Abstract
The information below has become available following the issuance of the staff report. It does not alter the thrust of the staff appraisal.
The information below has become available following the issuance of the staff report. It does not alter the thrust of the staff appraisal.
1. Parliament approval of tax measures
To mobilize revenues, the authorities will increase the General Goods and Services Tax (GST) from 6 to 8 percent and the Tourism Goods and Services Tax (TGST) rate from 12 to 16percent starting on January 1st, 2023. The corresponding bill was approved by parliament on November 16, 2022.
2. Multiple currency practices and exchange restrictions
The Maldives has previously been found to maintain a multiple currency practice (MCP) resulting from the deviation by more than 2 percent between the prevailing market exchange rates and the parallel market exchange rates, and an exchange restriction relating to the additional cost for market participants to obtain foreign exchange (FX) from the parallel market.
Under the Fund’s revised MCP policy adopted on July 1, 2022,1 MCPs resulting from the exchange rate spreads arising in illegal parallel markets are considered eliminated as of the approval date of the policy since these markets are legally prohibited and thus not the result of official action. Information received by staff recently confirmed that the parallel market in the Maldives is illegal under the national law, and therefore, the MCP arising from a spread between the parallel market and prevailing market exchange rates in the Maldives has been eliminated as of July 1, 2022. Further, the exchange restriction in connection with the additional cost for obtaining FX in the parallel market due to this spread has also been eliminated as of July 1, 2022.
At the same time, the Maldives continues to maintain an exchange restriction arising from the Maldives Monetary Authority’s rationing of its supply of FX to commercial banks, which also resulted in a channeling of FX for current international transactions to the illegal parallel market. In that regard, the authorities should continue undertaking reasonable efforts to eliminate the spread with the parallel market.
In addition, the Maldives continues to maintain an MCP resulting from the lack of a mechanism to prevent the spread between the official exchange rate used by the MMA for government transactions and the prevailing market exchange rate from deviating by more than 2 percent.