and evaluation act.

3. To assess the magnitude and profile of risks, the analysis in this appendix focused on the nine biggest nonfinancial SOEs in terms of assets and liabilities. Four SOEs are 100 percent owned by the government, and three are majority owned by the government. For the remaining two SOEs, although the government does not own the majority of shares, it has enough control that they can be considered public corporations. However, the analysis didn’t explore the issue of sectorization of government entities which could lead to another 32 SOEs being included in the public corporations’ sector, or whether a reclassification is necessary in order to bring these SOEs within the general government boundary. This analysis assumed that the nine biggest SOEs conducted market activities.

List of SOEs Analyzed

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4. This study focused on the likelihood of a risk realization impacting public finances. As such, the analysis used a template developed by the IMF’s Fiscal Affairs Department (FAD) that is built upon the methodology used by credit agencies. The template includes historical data from the financial statement of SOEs entailing calculation of a standardized set of financial ratios focusing on three aspects of financial performance - profitability, liquidity, and solvency. The results were used to determine an overall risk rating (on a scale of five)2 for each SOE by calculating a simple average and the Z-score methodology.3

Overview of Performance Indicators for Nonfinancial SOEs

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Source: IMF Staff calculation and data from authorities

5. The analysis was based on available data prior and during the COVID-19 pandemic. The analysis was done for the period of 2015-2020 showing indicators of high-risk activity mainly related to liquidity performance where most SOEs have a high risk of fulfilling their short-term obligations. The analysis below presents an overview of the health check of SOEs assessing further the impact of the pandemic on the financial health of these SOEs exploring how a cash-strapped government with a weak balance sheet and little fiscal space would able to provide financial support and at what cost.

Overall Risk

6. In general, the analysis indicates an increase in the trend of risk over the past six years exacerbated by the impact of the pandemic in 2020. In 2015, the majority of these SOEs has a low to moderate profile of risk whereas by the end of 2019, this trend was evolving to more moderate to high risk. However, in 2020, the risk profile has deteriorated further due to the adverse impact of the COVID-19 pandemic, and as result most of these SOEs are presenting a high to very high profile of risk. In fact, SOEs such as MACL and MPL have seen their revenue heavily impacted by the pandemic in particular due to the border closures in 2020 (3 months) to contain the spread of the virus. Furthermore, the analysis yields different results once each set of performance indicators is analyzed. The liquidity indicators appear to be the main factor behind deteriorating risk ratings. The worsening liquidity position has resulted in extended budgetary support to assist SOEs pay their debt service obligations (For example AIA, HDC, and STELCO). The following sections will analyze in detail the underlying reasons for the increase in overall risk. It is to be noted that the data of some SOEs like HDC and STELCO are still preliminary and not complete which might lead to a different profile of risk once the final data are analyzed.

Overall Risk Rating for 2015-2020

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Source: IMF Staff calculation and data from authorities

Profitability Performance Indicators

7. Two ratios of the profitability indicators were used to assess risk:

  • Cost recovery measures the ability to generate adequate revenue to cover operating expenses. If the ratio is less than 1, the entity is assessed to be unable to maintain its assets and operate sustainably in the absence of supplementary funding.

  • Return on equity measures the ability to turn equity investments into profit generation. For loss making SOEs, indicator shows of how quickly the government’s equity is being eroded.

8. The sample analyzed showed that most of these SOEs are facing high to very high cost in recovery. The worsening trend over the years was exacerbated during 2020 with the impact of the pandemic. Further analysis of the composition of revenue and prices being charged would provide more clarity on the sources of risks, as well as the composition of the related costs. It is likely that the government would fix the prices of delivering public goods/services irrespective of operating costs. Therefore, SOEs would increase their dependence on government support and funding, thereby raising government’s exposure to SOEs. This would lead to the question of how realistically these SOEs are operating on a market basis and the need to review the sectorization and the status of these entities and whether some should be placed within the general government boundaries as opposed to operating as a public corporation.

9. In 2020, the return on equity displayed an increase in risk profile compared to previous years, increasing the risk of erosion of equity. Although for all SOEs except AIA, the risk remains on the moderate side, further analysis would be needed to analyze the composition of the assets and equity and to determine the source of profit generation and whether it is due to government intervention or other operations (capital injections, revaluation, etc.). For AIA, the risk is very high because equity showed a negative stock due to accumulated deficits (therefore retained earnings) over the years necessitating a recapitalization. For HDC, the data for 2020 is not complete (for the profit and loss, preliminary data was reported until November 2020) so the ratios presented for 2020 might change. In addition, the very low risk displayed in 2017 and 2018 on the return on equity is related to a revaluation operation. The gain generated from the revaluation was included in the profit of HDC during 2017-2018, reflecting a high amount of EBITDA.4 The evolution of the return on equity of STO is marked by the one-time write off of the hotel project in Hulhumale in 2019 which improved the risk profile in 2019.

Overview of Risk Related to Profitability Indicators for 2017-2020

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Source: IMF Staff calculation and data from authorities

Liquidity Performance Indicators

10. Two ratios of the liquidity indicators were used to assess the short-term risk:

  • The quick ratio measures a SOE’s ability to meet short-term liabilities by using only the most liquid short-term assets.

  • Credit turnover days measures the speed with which an SOE pays its suppliers. An increasing ratio over time indicates that the SOE is paying suppliers more slowly and may indicate a worsening financial position.

11. For most of the sample, analysis highlights the elevated risk in the short-term related to liquidity pressure. The quick ratio illustrated that all the sample faces higher degrees of risk in meeting their short-term obligations with the available liquid short-term assets. The pandemic further added pressure on liquidity. As for creditor turnover days, all the sample with the exception of STELCO and MWSC showcased very high risk for this indicator. To better understand the implication for the financial position, one must also analyze the debtor turnover days which measures the speed with which a company is paid by its customers. Also, in this case, most of the SOEs face challenges with collecting bills from their customers. This highlights the issue of accumulation of cross arrears in the public sector making it more difficult to manage the liquidity needs.

uA001fig28

Net liquid Assets of 9 SOEs (2020)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: IMF Staff calculation and data from authorities

Overview of Risk Related to Liquidity Indicators for 2017-2020

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Source: IMF Staff calculation and data from authorities

Solvency Performance Indicators

12. Solvency performance indicators aim at measuring the health of SOEs in the longterm. This note focused on two indicators:

  • The debt-to-assets and debt to EBITDA ratios help to assess the debt burden on the entity as well as its ability to pay off debt in the future. They indicate whether the company is facing solvency issues.

