## _cr1568

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### Data revisions and GDP methodology
- Revisions follow IMF technical assistance and new data sources; current account deficits reduced from around 20 percent of GDP to single digits in 2012–13.
- Authorities adopted market price GDP instead of gross value added at basic prices:
  - Revised nominal GDP level up by 13 percent in 2013.
  - Reported comparison: 2.6 bn $US dollars vs. 2.3 bn $US dollars in 2013.
- Balance of payments revisions — main elements and quantified effects:
  - Higher tourism exports (TGST data and bed-nights tax inclusion): reduces the current account deficit by 2.1 and 9.5 percentage points of GDP in 2012 and 2013 respectively.
  - Lower imports of goods and services (eliminated jet fuel double counting; services imports revised using withholding tax): reduces the current account deficit by 3.2 and 4.1 percentage points of GDP in 2012 and 2013 respectively.
  - Higher net income (improved methods for outward company profits and foreign workers’ remittances): reduces the current account deficit by 3.7 and 0.6 percentage points of GDP in 2012 and 2013 respectively.
  - Financial account estimation improved using annual FDI survey; MMA monetary and financial statistics; BIS data; IMF CPIS.
- Residuals effect:
  - Revisions reduce the scale of errors and omissions in 2012 ($24mn), though remain large in 2013 ($98 mn).

### Recent macroeconomic developments (2013–14)
- Growth:
  - Real growth was 4.7 percent in 2013.
  - Staff projects 5 percent in 2014 and 2015.
- External sector and reserves:
  - Current account deficit reduced to around 8.4 percent of GDP in 2014 following data revisions.
  - Gross official reserves rose to $614 mn (2.8 months imports); net reserves remained low.
  - Parallel foreign exchange market premium narrowed to 3–4 percent.
- Inflation:
  - Inflation contained at 1.1 percent in November (2014).
  - Inflation forecast: 0.3 percent in 2015; expected to settle at around 4 percent in the medium term.
- Fiscal and public debt:
  - Staff estimates the deficit at 7.8 percent of GDP in 2013 versus authorities reporting 3.9 percent of GDP.
  - Sharp rise in recurrent expenditures likely widened the deficit to 11.6 percent of GDP in 2014.
  - Public debt (including SOEs, excluding arrears) rose from 52 percent in 2009 to 75 percent of GDP in 2014.
  - Staff-estimated outstanding stock of arrears would add 6.3 percent of GDP to the debt ratio.
  - Arbitration over airport concession could pose a sizable contingent fiscal liability; MACL paid $4mn in immediate costs.

### Financial sector and monetary conditions
- Financial soundness and banking:
  - Bank profitability has increased; nonperforming loans in tourism and construction are falling from crisis-era highs.
  - Regulatory capital to risk-weighted assets: 2007: 15.4; 2008: 21.0; 2009: 24.7; 2010: 28.9; 2011: 30.3; 2012: 35.8; 2013: 34.0; 2014Q1: 39.4; 2014Q2: 31.7; 2014Q3: 31.2.
  - Nonperforming loans (gross) to total loans (gross): 2007: 1.7; 2008: 8.9; 2009: 12.7; 2010: 17; 2011: 19.4; 2012: 16.7; 2013: 15.9; 2014Q1: 15.6; 2014Q2: 12.2.
  - Return on assets: 2007: 5.3; 2008: 3.4; 2009: 2.2; 2010: 2.0; 2011: 2.6; 2012: 2.4; 2013: 5.1; 2014Q1: 4.0; 2014Q2: 3.8; 2014Q3: 4.6.
- Money and credit:
  - Base money and broad money growing rapidly financed by reserve accumulation and sharply higher NFA of banks.
  - Private sector credit growth subdued at 0.5 percent in November 2014 year on year.
  - Broad money (annual percent change): 2011: 20.1; 2012: 6.4; 2013: 16.8; 2014: 17.9; 2015 (est.): 6.6; 2016 (proj.): 8.5; 2017 (proj.): 8.5; 2018 (proj.): 8.7; 2019 (proj.): 9.0.
  - Domestic credit (annual percent change): 2011: 11.3; 2012: -2.4; 2013: 3.9; 2014: 5.4; 2015 (est.): 5.0; 2016 (proj.): 7.0; 2017 (proj.): 8.5; 2018 (proj.): 8.7; 2019 (proj.): 9.0.
  - Recent cut in reserve requirements boosted commercial bank excess reserves; cuts in T-bill yields have not dampened purchases.

