## 1mdvea2021001

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### Mission and Team
- IMF Fiscal Affairs Department (IMF-FAD) carried out a Fiscal Transparency Evaluation of Maldives, conducted remotely from November 23–December 14, 2020.
- IMF team led by Sandeep Saxena; team members: Majdeline El Rayess, Gemma Preston (IMF-FAD); Celeste Kubasta (SARTTAC PFM Advisor); Joseph Cavanagh, Pokar Khemani, Adrien Tenne (FAD experts).
- Assessment benchmarked Maldives’ practices against the 2014 IMF Fiscal Transparency Code.
- Virtual inception mission: August 2020.
- Key GoM counterparts: Ministry of Finance (MoF) staff including Chief Financial Budget Executive Mr. Saruvash Adam, Financial Controller Ms. Razeena Fathimath, Resource Mobilization and Debt Management Department, Public Enterprise Monitoring Unit, National Tender Board, Ministry of National Planning, Housing and Infrastructure, Ministry of Environment, National Disaster Management Authority (NDMA), Auditor General’s Office (AGO), Maldives Monetary Authority (MMA).
- Donor briefings: World Bank, Asian Development Bank, USAID.

### Executive Summary — Overall Assessment
- First small island state and second country in Asia to undertake a Fiscal Transparency Evaluation (FTE).
- FTE assessed fiscal reporting, fiscal forecasting and budgeting, and fiscal risk management against first three pillars of the IMF’s Fiscal Transparency Code (FTC).
- Overall findings:
  - Considerable progress in fiscal transparency; favorable assessments in many areas.
  - Several practices remain at “Basic” or “Below basic” levels.
  - Ongoing reforms enable quick wins with relatively minor additional efforts.
- Pillar-level summary:
  - Fiscal forecasting and budgeting: 50 percent of practices assessed as “Good” or “Advanced”; remainder at “Basic” or “Below basic.”
  - Fiscal reporting: uneven performance from “Advanced” to “Below basic”; high-frequency budget execution reporting rated “Advanced” (notably weekly COVID-19 spending reports).
  - Fiscal risk analysis and management: generally weak; most practices rated “Basic,” some “Below basic.”

### Pillar I — Fiscal Reporting (Key Findings)
- Coverage and reporting practices:
  - Fiscal reports cover almost the entire general government operations and provide near real-time budget execution information.
  - Budget and accounting classification system can support diverse reporting needs.
- Concerns and gaps:
  - Credibility and timeliness of audited annual financial statements need improvement; audited statements not timely.
  - Completeness and reliability of fiscal information require strengthening.
  - Quality of reported assets and liabilities must be improved to enhance fiscal risk management.
- Institutional reporting responsibilities:
  - TPAD: financial accounting and reporting.
  - FAD: annual budget, in‑year budget execution reports, Government Finance Statistics (GFS).
  - RMDMD: debt reporting.
  - PEM: reporting on SOEs.
- Noteworthy reports and frequencies (selected):
  - Weekly fiscal developments: Frequency W; Lag 1 week.
  - Monthly fiscal developments: Frequency M; Lag 1 month.
  - Quarterly economic and fiscal developments: Frequency Q; Lag 2 months.
  - Public debt bulletin: Frequency SA; Lag 6 months.
  - Outstanding debt: Frequency Q; Lag 3 months.
  - Government consolidated financial statements: Frequency A; Lag 24m.
  - Government finance statistics (GFS): Frequency A; Lag 1 month.
- Coverage and exclusions:
  - Public sector in 2019: 297 institutional units; expenditure accounted for 50 percent of GDP.
  - Annual consolidated financial statements cover 97.8 percent of general government expenditure and 62 percent of public sector expenditures.
  - Exclusions: ~0.4 percent of general government expenditure (portion of five EBUs funded by own revenues); ~1.8 percent (portion of local councils’ expenditure funded from own revenues).
- Sovereign Development Fund (SDF) (figures as of early December 2020):
  - Lifetime inflows: MVR 3.55 billion.
  - Investments made: MVR 2.65 billion.
  - Debt repayments made: MVR 0.35 billion.
  - Accumulated balance: MVR 3.2 billion (3.7 percent of GDP).
  - SDF investments/disbursements are off budget and excluded from fiscal reports; currency composition not publicly disclosed.
- Assets and liabilities disclosures:
  - Disclosures cover around 35 percent of all public sector assets and liabilities.
  - Assets represent about 52 percent of GDP; liabilities equal about 70 percent of GDP.
  - PAS does not maintain comprehensive asset/liability records; records fragmented across systems.
- Pension-related liabilities (illustrative valuations):
  - 2020 budget pension estimates: lump sums MVR 64 million; monthly payments MVR 240 million.
  - Annual pension costs projected to rise to around MVR 3.5 billion by the 2050s.
  - Simple NPV of unfunded public service pension commitments: around MVR 56 billion (65 percent of GDP); range MVR 20.8 billion (24 percent of GDP) at discount rate 5 percent to MVR 56 billion (65 percent of GDP) at discount rate 1 percent.
  - MRPS (2019 accounts): Assets MVR 13,895.3 million; Liabilities MVR 7.7 million; Net worth MVR 13,887.6 million (16.0 percent of GDP); Revenues MVR 1,737.6 million; Expense MVR 57.7 million; Surplus MVR 1,679.9 million (1.9 percent of GDP).
  - MRPS liability in report assumed equal to fund’s net assets—MVR 13.9 billion.
- Other reported balances:
  - Student loans balance around MVR 2 billion (2.3 percent of GDP).
  - COVID‑relief loans disbursed by end‑December 2020: MVR 346 million to SMEs and self‑employed; additional MVR 579 million to large businesses (together approximately 1 percent of GDP).
- Audit timeliness:
  - Latest available audited consolidated financial statements: 2018; 2019 statements under audit.
  - AGO capacity constraints and variable quality of submitted financial statements impede timely audits.

### Pillar II — Fiscal Forecasting and Budgeting (Key Findings)
- Forecast governance and timing:
  - Multi-agency Macroeconomic Policy Coordinating Committee (MPCC) establishes forecasts in September/October (budget preparation); technical revision in February; more thorough update in June for MTFS.
  - Forecast vintages rarely reconciled; updates tend to become new forecasts.
- Forecast accuracy and modeling:
  - One year-ahead and medium-term GDP growth forecasts have tended to show a hint of optimism.
  - Nominal GDP forecasts particularly optimistic, translating into optimism in revenue projections.
  - Existing models allow forecasts beyond three years but capability underutilized.
  - Ongoing model development: industry-level GDP forecasts; planned financial programming model led by MMA.
- Medium-Term Fiscal Strategy (MTFS) / Medium-Term Budget Framework (MTBF):
  - MTFS prepared and published annually; MTBF development evolving.
  - 2021 MTFS includes:
    1. a comparison of the previous Fiscal Strategy and the approved 2020 budget;
    2. the 2019 outturn and 2020 revised estimates and medium-term fiscal policy goals;
    3. proposed changes to revenue and expenditure structure;
    4. available fiscal space;
    5. measures to improve fiscal policy implementation.
  - Weaknesses: expenditure forecasts revised after initial estimates; fiscal strategy does not provide credible basis for framing expenditure ceilings; budget estimates not fully reconcilable with MTFS.
- Revisions to medium-term expenditure forecasts (Expenditure Forecasts (MVR billions)):
  - Columns: 2019 2020 2021 2022 2023
  - 2018 MTFS: 25.9 26.0 30.3 29.0
  - 2019 MTFS: – 37.0 38.7 38.6
  - 2020 MTFS: – – 33.9 31.7 32.1
  - Approved Budget: 29.1 36.0 – – –
  - Outturn/Revised Estimates: 30.7 30.1 – – –
- Public investment management and procurement:
  - PSIP disclosed by funding source, project status, cost over five-year period, functional area, implementing agency, and project.
  - Total project cost for multi-year projects not observable at announcement; legislature lacks full multiannual cost information.
  - Cost-benefit analyses (CBAs) performed ad-hoc and not published; examples include Velana International Airport projects (internal use only).
  - Not all major projects contracted via open and competitive tender; PFR 10.27 allows exceptions (SOEs, projects financed by foreign nations/concessional loans, unsolicited proposals).
  - AGO performance audits show procurement noncompliance and customized tender criteria.
- Budget legal framework and timing:
  - Constitution, PFA, PFRs, and FRA provide framework; PFA requires budget submission at least two months ahead of new financial year.
  - Budget submitted two months before year start over past four years; Parliament approved budget ~one month prior to commencement over past four years.
  - Recommended legal clarifications: require budget approval prior to fiscal year start and continuity provisions if not approved.
- Contingency provisions and virements:
  - Virement Guidelines introduced in 2019; implementation delayed due to COVID-19.
  - Supplementary budgets and extensive virements have allowed significant executive reallocations historically.
- Public participation and performance budgeting:
  - Public participation assessed as "Good": Budget Booklet, interactive online Budget Summary, Budget App, public consultations (voluntary).
  - Formal performance-based budgeting not yet introduced; MoF developing program structures with USAID assistance.
- Credibility and fiscal rules (exact figures preserved):
  - FRA numerical rules not effectively implemented.
  - Average deficit during 2013–19: 6 percent of GDP.
  - Stock of debt (including guaranteed debt) at end-2019: 77 percent of GDP.
  - Pandemic impact:
    - "With GDP estimated to have contracted by nearly one-third, and with a massive revenue shortfall, the 2020 budget deficit is projected to widen to 27.5 of GDP and the primary deficit to 24.6 percent of GDP."
    - "Debt to GDP is estimated to have reached 115 percent by end-2020."
    - "With GDP rebounding and a 13.5 percent growth projected for 2021, the 2021 budget estimates that the deficit for the year is at 18.5 percent of GDP and the primary deficit is at 14.8 percent of GDP."
  - New FRA under development in 2021 to revive fiscal rules.

### Pillar III — Fiscal Risk Analysis and Disclosure (Key Findings)
- General overview:
  - Fiscal risks significant and multi-source: macroeconomic shocks, contingent liabilities, SOEs, natural disasters, pensions, subnational governments.
  - Fiscal risk analysis and management generally weak; most practices rated “Basic” or “Below basic.”
- Macroeconomic risk disclosure:
  - 2021–23 MTFS introduced three-scenario tourism-based analysis: baseline, moderate, worst-case linked to reopening dates.
  - Expenditures are shocked in scenarios by 5, 10, and 15 percent of the revised budget.
  - Suggested enhancements: sensitivity to unit changes (e.g., 1 percentage point), multivariable scenarios, probabilistic analysis.
- Debt and long-term sustainability (figures preserved):
  - Public and publicly guaranteed debt: 149 percent of GDP at end-2020.
  - Debt servicing costs for 2020: 4 percent of GDP.
  - Foreign currency-denominated debt: 82 percent of total public and publicly guaranteed debt at end-2020.
  - Debt to be refixed within next year: 51 percent at end-2020.
  - Share maturing within next 12 months: 14 percent at end-2020.
  - Country at high risk of debt distress.
- SOEs and guarantees:
  - SOE unconsolidated assets (2019, excluding MMA): 134 percent of GDP.
  - 32 SOEs; 5 publicly listed.
  - Government support in 2019: subsidies 1.4 percent of GDP; capital contributions 2.2 percent of GDP.
  - SOE unconsolidated liabilities (2019): 84 percent of GDP; 21 percent government guaranteed debt; 12 percent direct loans/on-lending by Treasury.
  - Stock of government guarantees rose from 4 percent of GDP in 2017 to 28 percent of GDP by end-3Q 2020; at end-September 2020 outstanding guaranteed debt MVR 16.2 billion (28 percent of GDP).
  - Almost entire guaranteed debt in foreign currency.
  - RMDMD capacity for credit risk assessment needs strengthening; guidelines and fee collection not fully implemented (guarantee fee 1 percent at issuance; annual administrative fee 0.25 percent).
- Pensions and health:
  - Net present value of liabilities under unfunded state pension schemes alone: 65 percent of GDP.
  - MRPS asset allocation (end-2019): 55 percent in T-bills and 32 percent in T-bonds.
  - Basic pension benefit: MVR 5,000 monthly for citizens reaching 65 years of age.
  - Health: average annual increase in health care funding since 2000: 23 percent; current cost 10 percent of GDP; more than 70 percent financed by government.
- Natural disasters and environmental risks:
  - Tourism directly 26 percent of GDP in 2019.
  - 2004 tsunami estimated impact: US$470 million (62% GDP).
  - IMF modelling estimates economic costs of climate change for small states like Maldives at 15 percent of GDP or more.
  - Selected event impacts table highlights (preserved): expenditures shocked 5/10/15 percent; tsunami US$470 million (62% GDP); immediate fiscal impact of COVID-19 initial estimates US$389 million (7.2 percent of GDP); tax revenues declined ~19 percent vs 2019; non-tax revenues declined ~56 percent vs 2019.
- Financial sector exposure (Q3 2020 banking ratios):
  - Capital ratio: 48.2 percent (minimum 15 percent).
  - Tier 1 capital ratio: 42.9 percent (minimum 6 percent).
  - Liquid asset ratio: 45.4 percent.
  - Liquid asset to short-term liabilities: 69.4 percent.
  - ROE: 10.8 percent.
  - ROA: 2.6 percent.
  - Total deposits at end-2019: MVR 36 billion (40 percent of GDP).
  - Deposit insurance coverage: up to MVR 30,000 per depositor; fund funded mainly by commercial banks; sustainability analysis not published.
- Subnational governments:
  - Decentralization Act requires local councils to produce audited financial statements by March 10; only six councils met deadline in 2019.
  - Six months after year-end, 62 percent of councils had submitted statements.
  - Legal borrowing caps exist (council debt limit one-third of previous year income); aggregate cap for councils not yet set by Minister for Finance.
- Reporting and transparency gaps:
  - Tax expenditures: 2021 Budget Book included first-time estimates of import duty related exemptions for 2019: revenue losses MVR 1.8 billion (around 11 percent of total tax revenue; 2 percent of GDP).
  - GFS coverage limited to cash, debt, financing; transition to accruals intended (consultants commissioned).
  - Reconciliations between fiscal balance and financing and between financing and change in debt stock under development; not routine or published.
  - Historical revision policy for GFS not established; bridging tables missing.
  - Recommendations include publishing comprehensive fiscal risk statement (planned for 2021), actuarial pension reviews, guarantee portfolio reporting enhancements, PPP inventory, and centralized SOE database.

### Key Recommendations (selected and preserved wording)
- Recommendation 1.1. Improve the timeliness and reliability of the year-end consolidated financial statements. Aim to improve quality of reporting on assets and liabilities, consistent with IPSAS, and to complete the audit for timely publication of audited statements.
- Recommendation 1.2. Enhance transparency of tax expenditure by improving reporting and coverage. Update legal framework to define tax expenditures and require annual publication of estimates of revenue forgone by sector or major policy area.
- Recommendation 2.1. Establish clear fiscal policy objectives to effectively guide the fiscal stance. Complete development of a new Fiscal Responsibility Act (FRA) to provide a realistic path to fiscal consolidation and include clearly articulated fiscal objectives. Implement and elevate the 2019 Virements and Appropriation Procedures to bring greater transparency to budget reallocations.
- Recommendation 2.2. Continue to refine the MTBF, supported by robust and reliable macroeconomic and fiscal forecasts, to enhance budget credibility. Strengthen MoF’s macroeconomic and fiscal forecasting capacity by adequately resourcing the macro unit and equipping it with appropriate tools and skills.
- Recommendation 2.3. Enhance spending efficiency on public investment projects and transparency around project selection and procurement. Undertake cost-benefit analysis of investment projects more routinely, and subject all major projects to open and competitive procurement.
- Recommendation 3.1. Improve analysis and disclosure of fiscal risks. Enrich budget document discussions of main macroeconomic risks; risks surrounding the debt portfolio and debt sustainability; and major specific fiscal risks (guarantees, SOEs, natural disasters, legal claims, risks to financial assets). Strengthen MoF institutional capacity to analyze and manage fiscal risks.
- Recommendation 3.2. Improve analysis of pension liabilities, and assess and manage short-term and long-term liabilities of various pension schemes. Conduct a comprehensive review with actuarial assessments and reviews of funding arrangements.
- Recommendation 3.3. Enhance and strengthen management of guarantees by ensuring greater compliance with MoF’s guarantee policy; improve the policy to support better management including suitable risk mitigation measures.
- Recommendation 3.4. Strengthen transparency around SOE finances by publishing an ownership policy and more comprehensive reporting. Provide an overview of the financial position and performance of the public corporations’ sector and deepen analysis of individual SOEs.