13. Analysis showed that while solvency risk was less elevated for most of the SOEs prior to 2018, risk had since increased. It indicated that SOEs don’t face high risk profiles in the shortterm but also their risks are elevated for the long-term meaning that their ability to pay off their debt is at risk. While 36 percent of liabilities are already monitored by government through the sovereign guarantees and on-lending operations, around 10 percent of GDP of estimated liabilities remain outside the active monitoring of government. The scope and risk of shock and faltering on the payment of debt would place enormous pressure on an already weakened financial position of the budget.

Overview of Risk Related to Solvency Indicators for 2017-2020

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Source: IMF Staff calculation and data from authorities

Government Exposure to SOEs

14. The SOEs rely excessively on government support. Many SOEs provide goods and services at controlled prices, suffer from weak corporate governance, and rely excessively on government transfers in the form of subsidies and capital contributions (2 percent and 4 percent of GDP respectively in 2020). They also undertake several non-commercial activities that involve crosssubsidization, some remain unfunded or under-funded.5

15. For the nine SOEs analyzed, government support varies from direct transfer to providing sovereign guarantees on their borrowing:

uA001fig29

Evolution of Stock of Guarantees 2014-2020

(Percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: IMF Staff calculation and data from authorities

  • Guarantees: Government guarantees are provided to three SOEs (STO, HDC, and STELCO) amounting to around 21 percent of GDP in 2020. The largest amount of guarantees is provided to HDC (13 percent of GDP) to secure foreign funding of housing projects. This trend is continuing in 2021 with the new housing corporation Fahi Dhiriumlhum Corporation for which the government pledged around USD 300 million in sovereign guarantees subject to implementing the sovereign guarantee guidelines and the proper due diligence process. With a relatively high and rapidly growing stock of guarantees, mainly in foreign currency, exposing the government to the related currency risk, the legal framework would need strengthening to further enhance the management of guarantees. The legal framework includes provisions to limit the issuance and stock of guarantees, as well as to provide guidance on the management process. However, these are not fully implemented. The FRA (article 33) indicates that any guarantee given in the name of the State should not exceed the amount allocated in the national budget. This clause is not currently being implemented, and the budget does not include any ceiling on the total stock of guarantees or the total amount of guarantees that could be issued during the year. The descriptive notes of the budget include only an overview of the outstanding stock of guarantees but not any restrictive ceiling. On the management side, the weaknesses are observed in various areas: (i) the guidance on issuance of sovereign guarantees does not include provisions on carrying out the necessary analysis when a request for guarantee is received and properly assessing the related fiscal risk; (ii) some clauses in the current guidelines are not properly implemented such as the eligibility criteria, the guarantee limit, or the collection of guarantee fees; and (iii) due to lack of expertise, the Ministry of Finance (MOF) does not conduct any assessment of credit risks involved. MOF is currently working toward strengthening the process and developing the necessary expertise with the support from development partners. Although technically no government guarantees have been called, MOF has been supporting the SOEs in repaying the debt service related to these guarantees through capital contributions and direct lending, adding additional pressure on the government’s fiscal position.

  • On-lending and direct Treasury lending: In 2020, the total of on-lending and direct borrowing from the Treasury is estimated at 15 percent of GDP. The increase in this type of borrowing reflected a high risk of non-performing loans. For example, HDC borrowed from the Treasury around MVR 670 million in 2019 to refinance principle and interest payments for contracted foreign loans which already benefited from sovereign guarantees. FAD technical assistance in February 2020 reported that this category of loans (around 1.8 percent of GDP by end-2019) are considered non-performing.

  • Subsidies and capital contributions: Subsidies are mainly directed toward subsiding food and a fuel subsidy to control the cost of electricity, while capital contributions are mainly to perform capital injections for SOEs that are facing weak financial positions.

  • Cross holding (Payables/Receivables): Many types of operations can occur between related parties such as sales of goods and services, dividend paid/received, lending/borrowing, and taxes paid. In terms of sales of goods and services, many SOEs indicated an increased amount of unpaid bills by the government. More detailed data are needed to assess whether these receivables fall under normal conditions of payment or whether the government and relevant agencies are accumulating arrears further increasing the government exposure and risk. For example, STO registered by end of 2020 around MVR 790 million of government entities’ unpaid bills. The delay in collecting receivables is also affecting the SOEs ability to pay suppliers and not accumulating arrears.

Overview of Selective Figures of Government Support for 2017-2020

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IMF Staff calculation and data from authorities. Note: Data highlighted in red in 2020 is an estimation because the detailed information as presented in the annual financial statements was not available by the time of drafting this note

Conclusion

16. The analysis supports the need to strengthen the oversight of SOEs and rationalize government support. The high-risk activity mainly related to financial liquidity support can exacerbate the government’s fiscal position especially when there is no fiscal space and a weak public balance sheet.

17. To better manage these fiscal risks and reduce the government’s exposure and its implications on the budget, various measures are needed to mitigate these risks:

  • In the short-term the probability of liquidity risk materializing is increasing. With limited fiscal space, it would be recommended, that the government prioritizes the SOE support in case of competing demands. The government’s support to SOEs should target the most critical areas. For example, if the lack of support could endanger basic services (utilities), then this sector should get priority.

  • Strengthening the institutional framework for SOE fiscal risk oversight:

    • Establish a new MOF unit for oversight of fiscal risks that focuses first on SOE-related fiscal risks. As such, the unit would work closely with the MOF departments and the Privatization and Corporation Board (PCB), and report to a new Fiscal Risk Committee in MOF.

    • Liquidate highly or fully budget dependent SOEs or restrict their autonomy.

    • Progressively make unlisted commercial SOEs ‘listable.’