### Tourism, external assessment, and data uncertainties
- Tourism importance and data issues:
  - Tourism accounts directly and indirectly for around three-quarters of output and underpins the $6740 per capita GDP in 2013.
  - Three approaches to estimate tourist spending produced a wide range:
    - Ministry of Tourism survey: Spending Per Arrival 3,873 | Annual Revenue Estimate 4,357 | Difference from official data 106 (percent).
    - Internet pricing back-of-envelope: Spending Per Arrival 3,703 | Annual Revenue Estimate 4,166 | Difference 97.
    - Estimate that would reduce errors and omissions in the BoP: Spending Per Arrival 2,065 | Annual Revenue Estimate 2,323 | Difference 10.
    - Official data: Spending Per Arrival 1,877 | Annual Revenue Estimate 2,112.
  - Range of possible under-recording of receipts: from around $100mn to up to $2bn.
  - If under-recording is at high end, imports may also be under-recorded, implying smaller net effect on current account.
- Quantified external assessment (using official data and an estimate for under-recording of $100mn):
  - Current account norm estimated between -4.8 to -5.7 percent of GDP.
  - Resulting current account gap estimated in range from 0.2 to -3.6 percent of GDP.
  - EBA lite suggests fiscal policy gap can explain 2 percent of GDP of the current account gap.
  - Corresponding REER estimates range from a small undervaluation to an overvaluation of up to 5 percent.
- Staff assessment and policy implications:
  - External position looks modestly weaker than implied by fundamentals and desirable policies, but assessment is highly uncertain.
  - Stabilized exchange rate regime remains suitable.
  - With low official reserves, MMA continues to ration foreign exchange to commercial banks; parallel market premium greater than 2 percent leads to multiple currency practice and exchange restrictions.
  - Staff recommend further work to improve BoP and national accounts statistics and finalizing fiscal chart of accounts; a statistics law authorizing data collection from nonfinancial corporates and households would greatly enhance data provision.

### Fiscal outlook, 2015 Budget, and staff recommendations
- 2015 Budget measures (Box 2) — revenue and expenditure highlights with authorities’ savings estimates (change from 2014 pps of GDP where indicated):
  - Green Tax: tourism "green tax" ($6 per night) replaces the bednights tax ($ 8 per night). Authorities savings estimate: 0.7.
  - Import Duties: rise on some zero rated consumer items; vehicles duties and tobacco excises. Authorities savings estimate: 1.2.
  - Resort Development: ten new resorts a year generating resort license income. Authorities savings estimate: 1.1.
  - SEZ plus land reclamation: $100 mn from acquisition of land for a Special Economy Zone in 2015. Authorities savings estimate: 4.
  - Subsidies: targeting electricity and food subsidies; 40 percent cut in subsidies in 2015. Authorities savings estimate: -2. 1.
  - Wage bill: public employment freeze. Authorities savings estimate: 1. 1.
  - Capital expenditures: large increase planned for Malé-airport road bridge and airport development financed by bilateral official loans; staff expect capital spending to come on stream more gradually.
- Staff projection and risks:
  - Staff estimates the package could reduce the primary deficit by 4.1 percentage points in 2015.
  - Risks to achieving official targets include delayed measures, uncertainty over SEZ land acquisition revenue, time needed to secure safety nets for subsidy targeting, wage slippage, and a different base given 2013 estimates.
- Medium-term adjustment proposal (2016 onward):
  - Staff proposes additional savings of 3 percentage points of GDP over 2016–19 to return the debt ratio to the level of 2013 and approach the 60 percent limit.
  - Expenditure measures (structural wage bill containment, health cost control, transport and communications savings): Saving 1.7 percentage points of GDP.
  - Revenue measure: increase TGST rate from 12 to 15 percent in 2016 would raise revenues by 1.3 percentage points of GDP.
- Public financial management (PFM) and reform priorities:
  - Identified difficulties: unrealistic budgets, reshuffling of spending, unenforced spending ceilings.
  - Suggested reforms:
    - Baseline review of expenditures; better tracking of payments and subsidies.
    - Compliance with the Fiscal Responsibility Law (came into force in May 2014) including debt and deficit limits and strict limits on MMA credit to government.
    - Convene high level PFM discussion; develop capacity for budget, fiscal framework and audit analysis.
    - Review baseline expenditures for cash management; implement commitment control; develop policy on payment of arrears.
    - Develop a medium term fiscal framework; update debt strategy; expand primary domestic debt market.
    - Improve accounting, fiscal reporting, internal and external audit; roll out the Public Accounting System; use the Chart of Accounts.
- Staff assessment of 2015 Budget fiscal impact:
  - 2015 Budget expected to deliver primary deficit improvement of around 4.1 percentage points in 2015; contain primary deficit to 2.4 percent of GDP over the medium term under staff baseline.
  - Under staff baseline, public debt would continue to increase and remain well above the Fiscal Responsibility Law anchor of 60 percent of GDP.
  - Staff recommends additional and more permanent consolidation of around 3 percentage points of GDP over 2015–19 to bring debt ratios down.
  - Benefits of consolidation: reduce pressure for monetary financing, strengthen external position by cutting import demand and reduce crowding out; some near-term growth cost expected (~ around ¾ of a percentage point in 2016–17).

