Press Release: IMF Executive Board Approves US$ 6.3 million in Emergency Assistance for the Maldives
March 4, 2005
The Executive Board of the International Monetary Fund (IMF) has approved SDR 4.1 million (about US$ 6.3 million) in emergency assistance for natural disasters for the Maldives. The amount approved is available immediately to help the government deal with the devastating effect of the tsunami that struck the island on December 26, 2004.
Although the loss of life was limited, there was extensive damage to housing and infrastructure and about 5 percent of the population have lost their homes. Tourism and fisheries account for 40 percent of GDP, one-third of employment, and generate most of Maldives' foreign earnings. Net losses to the balance of payments are estimated at about US$160 million in 2005, and total reconstruction costs are estimated at almost 50 percent of GDP.
The IMF provides emergency assistance to member countries hit by natural disaster to help them meet immediate balance of payments financing needs, and maintain or restore macroeconomic stability. The emergency assistance will be repaid in eight equal quarterly installments over 3¼ to 5 years from the disbursement date. In line with the Executive Board's decision to subsidize emergency assistance for PRGF-eligible countries hit by natural disaster, the rate of charge on the assistance will be subsidized to 0.5 percent per annum (See Public Information Notice No. 05/8), subject to resource availability.
At the conclusion of the Executive Board's discussion on the Maldives, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair said:
"The IMF extends its deepest sympathy to the people of the Maldives following the devastation of the tsunami of December 26, 2004. The loss of life in the Maldives is unfortunate. Five percent of the population has been rendered homeless, and there was extensive damage to infrastructure. An assessment by the World Bank, the Asian Development Bank, and the United Nations places the cost of reconstruction as high as 50 percent of GDP.
"The government has reacted swiftly in the aftermath of the tsunami to mitigate the immediate impact on the people and on the economy. The authorities are redirecting budget allocations to pressing needs for rehabilitation and reconstruction. They have also collaborated with the international community in a thorough and comprehensive needs assessment, and have set up transparent and accountable mechanisms for the expenditure of donor funds.
"Before the tsunami hit, prospects for 2005 were bright. The economy was set to grow by around 6.5 percent, the fiscal deficit was modest, and international reserves were increasing. However, the disaster will reduce economic growth to 1.0 percent, and create substantial financing gaps in the budget and the balance of payments.
"The IMF strongly supports efforts by the World Bank and Asian Development Bank to mobilize financial assistance in the form of grants or highly concessional loans from donors to help the Maldives get through the crisis. The reconstruction needs are immense and the authorities need balance of payments and budget support to deal with the costs arising from the temporary decline in tourism. The IMF also welcomes the government's preparedness to take fiscal adjustment measures as required to maintain macroeconomic stability," Mr. Kato said.