  • Rationalizing government support to SOEs:

    • Strengthen scrutiny of SOE capital expenditure proposals and improve SOE budget planning.

    • Strengthen criteria, evaluation, and monitoring of guarantees. This would require practices to enforce compliance with current procedures which would help set mitigation measures such as a ceiling on total outstanding guarantees or ceiling on guarantees issued and allocated during the year, as well as enforcing the criteria of eligibility and the fee collection. Furthermore, strengthening the sovereign guarantee mechanism would require the review of the guarantee issuance policy to include: (i) a credit risk analysis, (ii) regular reviews of risks surrounding the portfolio of guarantees, and (iii) developing suitable risk mitigation measures, including adoption of a more risk-based approach to charging guarantee fees.

    • Include spending and performance data in PCB reports.

  • Promoting transparency in monitoring and reporting on SOEs:

    • In the current publication of SOEs, include an overview of the financial performance of the overall public corporation’s sector and disclose all its transactions with the government.

    • Set-up a central database of core financial information, risk indicators, and state support for public corporations to facilitate assessment of fiscal risks related to the public corporations and require the reporting of the quasi-fiscal activities.

    • Publish an ownership policy to clarify the government’s policy and financial objectives as a shareholder.

    • Identify and disclose quasi-fiscal activities, preferably with their respective size undertaken by public corporations.

    • Strengthen the risk analysis of individual SOEs with a systematic analysis of financial performance and position.

Appendix V. Medium-Term Measures to Increase Revenues1

1. Further revenue mobilization would help to improve the fiscal situation. The high dependence on revenue from the tourism sector makes the broadening of the tax base in the Maldives challenging. The following measures can help diversify the tax base and strengthen tax policy to sustainably finance priority spending, with domestic revenue to be mobilized after tourism has recovered and provided there is adequate social spending targeting the most vulnerable: (i) lowering the thresholds at each level of income and raising the top marginal income tax rate; (ii) rationalizing Business Profit Tax (BPT) related tax expenditures; (iii) moving towards equalizing the GST rates between domestic and tourist sectors; and (iv) implementing other measures such as excises on tobacco, alcoholic products, fuels, and motor vehicles as well as increases in airport service charges.

2. Raising the top marginal income tax rate and lowering the thresholds at each level of income: The PIT implemented in January has four rates, with a top marginal tax rate of 15 percent. Incomes below 720,000 MVR, or three times GDP per capita, are exempt from paying income tax, while the top marginal tax rate applies to incomes above 2.4 million MVR or 11 times GDP per capita. These income brackets are generous by international comparisons. Tourist dependent economies such as Barbados and Mauritius both have top marginal tax rates at around 2 times GDP per capita. The income distribution in the Maldives is concentrated on the exempt threshold according to household survey data. The individual income tax has raised only 71.5 million MVR up to mid-April 2021, a very small fraction of revenues, but is heavily impacted by the pandemic. Lowering the income brackets, including the exemption threshold, is essential to raising the PIT revenue potential and to improving the equity features with respect to the overall income distribution. The comparison to peer countries suggests that there is also scope to raise the top marginal tax rate. The 2019 TA report on “Reform Options To Strengthen Tax Policy” has suggested reforms in these areas could raise 650 million MVR, or around 0.7 percent of 2019 GDP, annually.

uA001fig30

Highest/Lowest PIT Rates in Small Island Developing States

(In percent)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: USAID Collecting Taxes Database

3. Rationalizing Business Profit Tax (BPT) related tax expenditures: While the existing BPT is well designed, there is room for improvement.2 Recent FAD technical assistance has recommended that for businesses that fall below the GST registration threshold there should be a uniform turnover tax of around 3 or 4 percent, in line with international best practice. This tax is relatively simple to administer and would significantly reduce compliance costs on small businesses and administration costs on the revenue authority MIRA. Businesses below the GST registration threshold account for 60 percent of businesses, but only 1 percent of revenue. The tax should be expanded so that legal persons and individuals providing professional services (such as accountants, lawyers, and physicians) can be taxed under the reformed BPT. With small businesses moved into the simplified tax regime, it is no longer necessary to include an MVR 500,000 tax-free threshold under the BPT. Moreover, the BPT rate of 15 percent could increase as it is lower than the average rate of 22 percent that includes the zero rates of peer countries.

uA001fig31

CIT Rates in Small Island Developing States

(In percent)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: USAID Collecting Taxes Database

4. Moving towards equalizing the GST rates between its domestic and tourist sectors: The Maldives has two GST tax rates at 6 and 12 percent for the domestic and tourist sectors, respectitively. By international standards these rates are at the lower end, but despite this, GST accounts for around 10 percent of GDP. This dual rate system is unusual internationally, although several other tourist dependent island economies have similar practices (see chart). The GST rate for tourism is lower in the other countries that have dual rates. In the short-to medium term, and in view of the relatively low rates of the GST particularly in the non-tourism sector, rates could be gradually harmonized by increasing the 6 percent rate. The introduction of a modern broad-based VAT at a uniform tax rate should remain an overarching policy objective, but mainly for the medium- to long-term. Raising the GST rate by 1 percentage point on domestic revenues would yield 447 MVR, or 0.5 percent of 2019 GDP. A full harmonization of the tax rates would see revenue increase by 3.4 percent of GDP. While consumption taxes are generally less progressive than taxes on income or wealth, their regressivity effects can be addressed by using part of the generated revenue for pro-poor expenditures.

uA001fig32

GST/VAT Rates in Small Island Developing States

(In percent)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: IMF-FAD Revenue Assessment Tool; USAID Collecting Taxes Database

5. Other measures: Excises could supplement the GST in generating potentially important additional revenues from taxes on goods characterized by inelastic demand and often significant negative externalities. This would include excises on tobacco, alcoholic products, fuels, and motor vehicles. One further option to raise revenues in the short-term is to increase airport service charges—this was planned before the pandemic, but it was temporarily postponed due to the fall in tourist arrivals—as well as introducing user-fees such as tolls.3 The airport service charge (ASC) is currently set at 25 USD per tourist arrival and 12 USD for resident passengers. A doubling of the levy to 50 USD for tourists could raise 650 million MVR, or 0.7 percent of GDP based on 2019 tourist arrivals.