### Fiscal projections — Authorities vs Staff (selected figures as percent of GDP)
- Total Revenue & Grants:
  - Authorities 45.9 / Staff 35.3 (2015)
  - Authorities 43.4 / Staff 35.9 (2016)
  - Authorities 41.2 / Staff 35.4 (2017)
- Tax Revenue (o/w):
  - Authorities 27.5 / Staff 23.8 (2015)
  - Authorities 31.3 / Staff 26.0 (2016)
  - Authorities 31.5 / Staff 26.1 (2017)
- Tourism GST:
  - Authorities 10.4 / Staff 8.1 (2015)
  - Authorities 10.9 / Staff 8.0 (2016)
  - Authorities 11.3 / Staff 7.8 (2017)
- Resort Lease Rentals/SEZ acquisition:
  - Authorities 10.1 / Staff 5.7 (2015)
  - Authorities 5.4 / Staff 4.3 (2016)
  - Authorities 4.3 / Staff 3.9 (2017)
- Capital Expenditure (o/w):
  - Authorities 15.1 / Staff 6.7 (2015)
  - Authorities 16.5 / Staff 6.7 (2016)
  - Authorities 13.1 / Staff 6.7 (2017)
- Primary Balance:
  - Authorities 1.3 / Staff (4.6) (2015)
  - Authorities 0.7 / Staff (3.5) (2016)
  - Authorities 3.5 / Staff (3.4) (2017)
- Overall Balance:
  - Authorities (1.7) / Staff (8.1) (2015)
  - Authorities (2.8) / Staff (7.3) (2016)
  - Authorities 1.2 / Staff (7.9) (2017)
- Note: Staff estimates based on baseline scenario; authorities present estimates relative to staff's nominal GDP projections and project higher nominal GDP.

### Debt Sustainability Analysis (DSA) — key findings and scenarios
- Arrears and external debt:
  - Arrears stood at 6.3 percent of GDP in 2013; DSA baseline assumes the authorities clear these arrears over five years.
  - 2013 external debt estimated at 32 percent of GDP (down from 98 percent projected in the 2013 DSA).
  - PPG external debt estimated at 27.6 percent in 2013 (down from 44 percent in 2013 DSA).
  - Private external debt estimated at 5 percent of GDP in 2013 (down from 53 percent previously projected).
  - Combined private external debt and total public debt about $ 1.8 bn (67 percent of GDP) in 2013.
- Baseline and macro assumptions:
  - Baseline built on current policies including Authorities 2015 Budget measures; baseline does not include SEZ revenue estimates or arbitration compensation.
  - Baseline assumes stabilized exchange rate regime holds.
  - Medium term growth averages 4.5 percent over 2020–34 (slower than past ten years ~ around 6.5 percent); estimates of potential output growth around 5 percent.
  - Short-run growth: fiscal adjustment mildly negative, slowing to 4–4¼ percent in 2016–17.
- DSA quantitative paths and risk assessments:
  - PV of public debt rises from 70 percent of GDP in 2014 to 99 percent of GDP in 2034 under baseline.
  - Baseline PV of external debt falls to 26.7 percent of GDP; external burden remains below thresholds under baseline.
  - Stabilizing primary deficit noted as 0.8 percent of GDP.
  - Staff recommend fiscal adjustment of around 3 percent of GDP over five years to stabilize and then reduce debt ratio.
  - Risk ratings: moderate risk of external debt distress; heightened overall risk of public debt distress driven by domestic debt vulnerabilities.
  - Financing mix risk: baseline assumes bulk of financing sourced domestically; shift to external borrowing is an upside risk for external DSA.
- Alternative (staff’s recommended adjustment) scenario — selected outcomes:
  - Overall balance (in percent of GDP): 2015 (est.): -7.9; 2016 (proj.): -4.8; 2017 (proj.): -5.0; 2018 (proj.): -3.8; 2019 (proj.): -3.1.
  - Primary balance (in percent of GDP): 2015 (est.): -4.5; 2016 (proj.): -1.0; 2017 (proj.): -0.5; 2018 (proj.): 1.1; 2019 (proj.): 1.6.
  - Public and publicly guaranteed debt (in percent of GDP) under adjustment scenario: 2015 (est.): 78.4; 2016 (proj.): 78.1; 2017 (proj.): 77.1; 2018 (proj.): 74.9; 2019 (proj.): 71.9.
  - Current account (in percent of GDP) under adjustment scenario: 2015 (est.): -5.0; 2016 (proj.): -5.5; 2017 (proj.): -4.9; 2018 (proj.): -4.4; 2019 (proj.): -3.9.
  - Gross international reserves (in millions of US$; e.o.p.) under adjustment scenario: 2015 (est.): 832; 2016 (proj.): 1,030; 2017 (proj.): 1,240; 2018 (proj.): 1,458; 2019 (proj.): 1,668.
  - Reserve cover (months of GNFS imports) under adjustment scenario: 2015 (est.): 3.7; 2016 (proj.): 4.3; 2017 (proj.): 4.8; 2018 (proj.): 5.1; 2019 (proj.): 5.4.

