IMF Executive Board Completes First Review Under Stand-by and ESF Arrangements with Maldives, and Approves US$7.8 Million DisbursementPress Release No. 10/118
March 26, 2010
The Executive Board of the International Monetary Fund (IMF) today completed the first review of Maldives’ economic performance under the Stand-By Arrangement (SBA) and the Arrangement under the Exogenous Shocks Facility. The completion of the review enables the immediate disbursement of an amount equivalent to SDR 5.125 million (about US$7.76 million), bringing total disbursements under the arrangements to SDR 10.25 million (about US$15.5 million).
The Board also granted a waiver of non-observance of the performance criteria on net Maldives Monetary Authority credit to the central government and on reserve money, and approved the request for the modification of the measurement of the reserve money performance criterion.
The financial arrangements for Maldives were approved on December 4, 2009 (see Press Release No. 09/444), and comprise a 36-month, SDR 49.2 million (about US$74.48 million) SBA and a 24-month, SDR 8.2 million (about US$12.41 million) arrangement under the Exogenous Shocks Facility High Access Component, totaling an amount equivalent to SDR 57.4 million (about US$86.89 million).
The global economic crisis hit Maldives hard and exacerbated the effects of an unsustainable fiscal expansion, leading to very large external and fiscal imbalances. The IMF financial assistance package is designed to help smooth the country’s adjustment to these imbalances and support the authorities’ strong policy program.
Following the Executive Board discussion, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:
“The Maldivian authorities’ strong policy actions have succeeded in stabilizing the economy. The fiscal deficit has been put on a declining path, international reserves have recovered, and pressures on the exchange rate have eased. At the same time, given the still large imbalances and vulnerabilities and the important challenges ahead, a continued implementation of the policies envisaged in the ambitious economic program will be necessary to consolidate macroeconomic stability and create the conditions for sustained growth and poverty reduction.
“The authorities have taken significant steps to reduce the fiscal deficit, including cuts in public sector wages and large increases in electricity tariffs. Several recent developments, however, will undo some of this progress, putting pressure on the fiscal position and leading to unsustainable deficits. Going forward, the authorities are committed to restraining expenditure, continuing the restructuring of public employment, and passing key tax reforms, in particular a business profits tax and a goods and services tax for tourism and other industries. Further fiscal measures will be required to meet the 2011 deficit target, and significant contingency measures will be needed if public sector wages are restored earlier than expected.
“Given Maldives’ high public debt levels, the authorities should seek external financing on concessional terms to the extent possible, and carefully consider the debt sustainability implications of any non-concessional external borrowing.
“The recent sharp turnaround in monetary policy, including the active tightening of liquidity, the halting of deficit monetization, and the successful introduction of open market operations, has helped stabilize the economy. Looking ahead, sustained liquidity absorption efforts will be needed to ensure that monetary aggregates are kept under control.
“The stresses on the Maldivian banking system appear to have abated. The authorities intend to accelerate the reforms underway to strengthen the regulatory, prudential, and supervision framework,” Mr. Shinohara said.