6. Strengthening revenue administration is key to improving revenue performance. Changes to the tax legislation may impact voluntary compliance if taxpayers perceive taxes as too high. MIRA’s capacity to monitor and address non-compliance is key to realizing the PIT reform gains. Reform priorities for MIRA include: (1) Embedding compliance risk management, both domestic and international, into MIRA’s processes, and improving its IT functionality and data collection sources; (2) Strengthening MIRA’s capacity to identify and address international tax risks; and (3) Identifying and addressing PIT-specific risks. Estimating tax expenditures and publishing the results would strengthen fiscal reporting and facilitate informed decision making.

Appendix VI. Enhancing Transparency and Improving Sustainability of the Public Finances1

This appendix summarizes the efforts of the Maldivian authorities to implement public finance management (PFM) reforms to enhance transparency and strengthen decision-making, aiming at long-term sustainability of government finances. It also reflects the high degree of integration between IMF capacity development and surveillance activities towards supporting efforts for tackling key identified fiscal vulnerabilities.

1. The Maldives is committed to enhancing transparency and improving the framework for achieving fiscal sustainability. In the last two years, the PFM system underwent various diagnostic missions by technical partners and the IMF : (i) a Public Investment Management Assessment (PIMA, 2019), (ii) a Public Expenditure and Financial Accountability (PEFA, 2021),2 and (iii) a Fiscal Transparency Evaluation (FTE, 2021), the first small island state to undertake an FTE. These diagnostic missions highlighted the efforts of the ongoing reforms and the progress achieved in improving public finances (for example, see below the heatmap of the FTE and the comparisons with other regions) but also highlighted areas where further improvements are needed. As a result, ongoing work is being undertaken to prepare a PFM roadmap prioritizing PFM reforms for addressing weaknesses identified in these diagnostic missions. Core basic PFM reforms are being supported by various developments partners (e.g., World Bank, ADB, and UN, among others). The following sections will focus on the support provided by the IMF.

2. The IMF has been involved in providing support on various PFM topics. During the COVID pandemic, the authorities were very active in engaging with the IMF on topics related to enhancing the Fiscal Responsibility Act (FRA) to maintain fiscal sustainability, oversight of SOEs and managing fiscal risks, and debt management. Efforts in these areas should continue.

  • (FRA: The current 2013 FRA aimed at reducing public debt and achieving fiscal stability. However, the government has not met the FRA’s numerical targets for fiscal deficits and public debt. The design of the framework and insufficient government commitment led to noncompliance with numerical targets. To ensure fiscal sustainability and enhance transparency, the authorities are committed to introducing a new FRA law in 2021. The impact of the COVID-19 pandemic would make it unrealistic to calibrate the fiscal targets reaching more credible numerical rules. As a result, and with the support of technical assistance from the IMF, the authorities plan to introduce a new law with “principles-based approach” accompanied by strong accountability requirements. A new “intermediate” government fiscal document, a charter of fiscal responsibility, could be produced to quantify fiscal targets. This approach would allow for more flexibility during crises periods, while preserving the quantification and monitoring of medium-and long-term fiscal and debt objectives.

  • Oversight of SOEs and managing fiscal risks: As discussed in Appendix 7, while SOEs are sources of significant fiscal risks, the fiscal oversight of SOE is weak. Technical support aimed at strengthening the institutional framework for SOEs’ fiscal risk oversight, rationalizing government support to SOEs, and promoting transparency in monitoring and reporting on SOEs. For the latter, ongoing and planned work plan will focus on providing support to enhance SOEs reporting and over time produce a consolidated SOEs balance sheet, as well as develop the adequate tools to strengthen the analysis of fiscal risks of SOEs.

  • Debt Management: To achieve debt sustainability, promote transparency and accountability in the decision-making process, a robust legal framework for public debt management is essential. In this context the authorities are also revising the Public Debt Law (PDL). Technical support by the IMF aims to ensure that the new revised law would set the institutional aspects of the debt management function, require an annual borrowing plan, and list the recording and reporting responsibilities.

  • Further to the ongoing legal framework reforms, the authorities should provide further attention to reforms related to public investment management. The 2019 PIMA report indicated that most public investment institutions following the PIMA framework (planning, allocation, and implementation) are at basic stages of development and implementation, Since fiscal space is limited, efficient public investment is essential to ensure value for money and returns from investment. In addition to strengthening transparency, focus should be given to (i) enhancing the disclosure in the budget documentation by including total obligations under multiannual investment projects that exceed five years, (ii) making cost benefit analyses routine for all major projects using a consistent and published methodology, and (iii) amending the public finance regulations to require that all major projects are subject to an open and competitive tender process, including SoEs, thereby providing the opportunity to maximize value for money from public processes.

3. The pension system in the Maldives would require reforms to mitigate the relevant fiscal risks once the post-COVID-19 economic conditions are back to normal. The pensions system in the Maldives is intricate, with multiple schemes. There is a basic unfunded scheme, financed by the government and providing a lump-sum benefit of MVR 5,000 to every citizen reaching 65 years. This scheme coexists with the Maldives Retirement Pension Scheme (MRPS), a defined-contribution scheme. In addition, there are other state pension schemes, operated by various government institutions for their employees. Except for MRPS, these schemes are unfunded and represent 21 percent of the total amount (MVR 1.4 Billion, i.e., 2percent of GDP) disbursed for pensions in 2019.

4. Being unfunded, the long-term risks of these pension schemes are high and the mitigation measures would require: (i) conducting a comprehensive review of the different pensions schemes coexisting in the Maldives, (ii) assessing the current funding of these schemes to assess their long-term sustainability and, if needed, developing required forms, (iii) performing an actuarial study of the different schemes to assess current long-term sustainability and develop the required action plan if needed, and (iv) developing a framework to support management of longterm fiscal risks, including: (a) periodic actuarial review of the pensions schemes, (b) periodic review of the funding and sustainability, and (c) regular publications covering the assessment of the sustainability of the different pensions schemes.