### Annex I — Fiscal Transparency Reform Action Plan (selected schedule highlights)
- Fiscal Reporting priorities (2021–2023, H1/H2 phasing):
  - 1.1.1 Publish credible audited consolidated financial statements within preferably 6-9 months after year-end.
  - 1.1.3 Automate collection of data outside PAS.
  - 1.1.5 Revise chart of accounts to support GFSM 2014 and accrual IPSAS; include functional and program classifications.
  - 1.2.1 Update legal framework to define tax expenditures and require annual publication.
  - 1.3.1 Document GFS and debt reporting processes and adoption of GFSM 2014 and PSDS.
- Fiscal Forecasting and Budgeting priorities:
  - 2.1.1 Finalize new FRA and implement fiscal strategy consistent with FRA targets.
  - 2.2.1 Develop advanced models and augment macro/fiscal forecasting capacity.
  - 2.3.1 Make cost benefit analyses routine for all major projects.
  - 2.4.1 Formalize timelines for budget approval and continuity provisions.
- Fiscal Risk Analysis and Management priorities:
  - 3.1.1 Strengthen MoF fiscal risk management capacity and formalize coordination with MMA and NDMA/MoE.
  - 3.2.1 Undertake actuarial studies of pension schemes and establish periodic reviews.
  - 3.3.1 Enforce Guarantee Issuance Policy guidelines and include guarantee portfolio risks in MTDS.
  - 3.4.1 Set up central database of SOE financial information and publish ownership policy.

### Selected key statistics and timing references (preserved exactly)
- Public sector in 2019: 297 institutional units; expenditure 50 percent of GDP.
- Consolidated annual financial statements coverage: 97.8 percent of general government expenditure; 62 percent of public sector expenditures.
- SDF: lifetime inflows MVR 3.55 billion; investments MVR 2.65 billion; debt repayments MVR 0.35 billion; balance MVR 3.2 billion (3.7 percent of GDP).
- Student loans balance around MVR 2 billion (2.3 percent of GDP).
- COVID‑relief loans disbursed by end‑December 2020: MVR 346 million (SMEs/self-employed) + MVR 579 million (large businesses) ≈ 1 percent of GDP.
- Pension NPV range: MVR 20.8 billion (24 percent of GDP) at discount rate 5 percent to MVR 56 billion (65 percent of GDP) at discount rate 1 percent.
- MRPS (2019): Assets MVR 13,895.3 million; Liabilities MVR 7.7 million; Net worth MVR 13,887.6 million (16.0 percent of GDP).
- Timing: audit scheduled to start in January 2021.
- Contingency provisions (Table 17):
  - 2018: MVR 400 million; 1.4 percent of total expenditure budget.
  - 2019: MVR 411 million; 1.4 percent.
  - 2020: MVR 1,574 million; 4.3 percent.
  - 2021: MVR 1,395 million; 3.5 percent.
- Debt and pandemic impact (exact text preserved):
  - "With GDP estimated to have contracted by nearly one-third... the 2020 budget deficit is projected to widen to 27.5 of GDP and the primary deficit to 24.6 percent of GDP."
  - "Debt to GDP is estimated to have reached 115 percent by end-2020."
  - 2021 projection: GDP growth 13.5 percent; deficit 18.5 percent of GDP; primary deficit 14.8 percent of GDP.
- Fiscal risk figures (end-2020):
  - Public and publicly guaranteed debt: 149 percent of GDP.
  - Debt servicing costs for 2020: 4 percent of GDP.
  - Foreign currency share of public and publicly guaranteed debt: 82 percent.
  - Share to be refixed within next year: 51 percent.
  - Maturing within next 12 months: 14 percent.
- MRPS asset allocation (end-2019): 55 percent in T-bills; 32 percent in T-bonds.
- Health spending: current cost 10 percent of GDP; >70 percent financed by government.
- Tourism share: 26 percent of GDP in 2019.
- 2004 tsunami impact: US$470 million (62% GDP).
- Initial estimated immediate fiscal impact of COVID-19: US$389 million (7.2 percent of GDP).
- Banking sector (Q3 2020): capital ratio 48.2 percent; Tier 1 capital ratio 42.9 percent; liquid asset ratio 45.4 percent; liquid asset to short-term liabilities 69.4 percent; ROE 10.8 percent; ROA 2.6 percent.
- Total deposits at end-2019: MVR 36 billion (40 percent of GDP).

*Source: 1mdvea2021001*

### PREFACE ___________________________________________________________________________________________________ 5

### PREFACE

### Mission and Team
- The IMF Fiscal Affairs Department (IMF-FAD) carried out a Fiscal Transparency Evaluation of Maldives, conducted remotely from November 23–December 14, 2020.
- The IMF team was led by Sandeep Saxena and comprised Majdeline El Rayess and Gemma Preston (all IMF-FAD); Celeste Kubasta (SARTTAC PFM Advisor); and Joseph Cavanagh, Pokar Khemani, and Adrien Tenne (FAD experts).
- The assessment benchmarked Maldives’ practices against the 2014 version of the IMF’s Fiscal Transparency Code.
- A virtual inception mission was conducted in August 2020.
- The team worked closely with the Government of Maldives (GoM) Ministry of Finance (MoF) counterparts, including Chief Financial Budget Executive Mr. Saruvash Adam, Financial Controller Ms. Razeena Fathimath (Treasury and Public Accounts Department), and staff from the Resource Mobilization and Debt Management Department, Public Enterprise Monitoring Unit, National Tender Board, Ministry of National Planning, Housing and Infrastructure, Ministry of Environment, National Disaster Management Authority (NDMA), Auditor General’s Office, and Maldives Monetary Authority (MMA).
- Donor briefings included the World Bank, the Asian Development Bank, and the United States Agency for International Development (USAID), organized by the IMF Resident Representative office in Colombo.
- Special support acknowledged: Amana Shabeer and Azyan Hameed of FAD’s Research Division.

### Executive Summary — Overall Assessment
- Maldives is the first small island state, and the second country in Asia, to have undertaken a Fiscal Transparency Evaluation (FTE).
- The FTE assessed fiscal reporting, fiscal forecasting and budgeting, and fiscal risk management practices against the first three pillars of the IMF’s Fiscal Transparency Code (FTC).
- Overall findings:
  - Considerable progress in fiscal transparency in recent years, with favorable assessments in many areas.
  - Several practices remain at “Basic” or “Below basic” levels.
  - Ongoing reforms enable quick wins with relatively minor additional efforts in several areas.
- Pillar-level summary:
  - Fiscal forecasting and budgeting: 50 percent of practices assessed as “Good” or “Advanced”; remainder at “Basic” or “Below basic.”
  - Fiscal reporting: uneven performance from “Advanced” to “Below basic”; high-frequency budget execution reporting rated “Advanced” (notably weekly COVID-19 spending reports).
  - Fiscal risk analysis and management: generally weak; most practices rated “Basic,” some “Below basic.”

### Pillar I — Fiscal Reporting (Key Findings)
- Fiscal reports cover almost the entire general government operations and provide near real-time information on budget execution.
- Budget and accounting classification system can support diverse reporting needs.
- Concerns:
  - Credibility and timeliness of audited annual financial statements need improvement; nonavailability of timely audited financial statements is an important transparency and accountability gap.
  - Completeness and reliability of fiscal information need strengthening.
  - Quality of reported assets and liabilities must be improved to enhance fiscal risk management.
- A consolidated position of estimated assets and liabilities for the entire public sector as at end-2019 is presented in the report (Table 2).

### Pillar II — Fiscal Forecasting and Budgeting (Key Findings)
- Strengths:
  - Budget unity is a key strength.
  - Parliamentary control over public spending is strong, supported by a relatively comprehensive legal framework.
  - Timely publication of budget-related information enhances transparency.
- Weaknesses:
  - Absence of clear targets for fiscal aggregates; fiscal policy lacks strategic direction for sustainable public finances.
  - Medium-term fiscal strategy (MTFS) and medium-term budget framework (MTBF) require further development to improve credibility.
  - MoF macroeconomic and fiscal forecasting capacity needs augmentation to provide a firm basis for the MTBF and annual budget.
  - Greater transparency needed around procurement and total cost of major infrastructure projects; public investment management processes should use cost-benefit analysis more routinely and ensure open and competitive procurement.

### Pillar III — Fiscal Risk Analysis and Disclosure (Key Findings)
- Public finances exposed to significant fiscal risks requiring careful identification, analysis, management, and monitoring.
- Key quantified and descriptive risks:
  - High revenue dependence on the tourism sector.
  - Stock of debt at 115 percent of GDP at end-2020.
  - Natural disaster and climate change risks: example — fiscal cost of the 2004 tsunami estimated at 62 percent of GDP.
  - Unfunded public pension scheme raises long-term sustainability concerns.
  - Decentralization could create contingent risks if local councils are allowed to borrow.
- State-Owned Enterprises (SOEs):
  - SOEs had total liabilities of 84 percent of GDP at end-2019 and are a major source of fiscal risks.
  - Government loans to SOEs could be impaired if SOE creditworthiness deteriorates.
  - Analysis of nine major SOEs (2014–19) indicates increasing riskiness.
  - Almost all government guarantees involve foreign currency debt, exposing the government to currency risk.
- Current MoF practice includes discussion of main fiscal risks in budget documents, but analysis needs to be more comprehensive and should include quantification where possible.

### Key Recommendations (as presented)
- Recommendation 1.1. Improve the timeliness and reliability of the year-end consolidated financial statements. Aim to improve quality of reporting on assets and liabilities, consistent with International Public Sector Accounting Standards (IPSAS), and to complete the audit for timely publication of audited statements.
- Recommendation 1.2. Enhance transparency of tax expenditure by improving reporting and coverage. Update the legal framework to define tax expenditures and require annual publication of estimates of revenue forgone by sector or major policy area.
- Recommendation 2.1. Establish clear fiscal policy objectives to effectively guide the fiscal stance. Complete development of a new Fiscal Responsibility Act (FRA) to provide a realistic path to fiscal consolidation and include clearly articulated fiscal objectives. Implement and elevate the 2019 Virements and Appropriation Procedures to bring greater transparency to budget reallocations.
- Recommendation 2.2. Continue to refine the MTBF, supported by robust and reliable macroeconomic and fiscal forecasts, to enhance budget credibility. Strengthen MoF’s macroeconomic and fiscal forecasting capacity by adequately resourcing the macro unit and equipping it with appropriate tools and skills.
- Recommendation 2.3. Enhance spending efficiency on public investment projects and transparency around project selection and procurement. Undertake cost-benefit analysis of investment projects more routinely, and subject all major projects to open and competitive procurement.
- Recommendation 3.1. Improve analysis and disclosure of fiscal risks. Enrich budget document discussions of main macroeconomic risks; risks surrounding the debt portfolio and debt sustainability; and major specific fiscal risks (guarantees, SOEs, natural disasters, legal claims, risks to financial assets). Strengthen MoF institutional capacity to analyze and manage fiscal risks.
- Recommendation 3.2. Improve analysis of pension liabilities, and assess and manage short-term and long-term liabilities of various pension schemes. Conduct a comprehensive review with actuarial assessments and reviews of funding arrangements.
- Recommendation 3.3. Enhance and strengthen management of guarantees by ensuring greater compliance with MoF’s guarantee policy; improve the policy to support better management including suitable risk mitigation measures.
- Recommendation 3.4. Strengthen transparency around SOE finances by publishing an ownership policy and more comprehensive reporting. Provide an overview of the financial position and performance of the public corporations’ sector and deepen analysis of individual SOEs.

### Visuals and Tables Referenced (high-level)
- Heatmap summarizing pillar assessments (Table 1).
- International comparison of Fiscal Transparency Evaluation scores (Figure 1).
- Multiple figures and tables address coverage of expenditures, assets and liabilities, public sector net worth, pension liabilities, tax expenditures, evaluation of forecasts, public investment, debt and deficits, guarantees, PPPs, hazard frequency/severity, and SOE financials.
- Annex I contains a Fiscal Transparency Reform Action Plan; Annex II contains a Detailed Assessment Against FTC.

*Source: 1mdvea2021001 - PREFACE*

### 3. Pillar  I:  Fiscal  Reporting

### 3. Pillar I: Fiscal Reporting

### Scope and assessment framework
- This chapter assesses the quality of fiscal reporting in the GoM against the principles set out in the first pillar of the IMF’s Fiscal Transparency Code (FTC), focusing on four dimensions:
  - Coverage of public sector institutions, stocks and flows
  - Frequency and timeliness of reporting
  - Quality, accessibility, and comparability of fiscal reports
  - Reliability and integrity of reported fiscal data

### Organizational responsibilities and principal fiscal reports
- Four MoF departments produce fiscal reports:
  - Treasury and Public Accounts Department (TPAD): financial accounting and reporting
  - Fiscal Affairs Department (FAD): annual budget, in‑year budget execution reports, Government Finance Statistics (GFS)
  - Resource Mobilization and Debt Management Department (RMDMD): debt reporting
  - Public Enterprise Management (PEM): reporting on SOEs
- Noteworthy reports and features:
  - Weekly fiscal development reports: prepared on a cash basis; provide revenues and expenditures by economic classification, primary balance, overall balance; expenditure identified by agencies; include PSIP classified by functions and debt operations; data as of end of week compared with approved budget and previous year; weekly COVID‑19 spending reports introduced May 2020 (Box 1).
  - Monthly fiscal development reports: same format as weekly; revenue and expenditure outturn for and up to the month; compared with approved budget and previous year outturn.
  - Monthly economic indicator reports.
  - Monthly Green Fund reports: green tax collection by Atoll/City and establishment type and expenditure by project.
  - Quarterly SOE finance reports: individual analysis of all 28 nonfinancial SOEs and brief aggregate overview.
  - Annual consolidated financial statements: prepared by TPAD in compliance with cash‑based IPSAS; provide financial performance and position and include comparison of outturn with budget.
  - Public Debt Bulletins and Outstanding Debt Reports: disbursed outstanding government debt, including guaranteed debt, external/domestic breakdowns, summary debt statistics.
  - Public Sector Debt Statistics: total central government debt outstanding with breakdown by government securities and period changes.

### Frequency, timeliness and classification (excerpt from Table 3)
- Examples of frequency and lags:
  - Weekly fiscal developments: Frequency W; Lag 1 week.
  - Monthly fiscal developments: Frequency M; Lag 1 month.
  - Quarterly economic and fiscal developments: Frequency Q; Lag 2 months.
  - Public debt bulletin: Frequency SA; Lag 6 months.
  - Outstanding debt: Frequency Q; Lag 3 months.
  - Government consolidated financial statements: Frequency A; Lag 24m.
  - Government finance statistics (GFS): Frequency A; Lag 1 month.
- Notes on basis and classification in Table 3: reports are mainly BCG (Budgetary central government), presented on Cash or Modified Cash (M-cash) basis; standards referenced include IPSAS (Cash), GFSM1986/2014, and PSDS.

### Coverage of institutions (findings)
- In 2019 the public sector comprised 297 institutional units whose expenditure accounted for 50 percent of GDP.
- Institutional composition in 2019:
  - Budgetary central government (BGC): 49 accountable agencies.
  - Extra‑budgetary central government: five institutions plus a Sovereign Development Fund (SDF), partly off budget.
  - Local government: 209 local councils.
  - Public Corporations: Maldives Monetary Authority (MMA); four other financial corporations including Maldives Pension Administration Office (MPAO); and 28 nonfinancial public corporations.
- Annual consolidated financial statements cover:
  - 97.8 percent of general government expenditure
  - 62 percent of public sector expenditures
- Exclusions from financial statements:
  - Portion of expenditure of the five EBUs funded by their own revenues: about 0.4 percent of total general government expenditure
  - Portion of local councils’ expenditure funded from own revenues: about 1.8 percent of total general government expenditure

### Sovereign Development Fund (SDF) reporting
- SDF created in 2017 primarily as sinking fund for a large 2022 debt repayment.
- SDF funded by budgetary transfers (around 4 percent of the total budget).
- Weekly/monthly fiscal reports and annual financial statements report budgetary transfers to the SDF and SDF fund and cash balances, but:
  - SDF investments and disbursements are off budget and excluded from fiscal reports.
- By early December 2020:
  - SDF lifetime inflows: MVR 3.55 billion
  - Investments made: MVR 2.65 billion
  - Debt repayments made: MVR 0.35 billion
  - Accumulated balance: MVR 3.2 billion (3.7 percent of GDP)
- Currency composition of SDF is not publicly disclosed.

