Press Release No. 14/530

Press Release: IMF Staff Concludes 2014 Article IV Mission to Maldives

November 20, 2014

An International Monetary Fund (IMF) mission, led by Ms. Alison Stuart, visited Malé during November 9-20 for the 2014 Article IV Consultations¹ —a periodic surveillance that the IMF undertakes with its member countries to exchange views on key economic challenges and discuss possible policy alternatives.

At the conclusion of the visit, Ms. Stuart issued the following statement:

“Economic growth is relatively buoyant driven by increased tourist arrivals from new Asian markets. The prospects for a further expansion of tourism activity in 2015 are good, given the infrastructure investment underway.

“Higher tourism activity and subdued global price inflation have helped to stabilize the current account deficit. Following significant data revisions (using improved sources); it is also substantially smaller than previously reported and now close to the average for other small tourism economies. An increased supply of dollars in the official market has narrowed the parallel market premium.

“Monetary conditions remain accommodative and are driven largely by the fiscal position but credit growth to the private sector remains subdued and inflation is contained. Financial soundness indicators are slowly improving after an increase in nonperforming loans following the global financial crisis.

“Despite the improvement in the real economy, the fiscal deficit has widened in 2014 following a sharp rise in public expenditures. Public debt is already very high.

“The 2015 Budget’s policy measures submitted to the Majlis are therefore essential to set fiscal policy back on a sustainable track. If fully approved and implemented, the Budget should significantly reduce the fiscal deficit, though further measures will be needed in future budgets. The measures strike a balance between consolidation and preserving growth. They include, on revenues: the imposition of a green tax, streamlining duty structures; and on expenditures: better targeting subsidies, while safeguarding social safety nets, and control over public sector employment.

“The increased focus on expenditure control in the 2015 draft Budget is welcome and critical if fiscal adjustment is to be secured. A framework should be put in place to ensure that targets are adhered to and the public sector wage bill is contained. The Fiscal Responsibility Law can also help to support durable adjustment over the medium term, including by placing strict limits on monetization.

“Looking to the longer term, the authorities’ capital expenditure plans and the new Special Economic Zones (SEZ) initiative could help to raise growth potential. But large capital investments should only be embarked upon when full financing is secured at affordable costs and the growth benefits clearly outweigh the costs. Developing a successful SEZ scheme will require a regulatory framework that is transparent and evenhanded. Enforcing strict ringfencing of tax exemptions will be important to protect the current simple, broad based and easily administrable tax system.

“The mission met with Minister of Finance, Mr. Abdulla Jihad, Governor of Maldives Monetary Authority, Dr. Azeema Adam, Attorney General, Honorable Mohamed Anil, Speaker of People’s Majlis, Hon. Abdulla Mohamed, and Minister of Youth and Sports, Mohamed Maleeh Jamal. The mission also met the Economic and Public Accounts Committees’ of the Peoples Majlis and Cabinet ministers and senior officials, banks, tourism operators and other representatives of the private sector, and other multilateral organizations. The mission wishes to thank the authorities for their cooperation and warm hospitality during its visit.

“The mission will prepare a report that, subject to management approval, is tentatively scheduled to be considered by the IMF’s Executive Board in February 2015.”

¹ Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.