Summary Heatmap of the Fiscal Transparency Evaluation

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uA001fig33

Fiscal Transparency Evaluation Scores- International Comparison

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Maldives Fiscal Transparency Evaluation Report.Note: the spider charts have three levels of ratings: The first circle from the center in the chart illustrates a basic practice, the second circle refers to a good practice and the last circle to advance practice. If no bar is present in the chart, this indicates that the level of practice is not met.

Appendix VII. External Sector Assessment1

The external position in the Maldives is substantially weaker than the level implied by fundamentals and desirable policies. The Maldives is vulnerable to external shocks and is heavily reliant on the tourism sector. Pressure on the external sector stems from a large current account deficit (CAD) and low reserve buffers. Staff recommend urgently rationalizing public capital expenditure plans and building foreign exchange reserve buffers to lower vulnerabilities and reduce risks.

1. While the CAD in 2020 contracted by 25 percent in US dollars because of the COVID-19 shock, the CAD in percent of GDP remained elevated at 30 percent of GDP. The COVID-19 shock led to a decline in imports of goods and services along with a decline in tourism receipts in 2020. The CAD had been elevated since 2016 due in part to large infrastructure projects, which have very high import content. Over the next few years, the authorities plan to execute an ambitious capital expenditure agenda and the CAD is expected to remain elevated. The CAD has generally been financed through FDI, mostly channeled to the private sector, and external debt, largely to finance public and publicly guaranteed infrastructure projects.

uA001fig34

Balance of Payments

(in percent of GDP)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Data from authorities and IMF staff projections
uA001fig35

Financial Account

(in millions of USD)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: Data from authorities and IMF staff projections* Includes net PPG external borrowing

2. While pressures on FX markets remain, they had partially diminished with the increase in tourist arrivals. The sharp decrease in tourism arrivals in March 2020—the main source of FX for both the public and private sector—coincided with the increase in the parallel market spread that peaked about 30 percent in September 2020. Improvements in tourist arrivals have been associated with a decrease in the parallel market spread, but its evolution is also a function of other FX needs (e.g., imports and debt service). The stabilized exchange rate arrangement remains a suitable nominal anchor for the Maldives.2 In line with technical assistance, staff recommend several structural reforms to improve the overall balance of FX. These include updating and enforcing FX regulation to facilitate more effective oversight of the market and promote the channeling of FX supply through the domestic banking system, widely applied regulations that encourage the sole use of MVR, and fiscal adjustment.

uA001fig36

Parallel Exchange Rates - Estimates

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: IMF staff estimates and various news sources.Note: The parallel market rate of June is the monthly average rate as of June 15th 2021.
uA001fig37

Exchange Rate Changes and REER level

(in y/y percent change or index)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: INS and staff calculations

3. The REER has been depreciating since 2020, and was less than 5 percent above the pre-2011 devaluation period. In general, the competitiveness of the tourism industry is relatively insulated from REER movements because most resorts price in FX and their employees tend to be foreign workers by a large proportion.

4. The IMF’s EBA-lite CA and REER models indicate that the Maldives’ external position is substantially weaker than the level implied by fundamentals and desirable policies.

  • CA approach. The cyclically adjusted CA is estimated at -21.6 percent of GDP in 2020. This adjusted CA incorporates a 9.9 percent of GDP adjustment due to the exceptional COVID-19 shock. The COVID-19 adjustor adjusts for the temporary shock to tourism from COVID-19. In the case of the Maldives, it is calculated using the difference in the ratio of tourism receipts to GDP pre- and post- COVID-19. The multilaterally consistent cyclically adjusted CA-norm is -11 percent of GDP3 leading to a CA-gap of -10.6 percent of GDP. The elasticity of the trade balance with respect to changes in the REER is estimated at -0.5 indicating that the REER would need to depreciate by about 21.4 percent to close the CA-gap. This depreciation need is lower than the estimated 30 percent during the 2019 Article IV consultation.

  • Policy gap. The policy gap is the difference between current and desirable level of policies.4 The largest negative contributors to the policy gap are the cyclically adjusted fiscal balance and reserves. The desirable fiscal policy stance would bring public debt on a faster downward trajectory and reserves should be accumulated to increase buffers over the medium term. At nearly half of the CA gap, implementing fiscal adjustment and increasing reserve buffers are essential to improve the external position.

  • Index REER approach. This approach estimates the REER gap at 9.3 percent. Standardized adjustors for COVID-19 are not available for this methodology and none were used. This estimated gap is also below the 22.6 percent highlighted in the 2019 Article IV Staff Report. Optimal policies on factors common with the CA approach are the same.

Maldives: Model Estimates for 2020

(In percent of GDP)

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1/ Additional cyclical adjustment to account for the temporary impact of the pandemic on oil trade balances (-0.42 percent of GDP) and on tourism (10.45 percent of GDP). 2/ Cyclically adjusted, including multilateral consistency adjustments.

5. Gross international reserves (GIR) at end 2020 stood at USD 985 million, or around 3.7 months of prospective imports. Gross reserve coverage in 2020 is bolstered by the temporary measure of a USD 400 million SWAP with the Reserve Bank of India and will return to below 3 months in 2021. Net international reserves (NIR) by end 2020 stood at USD 173 million, about 0.6 months of prospective imports.5 The reserve adequacy tool for credit-constrained economies is applied to the Maldives and incorporates the fixed exchange rate regime and the economic shock from COVID-19.6 Using the marginal cost of capital as the cost of holding reserves, estimated at 6.2 percent, suggests that adequate reserve coverage is around 3 months of prospective imports. Alternatively, to capture the high cost of borrowing from international markets, using the recent yield on the Sukuk issuance by Maldives at 10.5 percent to proxy the cost of holding reserves suggests a reserve coverage of 1.5 months of prospective imports. Given the Maldives’ low NIR, reliance on tourism and the likely future volatility due to COVID-19, staff recommend targeting gross reserve coverage around 3 months of prospective imports.

uA001fig38

Foreign Exchange Reserves

(in USD million)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source: Maldives Monetary Authorities and IMF staff projections
uA001fig39

Reserve Adequacy Assesment

(in months of imports)

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Sources: IMF staff calculations and data from authorities

6. The external position in the Maldives is substantially weaker than the level implied by fundamentals and desirable policies. An elevated CAD that is projected to remain elevated for the next two years, low reserve buffers, and output from the EBA-lite CA and REER methodologies support this assessment. Over the medium term, the CAD will come closer to the norm, though this must be complimented by structural reforms that improve FX availability, and building reserve buffers.