### Boundary and sectorization issues
- IMF SARTTAC technical assistance identified 15 entities currently classified as public corporations for potential reclassification into general government:
  - These include the MPAO and 14 nonfinancial public corporations that rely on budget transfers or do not charge economic prices.
- This report treats MPAO as a public financial corporation; other entities remain classified as public corporations pending GoM review.
- MoF initiatives:
  - Application to bring local council finances online beginning in 2020; initially manually integrated with PAS; rollout pending.
  - MoF working group to improve GFS and public debt reporting, review sectorization and boundary cases, and update institutional table.

### Coverage of stocks and disclosures
- Consolidated annual financial statements and GFS are prepared on a modified cash basis but include disclosures on cash, deposits, and debt.
- Disclosures cover around 35 percent of all public sector assets and liabilities.
  - Assets represent about 52 percent of GDP.
  - Liabilities equal about 70 percent of GDP.
- Disclosure notes include financial assets (accounts receivable, investments in SOEs, cash and cash equivalents) and some nonfinancial assets (property, plant, equipment); liabilities disclosures include current accounts payable and public debt (face value).
- Debt data recorded using CS-DRMS; GFS data based on the same dataset and present changes in financing.
- Annual statement of public debt is audited and published.

### Limitations and quality of asset/liability information
- PAS (SAP adaptation) introduced in 2009; initially for centralized payments; other functionalities added later.
- PAS does not maintain direct records of assets and liabilities except cash and current payables; asset/liability records are fragmented across other MoF systems and government agencies.
- Apart from debt and current payables, values disclosed in consolidated financial statements are variable in completeness and reliability.
- 2018 audit report criticized asset and liability accounting, including calculation of cash balances.

### Pension-related liabilities (key findings and illustrative valuations)
- Public service pension schemes are unfunded; the MoF pension budget includes lump sums and monthly payments.
  - 2020 budget estimates: lump sums MVR 64 million; monthly payments MVR 240 million.
- Annual pension costs projected to rise to around MVR 3.5 billion by the 2050s.
- Simple estimation of net present value (NPV) of unfunded public service pension commitments:
  - NPV around MVR 56 billion, which is 65 percent of GDP (discount rate dependency noted).
  - Range illustrated: MVR 20.8 billion (24 percent of GDP) at a discount rate of 5 percent to MVR 56 billion (65 percent of GDP) at a discount rate of 1 percent.
  - Typical discount rate selection guidance: based on long‑term bond market real rate of return; mission notes lack of direct 40‑year rate in Maldives and suggests a discount rate nearer to 1 percent may be more appropriate.
- MRPS (Maldives Retirement Pension Scheme) accounts 2019:
  - Assets: MVR 13,895.3 million
  - Liabilities: MVR 7.7 million
  - Net worth: MVR 13,887.6 million (16.0 percent of GDP)
  - Revenues: MVR 1,737.6 million; Expense: MVR 57.7 million; Surplus: MVR 1,679.9 million (1.9 percent of GDP)
- MRPS liability in this report is assumed equal to fund’s net assets—MVR 13.9 billion—pending clarification on possible asset/liability gaps.
- MPAO acknowledges potential doubts about matching of transferred pensions and corresponding bonds; MPAO considering consultants to assess any gap.

### Other reporting gaps and contingent asset/liability issues
- Government assets from loan schemes (administered by MoF or via banks as agents) are underreported. Schemes include loans to SOEs, student loans, COVID‑relief and other loans to small businesses.
- Reported balances (mission information and GoM reporting):
  - Student loans balance around MVR 2 billion (2.3 percent of GDP).
  - By end‑December 2020 COVID‑relief loans disbursed: MVR 346 million to SMEs and self‑employed; additional MVR 579 million to large businesses (together approximately 1 percent of GDP).

### Recommended enhancements and near‑term priorities (implicit from findings)
- Improve institutional coverage and sectorization in fiscal reports; review and confirm resectorization of the 15 entities identified by SARTTAC.
- Include full operations of extra‑budgetary funds (EBFs), including SDF, and disclose SDF currency composition.
- Extend and finalize rollout of local councils’ online financial reporting application and integrate with PAS to expand coverage.
- Strengthen asset and liability recording by integrating disparate registers into a comprehensive system to improve completeness and reliability of consolidated financial statements.
- Assess and disclose unfunded public service pension liabilities using transparent discount rate methodology; consider actuarial valuation and publication.
- Compile reliable data on government loan schemes (student loans, COVID‑relief loans, SOE loans) and disclose associated assets and contingent exposures.

*Source: 3. Pillar I: Fiscal Reporting, IMF staff assessment (content extracted from source PDF).*

### 15.      Further development of data on assets and liabilities is needed to make  debt and GFS

### 15. Further development of data on assets and liabilities is needed to make debt and GFS reporting more comprehensive

### Assets and liabilities coverage and accruals transition
- Current debt reporting is limited to debt securities and loans at face value; GFS reporting does not extend beyond cash and borrowings.
- March 2020 SARTTAC report suggested broadening coverage of debt instruments and institutional coverage of debt reports.
- The Government of Maldives (GoM) has announced intention to transition to accruals accounting; the Ministry of Finance (MoF) has commissioned consultants to help design a transition strategy.
- Phased inclusion of accrued elements is recommended to:
  - provide impetus and discipline to assemble and report better information on assets and liabilities;
  - support production of a more complete and integrated balance sheet;
  - facilitate fuller GFS reporting.
- Reliable data on assets and liabilities will support fuller reporting of non-cash and other economic flows (e.g., depreciation, holding gains and losses, actuarial adjustments, write-off or impairment of assets).

### Coverage of flows (current gaps and implications)
- Annual consolidated financial statements and GFS reports present a comprehensive account of cash flows, including financing flows (debt and lending-related), but:
  - reports and disclosed surplus/deficit do not include accrued revenues and expenses and other economic flows such as depreciation, holding gains and losses (currency gains/losses, or gains/losses in equity holdings), actuarial adjustments, or write-off/impairment of assets.
  - in-year reporting and debt reporting are currently limited to cash movements and debt balances at face or cash value.
- Transition to accruals will allow accounts to include all relevant flows; no specific timetable set until a fully developed roadmap is available.
- Non-cash and other economic flows can be material and produce fiscal aggregates that differ substantially from cash-only movements.

### Coverage of tax expenditures
- A comprehensive statement of revenue loss from tax exemptions and benefits is currently missing.
- Likely tax benefits and exemptions in Maldives may include:
  - zero-rate goods for the goods and services tax (GST) as presented in the Goods and Services Tax Act;
  - exemptions in the Business Profit Tax Act, in particular profit tax of foreign investors party to a foreign investment agreement;
  - tax incentives related to developers and investors in special economic zones (Special Economic Zones Act);
  - preferential treatment on import duty as stipulated by the Customs Act.
- Legal framework neither provides a precise definition of tax expenditures nor mandates disclosure of data.
- Tax Policy Unit (TPU) within the MoF:
  - established following 2019 IMF technical assistance to strengthen tax policy role of MoF;
  - is working on methodology for estimating revenue losses and plans annual publication in the budget;
  - is collaborating with Maldives Inland Revenue Authority and Maldives Customs Service;
  - is taking a gradual approach, beginning work on estimating tax exemptions related to import duty;
  - plans, with IMF technical assistance, to estimate tax expenditures related to income tax and business profit tax (BPT);
  - aims to produce a comprehensive tax expenditure report encompassing all types of tax exemptions, including those related to the GST.
- 2021 Budget Book included, for the first time, estimates of tax expenditures related to preferential treatment on import duty:
  - data covered 2019, presented by type of concession and beneficiary sector;
  - estimations of revenue losses amounted to MVR 1.8 billion (around 11 percent of total tax revenue; 2 percent of GDP).
  - Exemptions on import duty related to other projects and economic activities (mostly capital projects) were the main type of concession; tourism and transportation sectors were main beneficiaries.

### Frequency and timeliness of reporting
- In-year reports:
  - Weekly and monthly fiscal developments reports covering the BCG are prepared by the Research and Publication unit of the FAD.
  - Weekly reports published on the MoF’s website within one week of the reference period.
  - Monthly reports published by the end of the following month.
  - PAS facilitates timely preparation; some elements (e.g., bank accounts held at commercial banks) are not available through PAS and require manual incorporation—automation would improve credibility.
  - Any significant exclusions should be disclosed in the reports until automation is achieved.
- Timeliness of annual financial statements:
  - Public Finance Act (PFA) Chapter 5 Section 38 (a) requires Finance Minister to submit annual financial statements to Auditor General (AG) within three months and 14 days after year end; AG to audit and provide report within two months of receiving statements; report then provided to Finance Committee of People’s Majlis.
  - These legal deadlines have not been met in recent years:
    - Latest available audited consolidated financial statements are for 2018; financial statements for 2019 are under audit.
    - Financial statements for 2017 and prior years remain unaudited and unavailable for publication.
  - Capacity constraints in auditing all Accountable Government Agencies hinder AG’s ability to meet statutory deadlines; quality of financial statements submitted further compounds challenges.
  - AGO had been developing certification audit function; AGO audited 2016 consolidated financial statements (audit report not issued but key findings shared) and published 2018 audited consolidated financial statements.
  - Suggested progressive target: publish audited financial statements within 6-9 months of year-end.
  - FMIS is expected to improve timeliness as it can provide substantial data required; procedures underway to address key audit findings to improve data credibility and AGO’s ability to complete audits per PFA.

### Quality — classification, consistency, and revisions
- Classification:
  - Current budget classification and Chart of Accounts largely meet international budgeting, accounting, and reporting standards and practices.
  - Classification includes administrative and economic classification; a functional classification broadly aligned with COFOG is provided.
  - Budget documentation includes “Budget in GFS format” aligned with Government Finance Statistics Manual 1986 (GFSM 1986).
  - Economic classification is quite detailed, includes elements of other classification types, and requires adjustments to produce reports compliant with accepted statistical and accounting standards.
  - MoF has designed an improved budget classification and chart of accounts with four main segments: organization, economic, fund, and program-cum-functions.
  - In 2017 GoM considered transitioning to a new economic (object) classification to comply with GFSM 2014 and IPSAS cash-based reporting; implementation postponed due to capacity constraints.
  - Currently a mapping table is used to produce GFS 2014-compliant reports; once configured, PAS expected to generate GFS reports.
  - Planned introduction of program classification in the 2022 budget will produce functional segment from program classification, enhance credibility of expenditure reports by functions, and facilitate better international and intertemporal comparisons.
  - Opportunity should be used to implement improved economic classification (complying with GFSM 2014 and IPSAS) and fully implement new chart of accounts in budget manual.
- Internal consistency (reconciliations):
  - MoF, with external assistance, has started work on reconciling (1) fiscal balance and financing and (2) financing and change in debt stock, but these are not yet routine or published.
  - Reconciliation between fiscal balance and financing:
    - Recent GFS statements of operations (prepared on GFSM 2014 with March 2020 SARTTAC mission help) were prepared using central bank data for financing and show a statistical discrepancy.
    - With the exception of 2014, discrepancy has been within acceptable tolerance (2 percent of total expenditure) used by the Fund to assess reliability.
    - Reasons for discrepancy not yet identified; MoF has yet to routinely produce or publish reconciliations; further SARTTAC mission expected to help operationalize approach.
  - Reconciliation between financing and change in debt stock:
    - March 2020 SARTTAC mission worked with RMDMD to reconcile financing with stock of debt and prepared rough stock-flow reconciliations for debt securities and loans for 2016–18.
    - Calculations required holding gains/losses through exchange rate changes for foreign-currency-denominated debt and adjustments for time recording and arrears.
    - Results were sufficiently close to confirm accuracy of GFS and PSDS debt calculations and to understand sources of differences; not yet routine or published.
  - Reconciliation of debt stock against counterparty records needs further improvement:
    - Domestic debt held by MRPS, SOEs, institutional investors, and private companies; no secondary market for government securities.
    - MMA, as fiscal agent issuing domestic debt, checks records against banking survey data—partial check not extending to nonbanking institutions.
    - RMDMD reportedly obtains creditors’ balances semi-annually to reconcile direct borrowings.
  - Routinely carrying out and publishing these reconciliations as part of fiscal reports enhances credibility and establishes data integrity across diverse fiscal reports.
- Historical revisions:
  - MoF has no standing policy on GFS data revisions; little explanation of changes to historical data and no bridging tables from old to new datasets.
  - Revisions to GFS usually occur when switching from approved to revised budget and then to outturn data; after outturn, no standing policy for further historical revisions (except changes reported separately by March 2020 SARTTAC mission).
  - MoF publishes and updates GFSM 1986 data without explanation of basis for reporting (except column headings: “budget,” “revised,” “proposed,” or “actual”); GFS data on NSDP do not specify status.
  - Difficulty tracing changes in GFS data or relating these data to other financial reports.
  - MoF intends to switch to GFSM 2014 and hopes for further SARTTAC assistance to automate production of new GFS data, including restatement of previous time series.
  - March 2020 SARTTAC recommended MoF document GFS preparation procedures, including use of bridging tables from old to new datasets.
  - Debt reporting changes:
    - Early 2020 RMDMD, with SARTTAC assistance, produced debt statistics in partial compliance with IMF’s Public Sector Debt Statistics.
    - MoF uploaded monthly external debt data for 2020 and 2021 and annual data back to 2015 to World Bank’s debt reporting system (last updated October 2020).
    - MoF supplied semiannual debt data to IMF’s debt reporting system (most recent data for first half of 2020).
    - MoF should develop a policy for revisions to time series data for public debt addressing explanation/reporting of revisions and use of bridging tables from old to new data sets.

### Integrity — statistical practices and audit
- Statistical integrity:
  - Fiscal statistics compiled and disseminated in accordance with IMF’s Enhanced General Data Dissemination Standard (e-GDDS) practices.
  - Maldives completed e-GDDS implementation requirements in July 2019 and published critical data through the National Summary Data Page (NSDP).
  - NSDP posted on National Bureau of Statistics (NBS) website contains links to statistics published by official producers: MMA, NBS, and MoF.
  - Fiscal statistics are disseminated domestically and SARTTAC January 2020 GFS TA encouraged authorities to disseminate internationally.
  - MoF has responsibility to compile and disseminate fiscal statistics though not yet formalized in legislation; new National Statistics Act expected to assign GFS and PSDS compilation/dissemination to MoF (Act under consideration by Parliament).
  - Informally, FAD coordinates compilation and transmits fiscal data to NBS for publication on NSDP.
  - MMA also publishes fiscal statistics (central government debt and operations data).
  - Authorities convened interagency GFS/PSDS Working Group twice to coordinate dissemination and discuss future developments; several projects underway to improve production and dissemination.
  - Disclosure of fiscal statistics broadly in line with international standards:
    - MoF prepares fiscal statistics based on GFSM 1986 concepts, definitions, and methods.
    - Annual data available in IMF GFS database (FY 2005–14) and on NSDP for recent years.
    - Statement of operations and debt statistics available under GDDS framework.
    - For 2019, fiscal data reported under GDDS can be broadly reconciled to annual outturns as published in 2020 Budget Book and December 2019 Public Debt Bulletin; these sources broadly consistent with MMA fiscal statistics.
    - GFS and quarterly public sector debt statistics based on GFSM 2014 and Public Sector Debt Statistics Guide for Compilers and Users 2011 were prepared for FY 2014–19 with SARTTAC help; these statistics are not yet published by authorities but are available from IMF and World Bank.
    - With SARTTAC technical assistance, MoF is looking to operationalize fiscal reporting under GFSM 2014.
- External audit:
  - AGO’s capacity constraints and quality of financial statements impede timely audit completion; AGO has been developing certification audit function and recent publication of 2018 audited consolidated financial statements is a welcome development needing reinforcement.