Appendix VIII. A Framework for Sustainable and Climate Resilient Development in the Maldives1

1. The Maldives is vulnerable to climate change. The Maldives’ territory comprises small low-lying coral islands (with over 80 per cent of the land area less than one meter above mean sea level), so it is particularly at risk from future sea level rise. More immediately, it is also vulnerable to other consequences of climate change. For example, the larger quantum of predicted precipitations will worsen the potential for damages from coastal flooding during storms, in a context of rising sea levels and enhanced salinization (IPCC 2018).2 The Maldives’ overarching dependence on natural ecosystems, particularly for tourism, makes climate non-action not an option for the country.

uA001fig40
Note: The global distribution of low-lying islands and coasts particularly at risk from sea level rise. Regional sea level changes refer to projections under RCP8.5 (2081-2100).Source: IPCC - The Ocean and Cryosphere in a Changing Climate

2. The Maldives has considerable scope to improve adaptive capacity. Scientific and technical assessments undertaken in the country since 1987 have reiterated the need for long-term adaptation to climate change (NAPA 2006).3 Since the commencement of sea wall construction around the capital Male’ in September 1988 the government has implemented several projects aimed at adaptation to environmental threats. More recently, frontier analysis based on the positive relationship between the adaptation index and income levels suggests that distance to the frontier is large for the Maldives, among several countries (Dabla-Norris et al, 2021). The green and adaptive infrastructure gap in the country is threatening both climate mitigation (renewables and nature preservation) and adaptation (coastal protection, water and waste management and resilient infrastructure).

3. The Maldives is active in international climate forums and showed early commitment to adopting adaptation and mitigation plans. It was a prominent player in the negotiations that led to the United Nations Framework Convention on Climate Change (UNFCCC) and was the first to sign the Kyoto Protocol to the UNFCCC. The Maldives submitted the First National Communication (FNC) to the UNFCCC in 2001 following the implementation of the Maldives GHG Inventory and Vulnerability Assessment: A Climate Change Enabling Activity. The FNC contained mitigation and adaptation measures and the project profiles for continuing climate change adaptation and mitigation processes.

4. The Maldives adopted the National Adaptation Programme of Action (NAPA) in 2006 which lays out the framework and the complex relationship between sustainability and adaptation to climate change. The NAPA was developed to communicate the most urgent and immediate adaptation needs of the Maldives as stipulated under UNFCCC Decision 28/CP and to support the sustainable development goals (SDGs). The NAPA was prepared with support from the Global Environment Facility (GEF) and United Nations Development Programme (UNDP).4

uA001fig42
Source: Government of Maldives. National Adaptation Programme, 2006

5. Since the adoption of the NAPA, the Maldives has implemented various non-structural interventions and institutional reforms in support of climate adaptation.5 The Maldives, like other South Asian countries, have developed a national climate change action plan and disaster management plan. These non- structural interventions involve developing guidelines, operating frameworks, and action plans to help guide current and/or future planning. These plans are quite granular in nature, invariably containing sectoral action plans for each vulnerable sector.

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Source: Agarwal, R., V. Balasundharam, P. Blagrave, E. Cerutti, R. Gudmundsson, and R. Mousa. “Climate Change in South Asia: Further Need for Mitigation and Adaptation”, forthcoming IMF Working Paper

However, implementation is lacking as the Maldives has not enacted any regulations to directly address climate change or developed concrete financing plans. The NDC (2020) targets to develop the National Adaptation Plan (NAP) with short, medium, and long-term adaptation programs to address adaptation needs nationwide with support from the international community.

6. Building resilient infrastructure will yield dividends and cost-savings under worsened climate conditions. The increased likelihood of adverse climate-change-related shocks calls for building climate-change resilient infrastructure in the Maldives. Fulfilling these infrastructure needs requires a comprehensive analysis of investment plans, including with respect to their degree of climate resilience, their impact on future economic prospects, and their funding costs and sources. Melina and Santoro (2021), calibrating a theoretical model for the Maldives, shows that there is a significant dividend associated with building resilient infrastructure.6 Under worsened climate conditions, the cumulative output gain from investing in more resilient technologies increases by up to a factor of two.

  • Impact of a shock on GDP. Building resilient infrastructure in the Maldives can halve the losses in terms of GDP at the trough triggered by a natural disaster. Note that, investing in resilient infrastructure yields a dividend even before a disaster occurs, as its greater gross rate of return and durability imply that its net return is higher (the greater durability is captured by a smaller depreciation rate of resilient infrastructure relative to that of standard infrastructure). The additional tax pressure required for reconstruction in the case of standard infrastructure would be (politically) infeasible. The supplementary increase in tax revenues should be of the tune of 6-7 percentage points of GDP, in the aftermath of a shock.

  • Financing. Financing public investment (in standard or adaptation infrastructure) with higher taxation would lead to a sacrifice in terms of GDP and private consumption and investment in the ramp up of the investment effort.7 Grant-financing can also reduce this cost or eliminate it if it covers the investment plan in full. Melina and Santoro (2021) also highlights that it is financially convenient for donors to help build resilience prior to the occurrence of a natural disasters rather than helping finance the reconstruction ex-post.

uA001fig43
Note: Fiscal space assessments are estimated for advanced and emerging economies and are based on the last published AIV debt sustainability assessment; risks of debt distress are estimated for low-income countries and are taken from the last published debt-sustainability assessment. These assessments were done pre-COVID and do not reflect the latest developments since the outset of the pandemic.;Source: Dabla Norris et al. Fiscal Policies to Address Climate Change in Asia and the Pacific Departmental Paper No 2021/007

7. Although investing in adaptation infrastructure can yield high returns, it is fiscally costly. Financing large adaptation investment will challenge fiscal space in many countries, which has deteriorated due to COVID-19. The Maldives featured among countries with high adaptation costs and limited fiscal space even before COVID-19. With such worsening of the growth-debt tradeoff, financing adaptation costs may also require strengthening domestic revenue mobilization, expenditure rationalization, a prioritization of adaptation investment, and/or grant financing.