*Source: 1mdvea2021001 - 15. Further development of data on assets and liabilities is needed to make debt and GFS reporting more comprehensive*

### 37.      The external audit function is firmly rooted in the country’s legal framework and

### The external audit function is firmly rooted in the country’s legal framework and

### External audit framework and independence
- The Auditor General (AG) is a constitutional authority appointed by the President and approved by a majority of People’s Majlis.
- The AG may only be removed by the President, upon consultation with People’s Majlis, if unable to satisfactorily perform his or her duties.
- The Auditor General’s Office (AGO) budget is included in the government budget and is subject to the ceilings established by the MoF, but it is evaluated separately by the Finance Committee of People’s Majlis.
- According to the Audit office, audits are conducted in accordance with the International Standards of Supreme Audit Institutions (ISSAI).

### Audit coverage, timing, and recent audits
- Individual audits of various government entities were performed prior to 2018, but there had not been an audited consolidated statement in previous years.
- The 2018 consolidated financial statements are the only published audited financial statements in recent years.
- The 2019 consolidated financial statements were submitted to the AG recently, and the audit is scheduled to start in January 2021.
- The 2018 consolidated statements audit report includes:
  - A qualified opinion on the financial statements.
  - A qualified opinion on compliance with the budget approved by People’s Majlis and with the PFA and the PFR.

### 2018 audit qualifications: causes and implications
- Primary reasons for the qualified audit opinion on the 2018 Consolidated Financial Statements:
  - Lack of beginning and closing cash balances.
  - Inadequate disclosure of controlled entities, including local councils.
- Auditors issue a qualified opinion when there is:
  - (1) a limit in scope or a material issue on compliance with accounting principles or
  - (2) when required disclosures in the Notes to the Financial Statements are inadequate.
- Consequences of the identified issues:
  - The lack of cash balances means the completeness of accounts cannot be fully validated, and an informed analysis of the government’s current cash resources cannot be performed.
  - Maldives complies with cash based IPSAS, but the requirement of a disclosure of significant controlled entities and reasons for not consolidating controlled entities was not complied with.
  - Local councils were consolidated on the Statement of Receipts and Payment and presented in a grant, while the Statement of Comparison of Budget and Actual presents the budget provided to local councils at the line-item level; at a minimum, an explanation should have been provided for this difference in the Notes to the Financial Statements.
- Despite these qualifications, the report states: “Although these qualifications are serious, they do not reflect a material misstatement of the financials.”

### Audit qualifications on compliance with PFA and PFR
- The 2018 audit opinion on compliance with PFA and PFR was qualified due to:
  - Lack of a properly maintained fixed asset register.
  - Inadequate accounting for “public funds.”
- Audit details:
  - Auditors were unable to verify and ascertain the accuracy and completeness of fixed assets reflecting a total of MVR 6.8 million.
  - The audit recommended properly implementing a portal to improve asset recording and reporting and to put in place adequate internal controls to minimize risks to assets.
  - The qualification on public funds was due to a lack of available details to validate the statements.

### Comparability of fiscal data
- Budget execution reports, fiscal statistics, and final accounts are prepared and presented in formats consistent with the approved budget; the format is broadly based on GFSM 1986.
- Annual financial statements include a statement comparing budget and outturn, both in summary and detailed levels, consistent with cash-based IPSAS.
- The principal statement is supplemented by a disclosure note that reconciles budget outturn to the statement of cash receipts and payments; disclosures explain reasons for variances and provide variances for each accountable agency, as well as by funds.
- Presentation issues affecting comparability:
  - Changes in the approved budget numbers presented in the annual financial statements (approved budget shown includes supplementary appropriations and a separate column for revised budget) deviate from IPSAS, which requires original and final budgets and actuals.
  - There is no explicit reconciliation between the financial statements and the GFS data. Differences exist between financial reporting (IPSAS cash accounting) and GFS (GFSM 1986 and GFSM 2014) due to different classifications and treatments and because GFS numbers include financing data drawn from the banking system rather than the accounting system.
  - These differences are not highlighted or explained in presentations of fiscal or financial data.

### Conclusions: strengths and areas for improvement
- Recognized advancements:
  - Improvements in coverage, timeliness, classification, and comparability of fiscal reports.
  - Availability of in-year and year-end budget outturn/execution reports, fiscal statistics, and annual financial statements.
  - In-year budget execution reporting is regular and timely, enabling ongoing review and analysis.
  - Published reports provide good coverage of general government and are comparable with budget documentation.
  - Classification of revenues and expenditures is generally consistent with international standards.
- Areas for improvement:
  - Reporting of accruals and tax expenditures.
  - Data integrity: information on assets and liabilities in financial statements is incomplete and not sufficiently reliable.
  - Statistical reporting is limited to cash, debt, and financing.
  - Delays in the publication of audited financial statements reduce transparency and impede accountability.
  - Nonavailability of information on tax expenditures prevents scrutiny of their costs, benefits, and efficacy vis-a-vis direct spending.

### High-priority recommendations
Recommendation 1.1. The timeliness and reliability of the year-end consolidated financial statements need further improvement:
- Develop a plan to publish credible audited consolidated financial statements that are compliant with international standards and that include all material general government finances, within a reasonable period (preferably six to nine months) after the year-end.
- Agree with the AGO on a plan for timely completion of the audit and presentation to People’s Majlis. Include a provision to clear the backlog of unaudited consolidated financial statements from previous years.
- Automate, wherever possible, the collection of data currently outside the PAS to improve the data reliability and the speed of its collection.
- Establish a roadmap for expanding the coverage of stock items in the accounting system that focuses on the inclusion of the most material stocks and associated flows. An early step should be the resolution of previous audit findings, recommendations, and other identified problems in accounts preparation.
- Revise the budget classification and chart of accounts to support GFSM 2014 and accrual accounting under the IPSAS; include functional and programmatic classifications, using bridging tables and facilitating automatic report formats within the PAS.

Recommendation 1.2 The transparency of tax expenditure should be further enhanced by improving the reporting and coverage of the statement on tax expenditures:
- Update the legal framework to include a precise definition of tax expenditures; require annual publication of estimates of the revenue forgone from tax exemptions and benefits by sector or policy area, including a description of the main policy objectives and beneficiary groups.
- Augment the TPU capacity to expand the work on tax expenditures to cover all types of major tax exemptions, benefits, or concessions.

Other supporting reforms
- The MoF could consider documenting the new GFS and debt reporting processes, including the adoption of GFSM 2014 and PSDS, and the tracking and reporting of differences between fiscal reports and financial statements.
- The reporting basis for fiscal statistics could be clarified, and any differences from previously reported numbers could be explained.

### Key statistics and timing references cited
- Audit scheduled to start in January 2021.
- Fixed assets reflecting a total of MVR 6.8 million could not be verified.
- Preferred publication timeline for audited consolidated financial statements: preferably six to nine months after the year-end.

*Source: IMF staff assessment as presented in the provided content.*

### 54.      A multi-agency Macroeconomic Policy Coordinating Committee (MPCC) leads the

### A multi-agency Macroeconomic Policy Coordinating Committee (MPCC) leads the process of establishing the macroeconomic forecasts

### Forecast governance and practice
- The MPCC is a high-level policy coordination body supported by a technical group.
- Main forecasts are established in September/October during the preparation of the budget, revised at the technical level in February of the next year (if needed), and more thoroughly updated in June to establish the MTFS.
- There are few comparisons between successive vintages of the forecasts, and updates tend to become new forecasts.
- Composition of the MPCC: the Ministry of Finance, the Central Bank, the Ministry of Tourism, the Ministry of Planning, the Bureau of Statistics, and the Maldives Inland Revenue Authority.
- Findings on forecast accuracy:
  - Both the one year-ahead and medium-term GDP growth forecasts have tended to show a hint of optimism in recent years.
  - Nominal GDP forecasts have been particularly optimistic, translating into optimism in revenue projections.
  - Figure 8 (Evaluation of Macroeconomic and Fiscal Forecasts, Three-Year Forecasts, 2015–25) compares three-year ahead forecasts with observed values for nominal and real GDP, government revenues and expenditure (sources: MFTS; Budget in Statistics; IMF Staff Report for Disbursement under the Rapid Credit Facility (April 2020); staff computations).

### Macroeconomic and fiscal modelling capacity
- The existing fiscal models allow forecasting beyond three years, but this capability is not currently utilized.
- Current framework mainly factors in tourism and construction developments; forecasts are produced separately for fisheries, trade, transport and communication, financial intermediation, public administration, other sectors, and the price deflator.
- Revenue forecasts use outputs from the macroeconomic model; expenditure forecasts are based on historical expenditure timeseries.
- Ongoing improvements:
  - A more detailed model is being developed to produce GDP forecasts by industries, incorporating linkages among industries.
  - The MoF, under the leadership of the MMA, plans to produce a financial programming model to model sectoral interlinkages.
- Constraints:
  - Limitations of the existing framework are well identified, but capacities are limited because few people are devoted to this function.

### Key statistics and timeline items (exact wording preserved)
- Main forecast timing: September/October (budget preparation); February (technical-level revision); June (more thorough update to establish the MTFS).
- Three-year forecast evaluation period referenced: 2015–25.

*Source: IMF staff compilation from the provided chapter content.*

### Medium-Term Fiscal Strategy (MTFS) and Medium-Term Budget Framework (MTBF)

- Maldives prepares and publishes an MTFS annually; development of an MTBF is evolving.
- The Fiscal Strategy is based on the Medium-Term Fiscal Framework, baseline estimates for revenue and expenditure, and projections for financing.
- MTFS projects revenues and expenditure by economic categories; expenditure projections are based on policy commitments and include details of new policy initiatives; revenue projections identify new revenue measures.
- The 2021 MTFS includes (exact items preserved):
  1. a comparison of the previous Fiscal Strategy and the approved 2020 budget;
  2. the 2019 outturn and 2020 revised estimates to reflect the current circumstances, and medium-term fiscal policy goals and policy implementation;
  3. proposed changes to the revenue and expenditure structure, based on the medium-term fiscal balance and debt sustainability;
  4. the available fiscal space (that is, the budget available for new policy initiatives);
  5. measures to improve the effectiveness of the implementation of fiscal policy.

- Weaknesses in MTFS/MTBF processes:
  - Expenditure forecasts made in July for the budget year are often revised later in October while framing budget estimates.
  - Outyear estimates see significant revision while rolling over to the next year.
  - The fiscal strategy does not seem to provide a credible basis for framing expenditure ceilings.
  - The budget estimates neither fully follow the MTFS projections nor provide reconciliation between the two.

- Revisions to medium-term expenditure forecasts (Expenditure Forecasts (MVR billions)) — table entries preserved exactly as presented:
  - Columns: 2019 2020 2021 2022 2023
  - 2018 MTFS: 25.9 26.0 30.3 29.0
  - 2019 MTFS: – 37.0 38.7 38.6
  - 2020 MTFS: – – 33.9 31.7 32.1
  - Approved Budget: 29.1 36.0 – – –
  - Outturn/Revised Estimates: 30.7 30.1 – – –

- Observations on MTBF features relative to advanced models (as summarized in Table 10):
  - Maldives has a 4- or 5-year MTBF framework and indicative ceilings for outyears.
  - Key features lacking in Maldives compared to advanced MTBF models include:
    - an integrated process for preparing the annual budget and the MTFS/MTBF;
    - a process for making reliable forward estimates of spending over the medium term;
    - the use of planning margins or planning reserves in allocating resources;
    - a process to carry forward defined categories of spending (for example, capital investment) from one fiscal year to the next.
  - Bringing Maldives’ MTFS/MTBF in line with good practice would require improvements in these areas and capacity augmentation in the MoF and spending agencies.

- Definitions preserved from Box 2:
  - A medium-term fiscal framework (MTFF) encompasses the top-down specification of the aggregate resource envelope and the allocation of resources across spending agencies; typically shows projections of the main fiscal aggregates—revenue, expenditure, deficit, and public debt—over a period of three to five years.
  - A medium-term budget framework (MTBF) refers to a set of institutional arrangements for prioritizing, presenting, and managing revenue and expenditure over several years; usually presented in the same format, classification, and level of detail as the annual budget, and includes binding or indicative ceilings on expenditure for all years of the MTBF.

*Source: IMF staff compilation from the provided chapter content.*

### Public investment planning, appraisal, and procurement

- Recent trends and drivers:
  - Public investment spending recovered over the past decade but remains volatile.
  - Key drivers include developments in international tourism, significant exposure to climate change, democratization, the 2004 tsunami reconstruction, and a significant infrastructure agenda (new international airport terminal and runway; bridge connecting Malé and Hulhulé; developing Hulhumalé island; relocating and upgrading the seaport; land reclamation; regional airport development; water and sewage improvements).
  - Against the backdrop of very high levels of public debt, the investment program can substantially add to fiscal and external risks.

- Disclosure and project costing:
  - Budget documents provide comprehensive detail of the PSIP by funding source, project status, cost over a five-year period, by functional area, implementing agency, and project.
  - For projects extending beyond five years, the total project cost cannot be observed in the budget papers at the time the project is announced; the legislature lacks information to assess the full implications of first-year appropriations for multiannual projects.
  - The public can track progress of certain projects through a specially developed portal called isles.

- Appraisal and oversight:
  - Cost benefit analyses (CBAs) are performed on an ad-hoc basis and are not published.
  - CBAs are undertaken for some major projects (example preserved): Velana International Airport Runway and the Terminal Development project — but these are exclusively for internal use.
  - MoF and Ministry of National Planning, Housing & Infrastructure (MNPHI) are working to improve institutional capacity to perform and review CBAs; MNPHI notes challenges with sourcing and extracting appropriate data.
  - The MoF, MNPHI and the President’s Office have formulated a standard vetting process for screening PSIPs that imposes enhanced documentation requirements on ministries, including feasibility studies and environmental impact assessments for high-value projects.

- Procurement practices and transparency:
  - Not all major projects are contracted via open and competitive tender.
  - The PFRs set out competitive procurement policies and procedures, but certain provisions circumvent open tendering. Example preserved: PFR 10.27 allows contractual works to be awarded without a bidding process to SOEs and their subsidiaries, projects financed by foreign nations or concessional loans, and with Cabinet approval where a party submits an unsolicited proposal.
  - Performance audit reports by the AGO highlight numerous cases of noncompliance with procurement rules, including customization of tender criteria to favor certain operators and weaknesses in tender evaluations.
  - Information on the resolution of procurement complaints is not published, although authorities advise procurement processes be paused until disputes are reviewed and resolved.
  - Information about the government’s procurement plans is not published, but information on tenders and awarded contracts is available on the MoF website; where contracts were sole-sourced, a short justification is provided with the contractor name and contract value.
  - Aggregate procurement statistics were not readily available from the National Tender Board; the scale of uncompetitive tendering processes overall has not been validated.

*Source: IMF staff compilation from the provided chapter content.*

### Orderliness, timeliness, and legal framework of the budget process

- Legal framework and requirements:
  - The Constitution sets out the basic framework for budget management, based on legislative control of public spending; the executive cannot spend, lend, borrow or extend guarantees except in accordance with law approved by People’s Majlis.
  - The Constitution requires an annual budget be submitted for parliamentary approval before the commencement of each financial year; People’s Majlis has full authority to amend the executive’s budget proposal.
  - The Public Finance Act (PFA) requires that the budget be submitted at least two months ahead of the start of a new financial year and specifies broad structure and content of the annual budget; Public Finance Regulations provide detailed guidance.
  - The Fiscal Responsibility Act 2013 (FRA) requires submission to People’s Majlis of: (1) a National Fiscal Strategy and a National Debt Strategy by July of every year; and (2) a Budget Position Report before the preliminary discussion on the budget in People’s Majlis linking fiscal strategy with the budget.

- Gaps and suggested legal enhancements:
  - The legal framework lacks clarity on requirements for parliamentary approval of the annual budget prior to the start of the fiscal year and for continuity of government if the budget is not approved in time.
  - Explicit legal provisions—preferably in the PFA—requiring that the budget be approved prior to the start of the fiscal year, and continuity provisions for cases where the budget is not adopted, would strengthen the legal framework.
  - Executive authority to reallocate the approved budget has been excessive in the past; Virement Guidelines introduced in 2019 limit discretion but their implementation was delayed due to the coronavirus pandemic.
  - Over time the Virement Guidelines would need further development and elevation to a higher legal status to preserve the sanctity of People’s Majlis’ approved budget.
  - A clearer specification in the PFA of the level of granularity at which appropriations are approved by People’s Majlis would further demarcate boundaries of executive authority in reallocations.

- Timeliness and publication practice:
  - The government’s proposed budget was submitted to People’s Majlis exactly two months before the start of the financial year over the past four years (in compliance with legal requirements).
  - Proposed budget documents are published on the MoF website and the www.budget.gov.mv website at the time of the budget speech; documents have been posted in early November of each year.
  - Parliament has approved the budget approximately one month prior to the commencement of the new financial year over the past four years; changes made by Parliament are summarized in a report by the Budget Committee on the Parliament’s website.
  - Once approved, the approved budget tables are uploaded to the MoF website; the full approved budget—The Budget Book—is made available on the MoF website within approximately one month of approval by Parliament.

*Source: IMF staff compilation from the provided chapter content.*

### 73.      Further efforts by the authorities to improve the timeliness of budget approval and

### 73.      Further efforts by the authorities to improve the timeliness of budget approval and publication are encouraged

### Budget timeliness
- Maldives compares favorably to several countries in the region in the timeliness of budget document publication, but "there is scope for further improvement."
- Recommendation: "A further reduction in the time lag between the approval of the budget and the publication of the full set of approved documents would be desirable."
- Regional comparison source: Open Budget Survey 2019 staff compilation.

### Policy orientation — Fiscal rules and outcomes
- The FRA contains several numerical fiscal rules that have not been effectively implemented.
- Fiscal rules (as stated in Table 12, Fiscal Responsibilities Act 2013):
  - Public debt: "Maintain at or below 60 percent of GDP until 2016 and determine appropriate level after that"
  - Overall balance: "Reduce to 3.5 percent of GDP by 2016 and subsequently maintain at that level"
  - Primary balance: "Achieve surplus by 2016"
  - Golden rule: "Effective 1/1/2016, borrow only for national development projects"
  - Loan guarantees: "To follow limits set in annual budgets"
  - Advances from MMA: "Not to exceed 1% percent of 3-year average of GDP (to be repaid within 91 days)"
- Outcomes and key statistics:
  - "Targets for deficit containment could not be met."
  - "The average deficit during 2013–19 has been 6 percent of GDP."
  - "The stock of debt (including guaranteed debt) at the end of 2019 stands at 77 percent of GDP."
  - Post-2016 debt levels exceeded the prescribed limit.

### COVID-19 impact and medium-term projections
- The pandemic "has led to a further deterioration in the fiscal position of Maldives."
- Fiscal strategy for 2020–22 intended gradual deficit reduction to reach a surplus within five years, with steady debt growth consistent with budget growth; "no clear numerical targets were set."
- Pandemic-induced outcomes and projections (exact text preserved):
  - "With GDP estimated to have contracted by nearly one-third, and with a massive revenue shortfall, the 2020 budget deficit is projected to widen to 27.5 of GDP and the primary deficit to 24.6 percent of GDP."
  - "Debt to GDP is estimated to have reached 115 percent by end-2020."
  - "With GDP rebounding and a 13.5 percent growth projected for 2021, the 2021 budget estimates that the deficit for the year is at 18.5 percent of GDP and the primary deficit is at 14.8 percent of GDP."
- Institutional response: "A new FRA—introduction is planned in 2021—is under development that will be expected to revive fiscal rules, address the weaknesses in the current legislation, and provide a more realistic path to fiscal consolidation."

### Performance information and budgeting practices
- Current status: "A formal system of performance-based budgeting is yet to be introduced in Maldives."
- Budget remains largely input-based despite program segment in Chart of Accounts and budget classification.
- Ongoing work: MoF is developing programs, subprograms, and performance indicators for major ministries and agencies with USAID technical assistance.
- Strategic Action Plan (SAP) 2019:
  - Identifies priorities for 2020–23 with mapped strategies, objectives, actions, lead implementing agencies, and supporting agencies.
  - FAD plans to prepare the 2022 budget on a program structure based on the SAP to enable inclusion of planned outputs and comparisons of actual performance against targets.

### Public participation
- Assessment: "Good"
- Practices and dissemination:
  - Budget Booklet designed for citizens: plain language and user-friendly graphics.
  - Interactive online Budget Summary and Budget Book available; Excel open data and zipped downloads provided.
  - Budget App used since 2018; social media and hard copies to libraries.
- Opportunities for public input:
  - Standing Orders allow the Budget Committee to accept written feedback; public consultations were held for the 2020 budget though not explicitly required.
  - Budget Committee meetings and debates are generally broadcast live on television and YouTube.
  - Planning ministry may hold ad-hoc consultations for major initiatives.
- Recommendation: "Formalizing arrangements for citizens to provide inputs at the budget formulation stage will bring further transparency." Suggestions include verbal or written statements; comments on draft documents; committee participation; Q&A sessions.

### Credibility — Independent evaluation and forecast reconciliation
- Independent evaluation (Assessment: Not Met)
  - "The government’s economic and fiscal forecasts and performance are not subjected to an independent evaluation."
  - MPCC currently responsible for macroeconomic forecasting; FRA provides no review mechanism for forecasts.
  - AGO review is limited and lacks capacity for substantive review.
  - Recommendation: Present comparative forecasts in MTFS with international institutions (IMF, World Bank) and consider introducing an independent evaluation mechanism.
- Supplementary budgets (Assessment: Good)
  - Constitutional and PFA provisions require supplementary budgets for additions; PFA (32.e) sets a timeframe.
  - Recent supplementary budget activity described as moderate.
  - Table 13 — Supplementary Budget, 2017–19 (exact figures from source):
    - 2017: Original Approved Budget (MVR, billions) 30.25; Supplemental (MVR, billions) 1.7; Percent of Original Budget 5.6%; Virements Number 2,080; Amount (MVR, billion) 11.28; Percent of Original Budget 37%
    - 2018: Original Approved Budget (MVR, billions) 27.97; Supplemental (MVR, billions) –; Percent of Original Budget –; Virements Number 2,335; Amount (MVR, billion) 15.34; Percent of Original Budget 55%
    - 2019: Original Approved Budget (MVR, billions) 26.79; Supplemental (MVR, billions) 0.49; Percent of Original Budget 1.8%; Virements Number 5,365; Amount (MVR, billion) NA; Percent of Original Budget NA
  - Footnote: "No supplementary budget was obtained in 2018."
  - Observation: Executive discretion to reallocate within overall ceiling has been extensive via virements; new "Virements and Appropriation Procedure" adopted with 2020 budget but implementation suspended due to COVID-19 needs. The procedure limits contingency expenses to 5 percent of domestic budget and PSIP virements within projects; changes to project costs require presidential or parliamentary approval.
- Forecast reconciliation (Assessment: Not Met)
  - "The MTFS and the Budget Book contains limited discussion about the evolution of successive vintages of medium-term forecasts."
  - No reconciliation tables showing why forecasts changed between vintages; lack of explanation undermines credibility.
  - Recommendation: Introduce reconciliation tables in MTFS that break down differences into policy changes, macroeconomic determinants, and other factors; Box 4 provides an illustrative example.

### Conclusions and recommendations (summary)
- Fiscal forecasting and budgeting practices meet basic or good practices in many areas and compare favorably with global averages.
- Strengths:
  - Clear and comprehensive budget legal framework.
  - Unified budget providing a good sense of government activities through BCG operations.
  - Transparent and timely budget documentation, innovatively distributed and accessible.
  - Budget information presented in easy-to-understand formats; public participation mechanisms exist.
  - In-year adjustment procedures are defined in law and documented.
- Areas for improvement:
  - Reduce lag between budget approval and publication of full approved documents.
  - Improve implementation and realism of fiscal rules in FRA; strengthen medium-term fiscal framework.
  - Introduce formal performance-based budgeting and program-level performance indicators.
  - Formalize and broaden channels for citizen input at the budget formulation stage.
  - Establish independent evaluation of macroeconomic and fiscal forecasts and include forecast reconciliations in MTFS.

*Source: Open Budget Survey 2019 staff compilation.*

### 90.      Fiscal forecasts and budgeting processes need further  strengthening to provide

### Fiscal forecasts and budgeting processes need further strengthening to provide credible projections of the evolution of the public finances and support the achievement of the government’s fiscal objectives

### Key findings on budgeting and forecasting
- Fiscal forecasts and budgeting processes need further strengthening to provide credible projections of the evolution of the public finances and support the achievement of the government’s fiscal objectives, thereby ensuring medium-term fiscal sustainability.
- A robust and credible macroeconomic and fiscal framework underpinned by reliable forecasts is needed to support achievement of fiscal policy objectives.
- Approved expenditure ceilings should be preserved to ensure that the budget delivers on the government’s policy intentions.
- Efficiency of public spending offers scope for improvement by strengthening public investment management.
- Enhanced scrutiny and commitment are needed to reinforce accountability when the government’s fiscal outcomes deviate from planned outcomes.

### Recommendations to improve transparency in budgeting and fiscal forecasting (from assessment)
- Recommendation 2.1. Fiscal policy objectives need to more effectively guide the fiscal stance. The budget should execute the government’s policy intentions, and significant reallocations by the executive should be avoided.
- Complete the revisions to the FRA to address the weaknesses in the current legal framework.
- Establish and disclose in MTFS the clear medium-term objectives for fiscal aggregates to provide a more realistic path to fiscal consolidation —and include a discussion of actual performance.
- Implement the 2019 Virements and Appropriation Procedure—and eventually elevate their status from administrative guidelines to regulations—to facilitate greater transparency and discipline in the reallocation of the approved budget.
- Recommendation 2.2. A well-aligned and more integrated medium-term and annual budget framework—supported by robust and reliable macroeconomic and fiscal forecasts—is needed to enhance budget comprehensiveness and credibility.
  - Improve macroeconomic forecasts by supporting the development of macroeconomic models.
  - Improve the presentation of macroeconomic assumptions within the budget documentation by including more thorough discussions of key macroeconomic variables (including interest rates, GDP presentation and forecasts by sectors and industries, unemployment and employment growth rate, wages, balance of payments, and international macroeconomics components).
  - Improve fiscal forecasts, developed on sound macroeconomic forecasts, both on the revenue and expenditure sides. Enhance linkages between successive vintages of forecasts, including through better rollover provisions.
  - Improve the quality of forecasts by systematically conducing ex-post analyses of forecast accuracy.
  - Align the processes for preparing the macroeconomic forecasts, MTFS, MTBF, and annual budget, with clear linkages between them.
- Recommendation 2.3. Spending efficiency on public investment projects should be enhanced, reducing waste and supporting the achievement of fiscal objectives.
  - Enhance public investment management processes by more routinely undertaking cost benefit analyses as part of a robust project appraisal and selection process; implement the findings of the 2019 Public Investment Management Assessment (PIMA).
  - Subject all major projects to an open and competitive tender process, thereby providing the opportunity for value for money from public processes.

### Other supporting reforms and accountability
- Strengthen the PFM legal framework by clarifying parliamentary approval processes for the budget, including formalizing timelines for approval by Parliament and specifying continuity provisions if the budget is not passed prior to the commencement of a new financial year.
- Formalize publication timelines for the approved budget; in the interim, the MoF should minimize the time between budget approval and publication of the full set of budget documents.

### Summary assessment (selected principles and assessments from Table 14)
- Budget Unity: Advanced. The budget provides a comprehensive picture of budgetary central government operations. Issue: Low — summarized view of EBUs in the budget would facilitate better decision-making.
- Macro Forecasts: Good. Budget includes analysis of the macro forecasts and assumptions, but it has limited discussion of all pertinent macro variables. Issue: High — forecasts appear to have an optimism bias that impact the quality of fiscal projections, eroding budget credibility. Recommendation: 2.2
- Medium-term Budget Framework: Basic. Maldives publishes an MTBF, but many elements of good practice are missing, for example, outer year forecasts are not rolled over from one MTFS to the next. Issue: High — credible MTBF helps translate policy objectives into budget priorities. Recommendation: 2.2
- Investment Projects: Basic. Total project obligations are disclosed, but cost benefit analyses are performed ad-hoc and not published. Not all major projects are subject to open and competitive processes. Issue: Medium. Recommendation: 2.3
- Fiscal Legislation: Good. The budget framework is comprehensive, but it lacks clarity on timing of parliamentary approval and continuity provisions should the budget not be passed by December 31. Issue: Medium.
- Timeliness of budget documents: Good. Budget documents are prepared and approved in a timely manner ahead of the start of the new fiscal year. Issue: Low — reduce lag between approval and publication.
- Fiscal Policy Objectives: Not Met. Numerical fiscal rules enshrined within the FRA have not been effectively implemented. Issue: High. Recommendation: 2.1
- Independent Evaluation: Not Met. The government’s economic and fiscal forecasts are not subject to an independent evaluation. Issue: Medium.
- Supplementary Budget: Good. Legal provisions for additional spending have been complied with. However, the executive has had complete discretion to alter the approved budget resulting in substantial internal reallocations. Issue: Medium. Recommendation: 2.1
- Forecast Reconciliation: Not Met. Limited explanation is available on the drivers of revisions to successive vintages of fiscal forecasts. Issue: Low.

### Fiscal risk analysis and disclosure — overview
- This chapter assesses Maldives’ analysis, reporting, and management of fiscal risks against the practices of the FTC.
- Fiscal risks arise from macroeconomic shocks and explicit and implicit contingent liabilities.
- Practices are assessed along three dimensions:
  - General arrangements for the disclosure and analysis of fiscal risks.
  - The reporting and management of risks arising from specific sources, such as government guarantees, public-private partnerships, natural disasters, and the financial sector.
  - Coordination of fiscal decision-making with the local governments and public corporations.

### Macroeconomic risk disclosure and scenario analysis
- Historically, macroeconomic risks have had limited coverage in budget documentation, with the Budget Book carrying a short qualitative discussion focused on tourism sector developments and the international macroeconomic situation.
- The 2021–23 MTFS introduced a single-variable scenario analysis based on three different assumptions for tourist arrivals — a baseline, a moderate scenario, and a worst-case scenario — linked to three different tourism sector reopening dates.
  - This model translates into three different growth scenarios and projections for the main fiscal aggregates (revenue, deficit, financing, and debt).
  - Expenditures are progressively shocked in each of the three scenarios — 5, 10, and 15 percent of the revised budget — to reflect prolonged support needs.
- The authorities are committed to developing the scenario analysis further in future.
- Suggested enhancements: present sensitivity of public finances to unit changes in macroeconomic aggregates (for example, 1 percentage point or 1 standard deviation) and develop multivariable scenarios that analyze combined impacts on fiscal aggregates.

### Specific fiscal risks — disclosure and management
- The GoM produces a fiscal risk statement with qualitative descriptions of selected risks considered important by the MoF; the Budget Book includes an overview of the main fiscal risks impacting the medium-term budget.
- Qualitative analysis extends to risks related to:
  - recurrent expenditures exceeding budget ceilings;
  - greater devolution to local councils in the form of block grants pursuant to the amendment of the Decentralization Act;
  - underperformance of revenue;
  - debt management; and
  - SOEs.
- Information on other specific fiscal risks is disclosed in a scattered manner; several large fiscal risks are not disclosed regularly:
  - Scattered information: data on government guarantees and gross exposure are not disclosed in the fiscal risk statement but in other publications; data on debt liabilities and risks are disclosed in the MTDS; other sections of the Budget Book cover environmental risks and gross exposure from legal claims.
  - Fiscal risks not disclosed routinely, but pertinent, include exposure from the financial sector, risks to government assets, pension obligations, PPPs, and long-term health sector spending.
- The MoF intends to publish a comprehensive fiscal risk statement in 2021 and will develop a template with the assistance of the World Bank.
- The MoF needs to strengthen institutional capacity to conduct risk analysis and management effectively.