8. The Maldives’ efforts towards integrating climate and sustainable development objectives into a results-based budgetary framework is a welcome step towards prioritization and improving budget execution. Ultimately this could help to create fiscal space and allow effective implementation of the climate adaptation plan by creating a mechanism for a more strategic and focused Public Sector Investment Program. Following the recommendations of the 2019 PIMA TA and a stronger Public Investment Management (PIM) rating could facilitate access to climate finance. The Strategic Action Plan (SAP) adopted for period 2019-2023 introduces a results matrix that implementing agencies can use. It provides the framework for alignment of budgets to results.8 The SAP helps to co-ordinate the sustainable development action plans, including for climate, at various Ministries. It outlines smart objectives for five priority areas and lays out the aspirations to take forward several long-term visions in areas such as a blue economy, caring state, dignified family, climate resilience and sustainability, and good governance through a long-term plan (see details below). The proposed activities to manage the SAP aim to lay the foundation for a more institutionalized planning process with standardized methods and tools. The authorities aim to shift towards full-fledged results-based budgeting and embed the sustainable development goals (SDGs) as part of this process, expected to be put in place in the 2022 budget.

9. Access to concessional climate finance remains a challenge. The authorities stated during the 2021 Article IV mission that so far, climate financing is offered at the same market rates as conventional instruments, with additional climate mitigating conditionalities and it did not make for a meaningful alternative available among the financing choices. Some of the main obstacles to timely access to global climate funds seem to be the lack of capacity to satisfy preconditions for climate finance, including provision of scientific evidence and involved paperwork. In this context, given that the Maldives has limited fiscal space, particularly post COVID-19, the authorities reiterated their request to the international community to step up cooperation efforts through financial assistance, capacity development, and facilitation of access to global climate finance at concessional rates.

uA001fig44

Structure of the SAP

Citation: IMF Staff Country Reports 2023, 365; 10.5089/9798400258442.002.A001

Source. Government of Maldives. Strategic Action Plan 2019 - 2023
1

At end-April 2020, the parliament approved an increase on the cap of MMA advances to the central government to MVR 4.4 billion (USD 286 million) for one year, which was extended for another year in April 2021.

2

In general, these lines of credit have a 1.75 percent interest rate, five-year grace and 20-year maturity. In addition, a USD 100 million grant is included in the Connectivity project.

3

While the PPG debt in 2020 was projected to be 94 percent of GDP at the time of the RCF, using the current 2020 GDP level, the PPG debt ratio would have been 136 percent. Hence, most of the additional increase in the PPG ratio is due to the larger-than-projected contraction in GDP in 2020. The larger projected deficits during 2021-2026 are responsible for preventing the PPG decline in those years as was projected in the RCF report.

4

The next Presidential elections are scheduled in September 2023. Establishing a minimum wage for the public and private sectors along with harmonizing the public sector pay scales could—if not properly managed—significantly increase the public wage bill and affect the availability of foreign reserves due to the outflow of remittances.

5

Capital spending is proxied by the net acquisition of non-financial assets. Current spending is proxied by subtracting capital spending from total expenditure.

6

The proposed activities to manage the strategic action plan (SAP) could in part help to mitigate these issues (see para. 35).

7

While the risk analysis in Appendix 4 highlights the increasing trend in risks for some SOEs prior to 2020, the 2020 risk profile has further deteriorated due to the adverse impact of the COVID-19 pandemic.

8

A steep and abrupt depreciation would raise the dollar-denominated debt of unhedged households and corporates against exchange rate risk. The decline in banks’ asset quality as a result may outweigh prospective improvements to the current account imbalances from depreciation.

9

The tourist industry has been the key supplier of FX and driver of the parallel market. After increasing sharply, the premium seems to have stabilized during March and April 2021 with the better-than-expected pick up in tourism, but it has increased again in recent weeks with the spike in COVID-19 cases in South Asia.

10

This adjusted CA incorporates a 10 percent of GDP adjustment for the assumed temporary shock to tourism from COVID-19, calculated as the difference in the ratio of tourism receipts to GDP pre- and post- COVID-19.

11

Projects that were or are still subject to performance audits are: Relief Package due to COVID-19 (Income Support Allowance, recovery loan schemes), National Social Protection Authority, Ministry of Foreign Affairs, Maldives National Defense Force, Ministry of Tourism, Ministry of Health, National Disaster Management Authority, STO, and HDC.

12

The ACC’s mission is to (i) investigate and take impartial legal action against all perpetrators of corruption, in accordance with the law, (ii) recover and protect loss of rights suffered by the State and the individuals due to corruption, and (iii) collaborate on efforts of corruption prevention.

1

Prepared by Racha Moussa, APD.

2

Prior to October 15, 2020, the negative PCR test had to be taken less than 72 hours prior to the scheduled departure time. Infants less than one year old are exempt.

1

Prepared by Ritu Basu, APD.

2

As per WHO’s Health System response to COVID-19, Maldives, “The government has identified 3000 bed capacity for quarantine and 2000 beds for isolation centers, which can be activated across Maldives as per the need.”

3

No gatherings of more than five people are allowed across Greater Male; police permission is necessary for any events. Entertainment venues, sports facilities, and educational institutions can reopen, and must comply with social distancing directives. Establishments are required to ensure sanitation and social distancing; violations are punishable by fines and closures for at least 24 hours.

1

Prepared by Majdeline El Rayess, FAD.

2

(i) very low risk, (ii) low risk, (iii) moderate risk, (iv) high risk, and (v) very high risk.

3

The Z-score is measured in terms of standard deviations from the mean score. It is particularly helpful to calculate the probability of a score occurring within normal distribution.

4

EBITDA: Earnings before interest, taxes, depreciation, and amortization.

5

Examples are the national airline, the provision of below cost air travel to citizens, and the purchase of fish by MIFCO (Fishery company) above market prices.

1

Prepared by Emmanouil Kitsios, APD.

2

Business profits are now taxed in the newly adopted 2019 Income Tax Act (ITA).

3

On July 5, 2021 the People’s Majlis (parliament) passed the amendment to the Airport Taxes and Fees Act to replace the airport service charge with a departure tax as of January 2022. The approved departure tax rates are USD 12 for Maldivians travelling in Economy Class, USD 30 for foreigners travelling in Economy Class, USD 60 for all passengers travelling in Business Class, USD 90 for all passengers travelling in First Class, and USD 120 for all passengers travelling on private jets. The bill also approved similar changes to the Airport Development Fee (ADF).

1

Prepared by Majdeline El Rayess, FAD.

2

PEFA was performed by the World Bank with the IMF as one of the external reviewers.

1

Prepared by Racha Moussa, APD.

2

The de jure exchange rate arrangement is classified as a pegged exchange rate within horizontal bands (20 percent). The de facto exchange rate arrangement is classified as a stabilized arrangement with the Maldivian rufiyaa close to the ceiling of the band (MVR 15.4 per USD).

3

The CA-norm derived from a current account panel regression on economic fundamentals, policy variables, and cyclical factors.

4

Exact calculation of policy gap is “{(current policy level of the country) - (desirable policy level of the country)} -{(current policy level of world average) - (desirable policy level of world average)}.

5

NIR is calculated as gross reserves less short term liabilities.

6

Credit-constrained countries are defined as “countries that do not regularly borrow—defined as countries that have at least one issuance of bonds per year in the last five years —from the markets and/or are on average rated as “less than investment grade” (Annex IV in “Guidance Note on the Assessment of Reserve Adequacy and Related Considerations”).

1

Prepared by Ritu Basu, APD.

2

Intergovernmental Panel on Climate Change, 2018, “Global Warming of 1.5°C”. IPCC Special Report.

3

The Government of Maldives. National Adaptation Programme of Action (NAPA).

4

On mitigation, the Update of Nationally Determined Contribution (NDC) of Maldives (2020) by the Ministry of Environment lays out plans to reduce 26 percent of emissions by 2030 and to strive to achieve net zero by 2030, if there is adequate international support and assistance. To achieve the emission reduction targets, the NDC sets forth ambitious plans to increase the share of renewable energy in the energy mix through various initiatives.

5

On mitigation, the Maldives recently adopted the Climate Emergency Act, adopted (April 29, 2021). It provides an ambitious plan to achieve net-zero carbon emissions by 2030. The Act mandates to submit the subsequent year’s national carbon budget to the Parliament for approval three months before the end of each year.

6

Melina and Santoro. (2021). “Enhancing Resilience to Climate Change in the Maldives, IMF Working Paper No. 2021/096

7

The Maldives Monetary Authority (MMA) has recently joined IFC’s Sustainable Banking Network (SBN), in January 2021. The primary objective was to formulate a National Sustainable Financing Framework with a clear roadmap to support broad based adoption of sustainable finance policies, including both improved environment and social risk management by financial institutions.

8

Government of Maldives. Strategic Action Plan 2019 - 2023

Other IMF Content

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Cover IMF Staff Country Reports
Maldives: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2023: Issue 365
Publisher:
International Monetary Fund
ISBN:
9798400258442
ISSN:
1934-7685
Pages:
108
DOI:
https://doi.org/10.5089/9798400258442.002

Maldives: Economic Performance During 2001-2019

(In percent, average over relevant period)

Maldives: Budget Balance and Grants, 2004-19

(In percent of GDP)

Current Account Balance

(in percent of GDP)

Tourism Contribution to Real GDP Growth

(in percent)

Fiscal Revenue and Tourism Expenditure, 2011 -20

Financing 2020 from Domestic and External Sources

(in USD million)

MMA Advances to the Government

(In billions of MVR)

Credit

(Year-on-year change, in percent)

Tourist Arrivals by Year

(in thousands)

Budgetary Revenue and Expenditure, 2015-23

(percent of GDP)

Parallel Exchange Rates - Estimates

Public Debt

(In percent of fiscal year GDP)

Daily New Covid Cases, Vaccination Rate and Positive Rate

Current, Capital and Wage Bill Spending

(In percent of fiscal year GDP, 2019)

Total Tax and Nontax Revenue, 2009-20

(In percent of GDP)
Figure 1.

Maldives: Summary of Recent Developments
Figure 2.

Maldives: External Sector Developments
Figure 3.

Maldives: Fiscal Developments
Figure 4.

Maldives: Money and Credit Developments
Figure 5.

Maldives: Financial Developments

Evolution of Arrivals

Maldives COVID-19 Cases

Tourist Arrivals in percent of pre-COVID 2019

(in percent of 2019)

Occupancy Rate

(in percent, based on bed-nights)

Tighter Restrictions on Arrivals Relative to Maldives*

Daily flight arrivals

(7 day rolling average)

Share of Tourist Arrivals from Region

(in percent of total)

India

(7-day rolling average)

Russia

(7-day rolling average)

Daily New COVID-19 Cases

(Rolling 7-day average, cases per million)

The Share of Daily COVID-19 Tests that are Positive

(Rolling 7-day average)

Maldives: Sectoral Distribution of SOEs

(Percent of Total Assets)

Net liquid Assets of 9 SOEs (2020)

Evolution of Stock of Guarantees 2014-2020

(Percent of GDP)

Highest/Lowest PIT Rates in Small Island Developing States

(In percent)

CIT Rates in Small Island Developing States

(In percent)

GST/VAT Rates in Small Island Developing States

(In percent)

Fiscal Transparency Evaluation Scores- International Comparison

Balance of Payments

(in percent of GDP)

Financial Account

(in millions of USD)

Parallel Exchange Rates - Estimates

Exchange Rate Changes and REER level

(in y/y percent change or index)

Foreign Exchange Reserves

(in USD million)

Reserve Adequacy Assesment

(in months of imports)

Structure of the SAP