### Long-term sustainability of public finances — assessment and key vulnerabilities
- Assessment: Not met. Long-term analyses of the evolution of public finances are limited, especially with respect to debt sustainability analyses, although the risks are sizeable.
- Public and publicly guaranteed debt is high: estimated at 149 percent of GDP at end-2020.
- Debt servicing costs for 2020 are estimated at 4 percent of GDP.
- Currency risks: 82 percent of the total public and publicly guaranteed debt at end-2020 is foreign currency-denominated.
- Interest rate risk: at end-2020, 51 percent of the public and publicly guaranteed debt is to be refixed within the next year.
- Refinancing risk: 14 percent of public and publicly guaranteed debt is coming to maturity in the next 12 months at end-2020.
- The MTDS does not present a long-term evolution of the debt.
- The country is at high risk of debt distress.
- Long-term analyses of the pensions schemes and health system are limited:
  - The pensions system includes: (1) the MRPS, a defined-contribution scheme under the Maldives Pension Act 2009; (2) an unfunded basic pension scheme financed by the government that entitles citizens reaching 65 years of age to a monthly pension benefit of MVR 5,000; and (3) several unfunded state pension schemes operated by various government institutions for their employees.
  - The net present value of liabilities under the unfunded state pension schemes alone is estimated at 65 percent of GDP.
  - MRPS investment allocation (end-2019): 55 percent in T-bills and 32 percent in T-bonds.
  - MRPS risks from potential devaluation of assets appear low at present but could increase if investment policy shifts toward riskier assets.
  - Health system funding: average annual increase in health care funding since the year 2000 has been 23 percent. Current cost stands at 10 percent of GDP; more than 70 percent of this is financed by the government.
- Recommendation: conduct a debt sustainability analysis and actuarial and long-term studies (initially covering the next 10 years, extendable to 30 years or beyond) to inform policy responses to demographic change and medium- to long-term fiscal pressures.

### Key statistics and figures (preserved exactly as in source)
- Expenditures shocked in three scenarios: 5, 10, and 15 percent of the revised budget.
- Public and publicly guaranteed debt: 149 percent of GDP at end-2020.
- Debt servicing costs for 2020: 4 percent of GDP.
- Foreign currency-denominated debt: 82 percent of the total public and publicly guaranteed debt at end-2020.
- Debt to be refixed within the next year: 51 percent of the public and publicly guaranteed debt at end-2020.
- Share of public and publicly guaranteed debt coming to maturity in the next 12 months: 14 percent at end-2020.
- MRPS asset allocation at end-2019: 55 percent in T-bills and 32 percent in T-bonds.
- Basic pension benefit: MVR 5,000 monthly for citizens reaching 65 years of age.
- Net present value of liabilities under unfunded state pension schemes alone: 65 percent of GDP.
- Average annual increase in health care funding since the year 2000: 23 percent.
- Current health care cost: 10 percent of GDP; more than 70 percent is financed by the government.
- Pension scheme disbursement shares (2019): Basic pension 65%, State other pension 21%, Senior citizen allowance 7%, MRPS 7%.

*Source: IMF staff assessment (content unit: 1mdvea2021001).*

### 104.      The capital section of the budget includes a provision for contingencies, placed at the

### 1mdvea2021001 - 104.      The capital section of the budget includes a provision for contingencies, placed at the

### Contingency provisions in the budget
- The capital section of the budget includes a provision for contingencies, placed at the disposal of the MoF.
- The provision has ranged between 1.4–4.3 percent of the total budgeted expenditure in recent years (Table 17).
- The contingencies budget is utilized during the year by way of virements to the AGAs to meet their additional budget requirements.
- The absence of virement restrictions has meant that, theoretically, contingencies’ provisions can be applied to any type of additional expenditure needs.
- Historically, contingency provisions have been used to augment provisions for items such as salaries and wages, medical consumables, subsidies, and SOE capital contributions that would not conform to real contingencies.

### Special procedures for emergency spending
- Special procedures exist for meeting additional spending needs arising from events like natural disasters, pandemics, or occasions when the President declares a state of emergency.
- PFRs (Section 4.10) require offices dealing with such emergencies to estimate, within 48 hours of the event, the requirement for an additional budget and submit it to the Finance Minister for approval.
- Any requirements pending approval of such estimates can be met with the verbal approval of the Minister for Finance. Such verbal approvals must be notified to the MoF within two days.
- These emergency requirements are not provided from the contingencies provision in the budget but are met through supplementary appropriations.
- PFA Section 23 allows making payments from the Advance Fund to meet urgent and unforeseen needs. If payments are made from the Advance Fund, the Minister of Finance is required to seek an appropriation from the Consolidated Revenue Fund or the Loans and Capital Works Fund, or both, either as an additionality to the current budget or in the budget for the following year.

### Recommended elements of a robust contingency mechanism
- Adequate contingency allocation in the budget as a buffer to provide for immediate funding needs.
- Special procedures—often in the form of standing authorization—for extraordinary spending needs arising from emergencies that cannot be met from the contingency allocations in the budget.
- Transparent criteria, specified in the legal framework, for the use of contingency provisions, as well as that of the special procedures.
- Clear reporting requirements for the use of such funds.
- Suggested criteria (to be specified preferably in the PFA) for charging expenditure to contingency appropriation:
  - (1) must be urgent and cannot reasonably be held over for consideration in a supplementary budget or the next annual budget;
  - (2) must be unforeseeable;
  - (3) must be unavoidable; and
  - (4) cannot be absorbed within the existing budget appropriations.
- Recommendation to publish and include a report in the budget documentation on the items for which contingency provisions were used.

### Contingency provision—Table 17 (as reported by Ministry of Finance)
- 2018: Contingency Provision (MVR, millions) 400; % of Total Expenditure Budget 1.4
- 2019: Contingency Provision (MVR, millions) 411; % of Total Expenditure Budget 1.4
- 2020: Contingency Provision (MVR, millions) 1,574; % of Total Expenditure Budget 4.3
- 2021: Contingency Provision (MVR, millions) 1,395; % of Total Expenditure Budget 3.5

### Management of assets and liabilities—summary of issues and disclosures
- Borrowing in Maldives is authorized by law; legal framework for managing debt is dispersed across the Constitution, the PFA and its amendments, the FRA, and the PFRs.
- These legislations and regulations authorize the Minister of Finance to borrow with the approval of the President of the Republic.
- The FRA stipulates a ceiling of 60 percent of GDP for public and publicly guaranteed debt; this ceiling has not been enforced since 2016.
- The MoF regularly publishes data on its debt portfolio and risks: quarterly and semiannual disclosures include outstanding stock of debt, maturity profile, creditors, currency composition, and cost of debt service.
- The MTDS includes a risk analysis focusing on refinancing risk, interest rate risk, and currency risk; it highlights currency risk due to high exposure to foreign currency-denominated debt.
- Debt and publicly guaranteed debt rose to reach 110 percent and 28 percent of GDP, respectively, by the end of September 2020, well above the ceiling stipulated in the FRA.
- Information on other liabilities and financial assets is relatively scant:
  - Liabilities on account of unfunded pension obligations are not recorded and disclosed.
  - Current coverage of stocks does not allow identification of risks to the government’s assets.
  - No risk analysis is conducted on loans extended to SOEs (estimated at 12 percent of GDP in 2019); many of these loans are nonperforming.
  - Disbursements under other lending schemes, such as student loans, appear in the budget but are not recognized in the accounting system as assets; no data disclosed on the stock of these loans, collections, and risks.
  - Government’s portfolio of equity is presented at historical cost in notes to financial statements.
- Planned move to accruals accounting and proper recording of balances recommended to improve control and management of financial assets and liabilities.
- Regular analysis of risks surrounding assets and liabilities needs to be undertaken.

### Guarantees—stock, disclosure, and management
- Publications disclosing guaranteed loans:
  - Active Sovereign Guarantees, published monthly, presents creditor, beneficiary, sector, guaranteed amount, and project implementation status. At end-November 2020, 28 sovereign guarantees were active.
  - Disbursed Outstanding Debt, published quarterly, includes data on domestic and external outstanding stock of public and publicly guaranteed debt. At end-September 2020, the outstanding stock of guaranteed debt amounted to MVR 16.2 billion (28 percent of GDP).
  - Public Debt Bulletin, published semiannually, carries a brief analysis of guaranteed debt and provides information on the outstanding stock by beneficiary.
  - MTDS includes the outstanding stock of guaranteed debt, as well as the debt service and a brief discussion on the management of guaranteed debt.
- The stock of government guarantees increased from 4 percent of GDP in 2017 to 28 percent of GDP by the end of the 3rd quarter of 2020.
- The sharp increase in 2020 is largely attributable to the denominator effect of GDP contraction due to the COVID-19 pandemic (total additions in the first three quarters of 2020 are MVR 0.25 billion).
- Almost the entire guaranteed debt is in foreign currency, exposing government to currency risk.
- Legal framework provisions to limit issuance and stock of guarantees exist (Article 33(A) of the FRA stipulates any guarantee given in the name of the State should not exceed the amount allocated in the national budget) but are not fully implemented. Successive budgets have not imposed any ceiling on total stock of guarantees or annual increments.
- MoF planning to introduce controls on the size of guarantees.

### Gaps and weaknesses in guarantees management
- Guidelines for Issuance of Sovereign Guarantees fall short in evaluating guarantee proposals and assessing related fiscal risks.
- Provisions on eligibility for guarantees, guarantee limit, and collection of guarantee fees are not fully complied with:
  - Guidelines stipulate a guarantee fee (1 percent of the total guaranteed amount) at issuance and an annual administrative fee (0.25 percent of the outstanding guaranteed debt).
  - Fees collected would supplement receipts of the SDF aimed at repaying future debt.
  - So far, only one SOE is paying the administrative fee.
  - Fees are not recorded as receivables in government books; RMDMD lacks leverage to enforce collection.
- No published risk analysis of the portfolio of guarantees.
- RMDMD processes proposals for guarantees and monitors the stock, but capacity to conduct thorough credit risk assessment needs augmentation.
- Although no guarantees have technically been called, the government has been providing capital contributions and direct lending support to certain SOEs to help meet their debt service obligations.

### Recommendations to enhance guarantee disclosure
- Active sovereign guarantees report could include for each guarantee:
  - (1) expected duration of the guarantee;
  - (2) guarantee fees levied and collected;
  - (3) payments made from the government toward the settlement of guaranteed debt, whether in response to called guarantees or to support the beneficiary discharge its repayment obligations;
  - (4) in case of any called guarantees, claims established by the government on the beneficiary and payments received in recovery; and
  - (5) any receivables from counter claims.
- The report could show movement in the guaranteed amount since the last report.

### Public-private partnerships (PPPs)
- There is no disclosure of information related to PPPs. Currently, there is no legal framework to regulate PPPs in Maldives.
- A legal definition of what constitutes a PPP is not clearly established.
- The Unsolicited Proposals Policy, issued by the President’s Office in 2019, is the only available policy document on this subject; it sets out the procedure under which private sector parties can propose projects that align with the government’s strategic plans.
- No central information on the volume or size of PPP contracts; understood that currently there are no such major projects in operation.
- MoF’s responsibility for fiscal oversight of PPPs is unclear; it has no role in recording, monitoring, and analyzing risks related to contingent liabilities arising from PPPs.
- Current financial regulations do not include explicit rules setting out budgeting and accounting practices for PPP contracts.
- 2017 PIMA concluded government had entered into contracts akin to PPPs, mainly in health, housing, energy, and tourism sectors; these appear to be a mix of PPPs and small-scale projects.
- Maldives has a low level of PPP capital stock compared to EMEs and emerging and developing Asia.
- A 2010 large PPP project for nearly US$500 million to develop the international airport was canceled in 2012, resulting in a recently settled lawsuit.
- Recommendation: GoM should build an inventory of existing PPP contracts and publish total rights, obligations, and other exposures; MoF should undertake routine assessments of risks and disclose main risks, including estimates of their magnitude.

### Financial sector—disclosure and fiscal risk analysis
- The MMA publishes quantitative information on financial stability but there is limited analysis of fiscal risks from the financial sector.
- MMA regularly publishes indicators of financial soundness for banking and insurance sectors; annual report briefly comments on financial stability.
- MMA undertakes limited stress-testing exercises, but results are not published.
- Banking sector ratios (Q3 2020):
  - Capital ratio at 48.2 percent (against a minimum of 15 percent).
  - Tier 1 capital ratio at 42.9 percent (against a minimum of 6 percent).
  - Liquid asset ratio at 45.4 percent.
  - Liquid asset to short-term liabilities ratio at 69.4 percent.
  - ROE at 10.8 percent.
  - ROA at 2.6 percent.
- Profitability decreased in 2020 but remains strong.
- Three public financial institutions (BML, HDFC, MIB) show weaker capital adequacy ratios, ranging between 15 percent and 40 percent.
- Current strain on the exchange rate may warrant closer scrutiny.
- Deposit insurance scheme introduced following a 2015 regulation:
  - Extends insurance coverage up to a maximum of MVR 30,000 per depositor.
  - Scheme covers the entire banking system.
  - A deposit insurance fund, funded mainly by commercial banks, has been created.
  - No published analysis of sustainability of the scheme and its potential impact on public finances.
  - Mission understands current size of the insurance fund may not be large enough to cover a defaulting bank.
- Total deposits at end-2019 reached MVR 36 billion (40 percent of GDP).
- Close to 85 percent of outstanding T-bills are present in commercial banks’ balance-sheets, indicating a potentially sizeable bank-sovereign loop.
- Recommendation: publish detailed analyses regarding financial stability and explicit government support to capture fiscal risks from the financial sector; improve and publish stress-testing exercises and detail explicit support from the government, with a particular focus on sustainability of the deposit insurance scheme.

*Source: Ministry of Finance; PFRs; PFA; FRA; MoF Disbursed Outstanding Debt; staff calculations; 2017 PIMA.*

### 123.      The Maldives economy and its government are highly dependent on natural

### 1mdvea2021001 - 123.      The Maldives economy and its government are highly dependent on natural

### Dependency on natural resources
- The Maldives depends on biodiversity, land, fresh water, corralite sand, and commercial fisheries.
- Biodiversity and commercial fisheries are identified as the most material natural resources.
- Tourism accounted directly for 26 percent of GDP in 2019 and was the largest single contributor to the economy.54
- Budget documents and financial reports provide details on fiscal expenditures (MVR 360 million in 2020) and revenues associated with biodiversity.56

### Biodiversity measurement and reporting
- Various initiatives have measured and reported on biodiversity, but no mechanism for routine reporting of biodiversity and its fiscal impacts has been established.
- Biodiversity spans multiple biospheres and species (including coral reefs), making a composite or comprehensive measure challenging.
- Occasional studies exist (marine species, protected areas, periodic reports to the UN Conference on Biological Diversity) but do not provide a systematic and annually updated view of volume or value.
- The NBS has started an initiative to apply standard internationally accepted methodologies55 (UN System for Environmental and Economic Accounts, SEEA). This will initially be applied to water and waste, following a pilot study in 2018, and will be restricted to volumes rather than values. Over time it may expand to include other natural resources, including aspects of biodiversity.
- Fiscal expenditures related to biodiversity are grouped in COFOG under “Protection of Biodiversity and Landscape.”56

### Commercial fisheries data and gaps
- Fishing represents around 4.5 percent of GDP and 40 percent of exports; it is a major source of employment.57
- According to the 2014 Census, about 13 percent of Maldivian men are employed in the fisheries sector; it is the most important source of jobs for men in inhabited islands outside Malé.57
- The Ministry of Fisheries, Marine Resources and Agriculture (MFMRA) collects regular data on fishing fleets and sale volumes.
- The NBS publishes annual data on fish catches, fish production, imports and exports, and income from fishing.
- No regular data are collected or published on fish stocks in Maldivian waters, the extent of stock depletion, or the value of these fisheries. MFMRA’s Maldives Marine Research Institute has conducted dated reviews of some fisheries stock and threats from overfishing.
- Fiscal expenditures and revenues associated with fisheries can be obtained from budget documents and financial reports but are not classified together under a single heading (in COFOG they form one component of expenditure on agriculture, forestry, fishing and hunting).58

### Fiscal risks from natural-resource depletion
- Fiscal risks linked to biodiversity and commercial fisheries (and less material natural resources) are likely to materialize over the longer term and indirectly.
- Depletion impacts arise from longer-term trends in climate and human activity; fiscal impacts will include both direct measures (government spending programs or revenue-raising initiatives) and indirect measures (through impacts on GDP and employment and thereby on fiscal revenues).
- Governments should proactively assess stocks and threats to enable longer-term planning and avoid urgent or unplanned interventions.

### Environmental risks, natural disasters, and climate change
- Maldives is highly vulnerable to natural disasters and climate change; recent and potential events include tsunamis, drought, freshwater contamination, coastal erosion, rising sea levels, pandemics, oil spills, and cyclones.59
- Risks are interconnected; sea level rise raises the risk of storm surges, tropical cyclones, persistent flooding, and coastal erosion.59
- Precise data on damages and losses are not fully available, making it difficult to estimate actual economic impacts.
- Historical attribution: meteorological and hydrological events are estimated to account for 45 percent of deaths and 79 percent of economic losses between 1988–2007.61
- The 2004 Indian Ocean tsunami had an estimated impact of US$470 million (62% GDP).62
- IMF modelling estimates the economic costs of climate change for small states like the Maldives at 15 percent of GDP or more.63

### Table 18: Selected event impacts and estimates (qualitative and quantitative highlights)
- Tsunami: possible, low frequency but catastrophic; 2004 event affected one-third of the population, 100 deaths, 1,300 injuries, 5,700 homes to be rebuilt, severe damage to 53 inhabited islands; estimated impact US$470 million (62% GDP).b
- Coastal Flooding: probable, frequent, medium/high impact; estimate not available.
- Oil spills: possible, rare, potentially catastrophic; recent Mauritius spill involved a ship carrying 4,000 tons of fuel with more than 1,000 tons leaked; impact on Mauritius significant and ongoing; unquantified for Maldives; compensation received depends on international shipping treaties and could be around US $68 million, potentially well below the impact on Mauritius.f
- Cyclones: low probability, lower impact; a 10 percent probability of a storm hitting the northern atolls in the next 10 years with wind speeds from 118 to 177 km/h (Category 1 and 2).g
- Climate Change (slow onset): gradual, high impact; potential fiscal costs for adaptation and mitigation; modelling suggests at least 15% of GDP.h
- Drought: periodic, low/medium impact; fiscal cost (2009/10) MVR 10 million (US$ 640,000; 0.5% of GDP).i
- Saltwater Intrusion: periodic, medium impact; unquantifiable.
- Sea Level Rise: gradual but existential; a one-meter rise could present the possibility of the Maldives disappearing entirely; unquantifiable.
- Epidemic Diseases / COVID-19 pandemic: possible, low frequency but catastrophic; tax revenues declined by about 19 percent compared to 2019; non-tax revenues declined by about 56 percent; overall fiscal deficit widened significantly from 2019 (from 6.6 percent, to 27.5 percent of GDP) despite expenditure containment; initial estimates of immediate fiscal impact are US$389 million (7.2 percent of GDP).j

### Fiscal exposure and planning gaps
- Natural disasters generate both explicit fiscal exposure (repairing and rebuilding infrastructure) and implicit exposure (public expectations and political pressure to provide assistance).
- The government identifies and discloses main fiscal risks from natural disasters in qualitative terms, but findings are not fully integrated into overall fiscal planning.
- Analysis of environmental risks is disaggregated across Ministry of Environment and National Disaster Management Authority documents and not centrally published, limiting the government’s ability to form a comprehensive picture of total natural disaster risks and potential fiscal impacts.
- The risk of natural disasters is mentioned in the Budget Book and MTDS, primarily as a threat to the tourism sector and the government’s debt portfolio.

### Natural Disaster Risk Management Framework (Box 5)
- National Disaster Management Authority (NDMA) established in 2018 under the Disaster Management Act is the main coordinating body for national disaster management; charged with hazard identification, mitigation, community preparedness, integrated response, and recovery.
- Supporting frameworks, policies, and plans include:
  - Community-Based Disaster Risk Reduction Framework (CBDRRF) (2014) — guides NDMA to mainstream disaster risk reduction into national and local development planning.
  - Strategic National Action Plan (SNAP) (2010–20) — outlines climate change impacts and identifies adaptation activities; objectives include creating enabling environments, empowering communities, increasing access to technology and knowledge, and implementing risk-sensitive development processes.
  - Multi-Hazard Risk Atlas of Maldives — five-volume atlas providing spatial information and maps for assessing development investments against climate and geophysical hazards.
  - Disaster Risk Reduction in Republic of Maldives Status Report 2019 — identifies tsunamis, freshwater vulnerability to saltwater intrusion, and droughts as natural disaster risks with potential significant economic impacts.

### Historical fiscal responses and recommended disclosure
- After disasters such as the 2004 tsunami and the 2019 pandemic, government budgets face wide-ranging impacts including revenue loss from tourism and spending on immediate relief and longer-term reconstruction.
- Ministry of Finance analysis shows government spent approximately MVR 50.2 million from 2012 until 2016 on emergency relief and recovery (average MVR 10 million a year); a large percentage of this expenditure was for relief from water shortage incidents.
- The report recommends publishing such analyses within a comprehensive fiscal risk statement to better integrate natural disaster fiscal risks into planning and public finance management.

*Source: Staff compilation from the content unit.*

### 132.      The MoF should look to centrally consolidate the government’s understanding of

### The MoF should look to centrally consolidate the government’s understanding of natural disaster risk and further develop plans to manage the potential fiscal impacts

### Natural disaster fiscal exposure and integration into budget processes
- The potential fiscal impact of natural disasters is not well articulated or comprehensively identified and understood.
- Recommendation: Attempt to centrally disclose and quantify the potential fiscal impact of natural disasters, based on historical experience.
- Integrate the impact of natural disasters into the budget process and budget cycle by operationalizing PFM tools, such as the disaster management fund and risk sharing, and through greater transparency.
- Inclusion and discussion in the fiscal risk statement would provide impetus to better fiscal risk management.

### Subnational governments: reporting, borrowing, and monitoring
- Maldives reports annually on the financial performance of local councils, but coverage and timeliness need further improvement.
- Legal requirement: Decentralization Act requires local councils to produce audited financial statements by March 10 of each financial year.
- 2019 performance: only six councils met this deadline.
- Six months after the end of the financial year, 62 percent of councils had submitted their financial statements.
- Publication of financial statements is currently ad-hoc and voluntary by a few councils.
- Financial reports reportedly include revenue, expenses, cash balances, and some nonfinancial indicators.
- Local councils’ borrowing and obligations via PPPs or guarantees are limited by legislative caps, but given low borrowing levels, they are not being monitored proactively.
- Constitutional and legal provisions:
  - Councils empowered to own property and incur liabilities.
  - Decentralization Act allows borrowing from domestic financial institutions, from international financial institutions (through central government on-lending), and contractual private arrangements.
  - FRL sets a limit on total debt stock of an individual council at one-third of the council’s income for the previous year.
  - FRL empowers the Minister for Finance to set an aggregate debt limit for local councils (not yet exercised).
  - Local council borrowings are subject to ex-ante approval by the LGA and MoF.
- Only three local councils have established SOEs; MoF has paused creation of new entities.
- With potential changes to debt law and councils’ power to issue debt securities, systematic monitoring of local council finances is important (improvements important but not urgent as decentralization progresses).
- A new portal system launched in November 2019 and implementation of the 8th Amendment of the Decentralization Act (in force early 2020) aim to strengthen oversight by allowing councils to record and share income, expenses, and other financial transactions with the LGA and MoF.

### Public corporations (SOEs): scale, risks, and disclosure
- Role and scale:
  - SOEs play an important role; activities cover strategic sectors.
  - In 2019, total unconsolidated assets of public corporations (excluding MMA) represented 134 percent of GDP.
  - Of the 32 SOEs, five are publicly listed.
- Fiscal risk and support:
  - SOEs rely excessively on government support and are a major source of fiscal risk.
  - Government support in 2019: subsidies 1.4 percent of GDP and capital contributions 2.2 percent of GDP.
  - In 2019, unconsolidated liabilities of SOEs represented 84 percent of GDP, of which 21 percent is government guaranteed debt and 12 percent is direct loans and on-lending by Treasury.
  - Review of net liquid assets of 9 major SOEs shows elevated liquidity risk for more than half.
  - Many SOEs provide goods and services at controlled prices, suffer weak corporate governance, and undertake noncommercial activities involving cross-subsidization; some activities remain unfunded or underfunded.
- Disclosure and analysis:
  - Direct transfers between the government and SOEs are published regularly (Monthly Fiscal Development, GFS tables, Budget Book).
  - Data on guarantees and on-lending operations are published in the semiannual Debt Bulletin and quarterly Disbursed Outstanding Debt and Active Sovereign Guarantees reports.
  - MoF publishes a list of SOEs with government shareholding.
  - No ownership policy report is published (no statement of government’s policy and financial objectives as shareholder).
  - MoF’s quarterly and annual publications provide overview of individual SOE financial performance; analysis of the SOE sector as a whole needs development.
  - Comprehensive overview of government support to SOEs is lacking.
- Timeliness and quality of reporting:
  - As of January 2021, the 2018 Annual Financial Review (covering 15 SOEs) is the latest annual report published; Quarter 2 2020 (covering 21 SOEs) is the latest quarterly report.
  - Financial reviews of some SOEs include ratio analysis, but not standard across reports; standardizing presentation will improve analytical value.
  - Introducing consolidated financial performance of the entire SOE sector—separately for public nonfinancial and financial corporations—would provide a holistic view.
  - Comprehensive disclosure of all direct and indirect transfers between government and SOEs, and estimates of quasi-fiscal activities, will measure SOE dependence on the budget and trends.

### Centralized SOE data and analytical tools
- Current financial review is prepared manually.
- A web-based portal is under development for direct SOE data entry, including notes to financial statements; a limited-functionality beta version planned for launch in March 2021.
- Opportunity to develop the portal into a centralized database capturing all relevant information (transfers, notes, etc.) to facilitate cross-examination and fiscal risk analysis.
- The database could enable standardized financial review formats, automated computation of financial ratios, and risk categorization.
- Box 6 illustrates a possible fiscal risk analysis supported by such a database: IMF Fiscal Affairs Department tool calculated standardized financial ratios (profitability, liquidity, solvency) and assigned overall risk ratings (scale of five) for 9 SOEs for 2015–19.
  - About one-third of the sample is currently in the high-risk category; the rest at moderate risk.
  - Liquidity indicators are the main factor behind deteriorating risk ratings.
  - Worsening liquidity has resulted in extended budgetary support to assist SOEs to pay debt service obligations.

### Overall conclusions on fiscal risks and management capacity
- Fiscal risk analysis and management remain weak links in Maldives’ fiscal management.
- Key vulnerabilities:
  - Open, tourism-dependent economy exposes public finances to macroeconomic risks and exogenous shocks affecting tourism.
  - Debt is at a significantly high level, exacerbated by the growth reversal in 2020; nearly half of it is in foreign currency, exposing the government to currency risk.
  - Substantial exposure to SOEs—explicitly through guarantees, on-lending, and direct lending by the Treasury, and implicitly through SOEs’ unguaranteed debt.
  - Unfunded pension schemes, unless reformed, can threaten fiscal sustainability in the longer term.
  - Environmental risks are gaining significance—direct budget costs and indirect impacts via tourism.
- Capacity needs:
  - Greater investment in capacity augmentation for fiscal risk analysis and management is needed.
  - MoF has introduced fiscal risk discussion in budget documents and highlighted debt and long-term sustainability concerns, but institutionalization of risk management is required for systematic risk identification, prioritization, and coordinated mitigation.
  - Greater transparency around fiscal risks would promote better understanding and informed policy debate.

### Key recommendations (priorities)
- Recommendation 3.1 — Improve analysis and disclosure of fiscal risks:
  - Strengthen fiscal risk management function by augmenting MoF’s institutional capacity, formalizing arrangements with stakeholders (such as MMA and NDMA/MoE), developing analytical tools and technical knowhow, and broadening the information base.
  - Enhance fiscal risk statement content to include comprehensive qualitative descriptions and magnitudes of all relevant risks, including:
    - A discussion of main macroeconomic risks and alternative macroeconomic and fiscal scenarios incorporating plausible shocks to key macroeconomic variables.
    - Analysis of risks surrounding government’s debt portfolio and longer-term debt sustainability.
    - A discussion of the government’s guarantee portfolio, with a list of guarantees by beneficiary and associated risks.
    - Analysis of risks surrounding main financial assets—government equity investments; investments in financial instruments; and loans, including loans to SOEs and individuals or businesses.
    - Analysis of explicit and implicit risks associated with the SOE sector, with summary of fiscal flows between government and SOEs.
    - A discussion of exposure to and preparedness for natural disasters and other environmental risks, including possible long-term impacts.
    - A discussion of other specific risks: soundness of financial sector, legal claims, and health of local council finances.
- Recommendation 3.2 — Improve analysis of pension liabilities:
  - Conduct a comprehensive review of various pension schemes.
  - Undertake actuarial studies to assess long-term sustainability and develop reforms if needed.
  - Assess current funding and short-term fiscal risks.
  - Develop a framework for managing long-term fiscal risks: periodic actuarial reviews, periodic funding and sustainability reviews, and regular publication of sustainability analyses.
- Recommendation 3.3 — Enhance and strengthen management of guarantees:
  - Enforce compliance with Guarantee Issuance Policy Guidelines on issuance, size limit, eligibility, and fee collection.
  - Review guarantee issuance policy to require (1) credit risk analysis as part of guarantee proposal evaluation; (2) regular portfolio risk reviews; and (3) development of risk mitigation measures, including a more risk-based approach to charging guarantee fees.
  - Discuss guarantee portfolio risks in the Medium-term Debt Strategy, including likelihood of financial support to beneficiaries to avoid calls on guarantees.
- Recommendation 3.4 — Strengthen transparency in monitoring and reporting on SOEs:
  - Include an overview of financial performance of the overall public corporations sector in current SOE publications and disclose all transactions with the government.
  - Strengthen risk analysis of individual SOEs with systematic analysis of financial performance and position.
  - Identify and disclose quasi-fiscal activities, preferably with respective size, undertaken by public corporations.
  - Publish an ownership policy to clarify government’s policy and financial objectives as shareholder.
  - Set up a central database of core financial information, risk indicators, and state support for public corporations and require reporting of quasi-fiscal activities.

*Source: IMF staff assessment and recommendations as presented in the provided content.*

### Annex I. Fiscal Transparency Reform Action Plan

### Annex I. Fiscal Transparency Reform Action Plan

### 1. Fiscal Reporting
- Schedule headings: 2021 2022 2023 H1 H2 H1 H2 H1 H2
- 1.1 Improve timeliness and reliability of annual financial statements
  - 1.1.1 Develop plans to publish credible audited consolidated financial statements, compliant with international standards, and including all material general government finances, within a reasonable period (preferably 6-9 months) after the year end.
  - 1.1.2 Agree on a plan for timely completion of the audit with the AGO and presentation to People’s Majlis for publication. Include a provision to disclose and sign-off the backlog of unaudited consolidated financial statements from previous years.
  - 1.1.3 Automate wherever possible the collection of data currently outside PAS, to improve data reliability and speed of its collection.
  - 1.1.4 Establish a roadmap for expanding the coverage of stock items in the accounting system, focusing on the inclusion of the most material stocks and associated flows. An early step should be the resolution of previous audit findings, recommendations, and other identified problems in accounts preparation.
  - 1.1.5 Revise the budget classification and chart of accounts to support GFSM 2014 and accrual accounting under IPSAS, and to include functional and program classifications, using bridging tables and automatic report formats within PAS.
- 1.2 Improve reporting of tax expenditures
  - 1.2.1 Update the legal framework to include a precise definition of tax expenditures, and require annual publication of estimates of the revenue forgone from tax exemptions and benefits by sector or policy area, including a description of the main policy objectives and beneficiary groups.
  - 1.2.2 Augment TPU capacity to expand the work on tax expenditures to cover all types of major tax exemptions, benefits, or concessions.
- 1.3 Improve GFS and debt reporting
  - 1.3.1 Document new GFS and debt reporting processes, including the adoption of GFS M 2014 and PSDS and the incorporation of the routine use of external reconciliations—especially the tracking and reporting of differences between fiscal reports and financial statements.
  - 1.3.2 Clarify the reporting basis for fiscal statistics, and explain any differences from previously reported numbers.

### 2. Fiscal Forecasting and Budgeting
- Schedule headings: 2021 2022 2023 H1 H2 H1 H2 H1 H2
- 2.1 Establish clear fiscal policy objectives to effectively guide the fiscal stance.
  - 2.1.1 Finalize the ongoing development of a new FRA, develop and implement a fiscal strategy consistent with the FRA targets to ensure fiscal targets help to provide a realistic path to consolidation.
  - 2.1.2 Implement the 2019 Virements and Appropriation Procedure—eventually elevating their status from administrative guidelines to regulations.
- 2.2 Continue to refine the MTBF, supported by robust and reliable macroeconomic and fiscal forecasts, to enhance budget comprehensiveness and credibility.
  - 2.2.1 Develop more advanced models, refine the forecasting methodology, and improve macroeconomic forecasts and augment the macroeconomic and fiscal forecasting capacity in the MoF.
  - 2.2.2 Improve fiscal forecasts, enhance linkages between successive vintages of forecasts, including through better rollover provisions.
  - 2.2.3 Improve the quality of the forecasts by systematically conducing ex-post analyses of forecast accuracy.
  - 2.2.4 Align the processes for preparing the macroeconomic forecasts, MTFS, MTBF, and annual budget, supported by fully integrated documentation.
- 2.3 Enhance spending efficiency on public investment projects, reducing waste and supporting the achievement of fiscal objectives.
  - 2.3.1 Make cost benefit analyses a routine for all major projects, using a consistent and published methodology.
  - 2.3.2 Amend the PFRs 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.
  - 2.3.3 Publish aggregate procurement statistics for major projects, by procurement source, amount, and sector.
  - 2.3.4 Work together with MNPHI and the President’s office to continue to implement the findings of the 2019 PIMA.
- 2.4 Strengthen the PFM legal framework and enhance accountability.
  - 2.4.1 Formalize timelines for approval of the budget, and specify continuity provisions to be followed if the budget is not passed prior to the commencement of a new financial year.
  - 2.4.2 Formalize timelines for the publication of the approved budget, minimizing the time elapsed between the approval of the budget and the publication of the full set of budget documents.

### 3. Fiscal Risk Analysis and Management
- Schedule headings: 2021 2022 2023 H1 H2 H1 H2 H1 H2
- 3.1 Improve analysis and disclosure of fiscal risks.
  - 3.1.1 Strengthen the fiscal risk management function by augmenting the MoF’s institutional capacity, which may include formalizing arrangements with other key stakeholders, such as MMA and NDMA/MoE, for coordinating analysis and decision-making; developing analytical tools and technical knowhow; and broadening the information base.
  - 3.1.2 Enhance the content of the fiscal risk statement.
    - 3.1.2.1 Include readily available data in other publications: (1) analysis of risk surrounding the government's debt portfolio, (2) all explicit and implicit risks associated with the SOEs, and (3) all major explicit contingent liabilities.
    - 3.1.2.2 Include fiscal risks that are identified but for which no quantification or analysis has been done: (1)main macroeconomic risks relevant to the fiscal aggregates, (2) long-term sustainability analysis for pensions, (3) analysis of risk surrounding government main financial assets, and (4) other specific fiscal risks that could include financial sector, subnational governments, legal claims, natural disasters, and other material fiscal risks.
- 3.2 Improve analysis of pension liabilities.
  - 3.2.1 Conduct a comprehensive review of the different pension schemes coexisting in Maldives.
  - 3.2.2 Perform an actuarial study of the different schemes to assess current long-term sustainability and develop the required action plan, if needed.
  - 3.2.3 Assess the current funding of the schemes to assess their long-term sustainability and, if needed, develop required forms.
  - 3.2.4 Develop a framework to support the management of long-term fiscal risks, including: (1) periodic actuarial review of the pension schemes, (2) periodic review of the funding and sustainability, and (3) regular publications covering the assessment of the sustainability of the different pensions schemes.
- 3.3 Enhance and strengthen the management of guarantees.
  - 3.3.1 Enforce the compliance of the current procedures as stated in the Guarantee Issuance Policy guidelines (size, limit, eligibility, and fee collection).
  - 3.3.2 Discuss in the Medium-Term Debt Strategy the risks surrounding the guarantee portfolio.
  - 3.3.3 Review and revise the guarantee issuance policy to include the requirements for: (1) a credit risk analysis as part of the guarantee proposal evaluation process; (2) regular reviews of the risks surrounding the portfolio of guarantees; and (3) developing suitable risk mitigation measures, including adoption of a more risk-based approach for guarantee fees.
- 3.4 Strengthen the transparency in monitoring and reporting on SOEs.
  - 3.4.1 Strengthen the risk analysis of individual SOEs by emphasizing the analysis of financial operations and position.
  - 3.4.2 Include in the current publication on SOEs an overview of the financial performance of the overall public corporations’ sector, and disclose all its transactions with government.
  - 3.4.3 Identify and disclose quasi-fiscal activities, preferably with their respective size, undertaken by public corporations.
  - 3.4.4 Publish an ownership policy to clarify the government’s policy and financial objectives as a shareholder.
  - 3.4.5 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.

### Annex II. Detailed Assessment against FTC (selected framework highlights)
- Framework headings: BASIC / GOOD / ADVANCED across topics.
- 1 FISCAL REPORTING — key dimensions and thresholds preserved as presented.
  - 1.1 Coverage
    - 1.1.1 Coverage of Institutions: BASIC: consolidate all central government entities; GOOD: consolidate all general government entities and report on each subsector; ADVANCED: consolidate all public sector entities and report on each subsector.
    - 1.1.2 Coverage of Stocks: BASIC: cover cash and deposits and all debt; GOOD: cover all financial assets and liabilities; ADVANCED: cover all financial and nonfinancial assets and liabilities and net worth.
    - 1.1.3 Coverage of Flows: BASIC: cover cash revenues, expenditures, and financing; GOOD: cover cash flows, accrued revenues, expenditures, and financing; ADVANCED: cover cash flows, accrued revenues, expenditures, and financing, and other economic flows.
    - 1.1.4 Coverage of Tax Expenditures: BASIC: estimated revenue loss published at least annually; GOOD: estimated revenue loss estimated by sector or policy area and published at least annually; ADVANCED: same as GOOD plus control of, or budgetary objectives for, the size of tax expenditures.
  - 1.2 Frequency and Timeliness
    - 1.2.1 Frequency of In-Year Reporting: BASIC: quarterly, within a quarter; GOOD: quarterly, within a month; ADVANCED: monthly, within a month.
    - 1.2.2 Timeliness of Annual Financial Statements: BASIC: published within 12 months; GOOD: within 9 months; ADVANCED: within 6 months of the end of the financial year.
  - 1.3 Quality
    - 1.3.1 Classification: BASIC: administrative and economic classifications; GOOD: add functional classifications; ADVANCED: add program classifications.
    - 1.3.2 Internal Consistency: BASIC: at least one reconciliation among three listed; GOOD: at least two; ADVANCED: all three reconciliations.
    - 1.3.3 Historical Revisions: BASIC: major revisions reported; GOOD: reported with explanation; ADVANCED: reported with explanation and a bridging table between old and new time series.
  - 1.4 Integrity
    - 1.4.1 Statistical Integrity: BASIC: disseminated in accordance with international standards; GOOD: compiled by specific government agency; ADVANCED: compiled by a professionally independent body.
    - 1.4.2 External Audit: BASIC: independent supreme audit institution publishes an audit report; GOOD: report states whether statements present a true and fair view and is without disclaimer or adverse opinion; ADVANCED: report consistent with international standards and without major qualifications.
    - 1.4.3 Comparability of Fiscal Data: BASIC: at least one fiscal report prepared on same basis as forecast/budget; GOOD: outturn reconciled with either fiscal statistics or final accounts; ADVANCED: outturn reconciled with both fiscal statistics and final accounts.
- 2 FISCAL FORECASTING AND BUDGETING — key dimensions and thresholds preserved as presented.
  - 2.1 Comprehensiveness: coverage thresholds for Budget Unity, Macroeconomic Forecasts, Medium-Term Budget Framework, and Investment Projects with BASIC/GOOD/ADVANCED criteria.
  - 2.2 Orderliness: legal framework and timeliness thresholds for submission and publication with BASIC/GOOD/ADVANCED criteria (timeliness specified in months relative to the financial year start).
  - 2.3 Policy Orientation: fiscal policy objectives, performance information, and public participation thresholds across BASIC/GOOD/ADVANCED.

*Source: Annex I. Fiscal Transparency Reform Action Plan*

### 2.4 Credibility Economic  and fiscal forecasts  and  budgets should be credible.

### 2.4 Credibility Economic and fiscal forecasts and budgets should be credible.

### 2.4.1 Independent Evaluation; Budget documentation
- Budget documentation includes comparisons between the government’s economic and fiscal projections and those of independent forecasters.
- An independent entity evaluates the credibility of the government’s economic and fiscal forecasts.
- An independent entity evaluates the credibility of the government’s economic and fiscal forecasts, as well as its performance against its fiscal objectives.
- Tier indicators: BASIC / GOOD / ADVANCED

### 2.4.2 Supplementary Budget
- A supplementary budget regularizes expenditure exceeding the approved budget.
- A supplementary budget is required prior to material changes to total budgeted expenditure.
- A supplementary budget is required prior to material changes to total budgeted expenditure or substantially altering its composition.
- Tier indicators: BASIC / GOOD / ADVANCED

### 2.4.3 Forecast Reconciliation
- Differences between the successive vintages of the government’s revenue, expenditure, and financing forecasts are shown at the aggregate level, with a qualitative discussion of the impact of new policies on the forecasts.
- Differences between successive vintages of the government’s revenue, expenditure, and financing forecasts are broken down into the overall effect of new policies and macroeconomic determinants.
- Differences between successive vintages of the government’s revenue, expenditure, and financing forecasts are broken down into the effects of individual policy changes, macroeconomic determinants, and other factors, such as technical or accounting adjustments.
- Tier indicators: BASIC / GOOD / ADVANCED

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### 3 FISCAL RISK ANALYSIS AND MANAGEMENT
Governments should disclose, analyze, and manage risks to the public finances and ensure effective coordination of fiscal decision-making across the public sector.

### 3.1 Risk Disclosure and Analysis
- Governments should publish regular summary reports on risks to their fiscal prospects.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.1.1 Macroeconomic Risks
- Budget documentation includes discussion of the sensitivity of fiscal forecasts to major macroeconomic assumptions.
- Budget documentation includes sensitivity analysis and alternative macroeconomic and fiscal forecast scenarios.
- Budget documentation includes sensitivity analysis, alternative scenarios, and probabilistic forecasts of fiscal outcomes.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.1.2 Specific Fiscal Risks
- The main specific risks to the fiscal forecast are disclosed in a summary report and discussed in qualitative terms.
- The main specific risks to the fiscal forecast are disclosed in a summary report, along with estimates of their magnitude.
- The main specific risks to the fiscal forecast are disclosed in a summary report, along with estimates of their magnitude and, where practicable, their likelihood.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.1.3 Long-Term Fiscal Sustainability Analysis
- The government regularly publishes projections of the sustainability of the main fiscal aggregates and any health and social security funds over at least the next 10 years.
- The government regularly publishes multiple scenarios for the sustainability of the main fiscal aggregates and any health and social security funds over at least the next 30 years, using a range of macroeconomic assumptions.
- The government regularly publishes multiple scenarios for the sustainability of the main fiscal aggregates and any health and social security funds over at least the next 30 years, using a range of macroeconomic, demographic, natural resource, or other assumptions.
- Tier indicators: BASIC / GOOD / ADVANCED

### 3.2 Risk Management
- Specific risks to the public finances should be regularly monitored, disclosed, and managed.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.1 Budgetary Contingencies
- The budget includes an allocation for contingencies.
- The budget includes an allocation for contingencies, with transparent access criteria.
- The budget includes an allocation for contingencies with transparent access criteria and regular in-year reporting on its utilization.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.2 Asset and Liability Management
- All borrowing is authorized by law, and the risks surrounding the government’s debt holdings are analyzed and disclosed.
- All borrowing is authorized by law, and the risks surrounding the government’s assets and liabilities are analyzed and disclosed.
- All liabilities and significant asset acquisitions or disposals are authorized by law, and the risks surrounding the balance sheet are disclosed and managed according to a published strategy.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.3 Guarantees
- All government guarantees, their beneficiaries, and the gross exposure created by them are published at least annually.
- All government guarantees, their beneficiaries, and the gross exposure created by them are published at least annually. The maximum value of new guarantees or their stock is authorized by law.
- All government guarantees, their beneficiaries, the gross exposure created by them, and the probability of their being called are published at least annually. The maximum value of new guarantees or their stock is authorized by law.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.4 Public-Private Partnerships
- The government at least annually publishes its total rights, obligations, and other exposures under public-private partnership contracts.
- The government at least annually publishes its total rights, obligations, and other exposures under public-private partnership contracts, as well as the expected annual receipts and payments over the life of the contracts.
- The government at least annually publishes its total rights, obligations, and other exposures under public-private partnership contracts, as well as the expected annual receipts and payments over the life of the contracts. A legal limit is also placed on accumulated obligations.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.5 Financial Sector Exposure
- The authorities quantify and disclose their explicit support to the financial sector at least annually.
- The authorities quantify and disclose their explicit support to the financial sector at least annually, and they regularly undertake an assessment of financial sector stability.
- The authorities quantify and disclose their explicit support to the financial sector at least annually, and they regularly undertake an assessment of financial sector stability, based on a plausible range of macroeconomic and financial market scenarios.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.6 Natural Resource Stocks and Flows
- The government publishes annual estimates of the volume of major natural resource assets, as well as the volume and value of the previous year’s sales and fiscal revenue, in line with international standards.
- The government publishes annual estimates of the volume and value of major natural resource assets, as well as the volume and value of the previous year’s sales and fiscal revenue, in line with international standards.
- The government publishes annual estimates of the volume and value of major natural resource assets under different price scenarios, as well as the volume and value of the previous year’s sales and fiscal revenue, in line with international standards.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.2.7 Environmental Risks
- The government identifies and discusses the main fiscal risks from natural disasters in qualitative terms.
- The government identifies and discusses the main fiscal risks from natural disasters, quantifying them on the basis of historical experiences.
- The government identifies and discusses the main fiscal risks from natural disasters, quantifying them on the basis of historical experiences, and manages them according to a published strategy.
- Tier indicators: BASIC / GOOD / ADVANCED

### 3.3 Fiscal Coordination
- Fiscal relations and performance across the public sector should be analyzed, disclosed, and coordinated.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.3.1 Subnational Governments
- The financial condition and performance of subnational governments is published annually.
- The financial condition and performance of subnational governments is published annually, and there is a limit on their liabilities or borrowing.
- The financial condition and performance of subnational governments is published quarterly, and there is a limit on their liabilities or borrowing.
- Tier indicators: BASIC / GOOD / ADVANCED

#### 3.3.2 Public Corporations
- All transfers between the government and public corporations are disclosed on at least an annual basis.
- All transfers between the government and public corporations are disclosed, and based on a published ownership policy, a report on the overall financial performance of the public corporations’ sector is published on at least an annual basis.
- All direct and indirect support between the government and public corporations is disclosed, and based on a published ownership policy, a report on the overall financial performance of public corporations sector, including estimates of any quasi-fiscal activities undertaken, is published on at least an annual basis.
- Tier indicators: BASIC / GOOD / ADVANCED

*Source: 1mdvea2021001 - 2.4 Credibility Economic and fiscal forecasts and budgets should be credible.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1mdvea2021001.pdf_