### Projections and key macro indicators (staff baseline)
- Output and inflation:
  - Real GDP (annual percent change): 2011: 6.5; 2012: 1.3; 2013: 4.7; 2014: 5.0; 2015 (est.): 5.0; 2016 (proj.): 3.9; 2017 (proj.): 4.2; 2018 (proj.): 4.4; 2019 (proj.): 4.6.
  - Inflation (end-of-period, CPI-Male): 2011: 16.7; 2012: 5.4; 2013: 3.1; 2014: 1.2; 2015 (est.): 0.4; 2016 (proj.): 2.8; 2017 (proj.): 4.0; 2018 (proj.): 4.5; 2019 (proj.): 4.5.
  - GDP deflator (annual percent change): 2011: 8.6; 2012: 6.8; 2013: -0.9; 2014: 0.7; 2015 (est.): 1.5; 2016 (proj.): 3.0; 2017 (proj.): 4.1; 2018 (proj.): 4.2; 2019 (proj.): 4.1.
- External sector (selected):
  - Trade balance (US$ millions): 2011: -1,370; 2012: -1,261; 2013: -1,372; 2014: -1,572; 2015 (est.): -1,585; 2016 (proj.): -1,786; 2017 (proj.): -1,970; 2018 (proj.): -2,097; 2019 (proj.): -2,265.
  - Travel receipts (US$ millions): 2011: 1,942; 2012: 1,951; 2013: 2,333; 2014: 2,584; 2015 (est.): 2,821; 2016 (proj.): 3,026; 2017 (proj.): 3,289; 2018 (proj.): 3,575; 2019 (proj.): 3,887.
  - Exports (f.o.b., US$ millions): 2011: 346; 2012: 314; 2013: 331; 2014: 369; 2015 (est.): 313; 2016 (proj.): 308; 2017 (proj.): 342; 2018 (proj.): 396; 2019 (proj.): 445.
- Reserves and current account (Table 1 baseline):
  - Current account (percent of GDP): 2011: -18.1; 2012: -10.6; 2013: -6.5; 2014: -8.4; 2015 (est.): -5.0; 2016 (proj.): -6.2; 2017 (proj.): -5.6; 2018 (proj.): -5.1; 2019 (proj.): -4.7.
  - Gross international reserves (US$ mn; e.o.p.): 2011: 335; 2012: 305; 2013: 368; 2014: 614; 2015 (est.): 832; 2016 (proj.): 1,005; 2017 (proj.): 1,188; 2018 (proj.): 1,377; 2019 (proj.): 1,555.
  - Reserve cover (months of GNFS imports): 2011: 1.7; 2012: 1.7; 2013: 1.9; 2014: 2.8; 2015 (est.): 3.7; 2016 (proj.): 4.1; 2017 (proj.): 4.5; 2018 (proj.): 4.8; 2019 (proj.): 5.0.

### Governance, PFM, and technical assistance priorities
- Public Financial Management: recent PEFA assessment identified deep-rooted problems requiring greater fiscal discipline and better prioritization.
- Key PFM reforms and actions (Box 3 summary):
  - Convene high level PFM discussion; develop capacity for budget, fiscal framework and audit analysis.
  - Improve policies for setting expenditure ceilings and information provision to line ministries; coordinate recurrent and capital budgets.
  - Review baseline expenditures for cash management; implement commitment control; develop policy on payment of arrears.
  - Develop a medium term fiscal framework in line with Fiscal Responsibility Law; strengthen analytical capacity and forecasting.
  - Update debt strategy; gather reliable debt data; make debt data public; expand primary domestic debt market.
  - Improve accounting, fiscal reporting, audits; roll out Public Accounting System; use Chart of Accounts.
- IMF technical assistance planned and ongoing:
  - Fiscal issues — PFM, fiscal Chart of Accounts, cash management.
  - Financial sector — training for supervisors and deposit insurance.
  - Statistics — continuing assistance on balance of payments statistics and national accounts; STA TA mission planned in March 2015.

### IMF-World Bank joint engagement and action plan (selected)
- IMF work program next 12 months:
  - Missions: Staff visit and Article IV consultation — April 2015, December 2015.
  - Analytical work: drivers of inflation, fiscal sustainability and tourism competitiveness.
  - Technical Assistance: PFM, cash management, financial sector training, statistics.
- World Bank and ADB cooperation highlights (selected figures):
  - ADB total approved amount since 1981 to 2014-end: $209.91 million.
  - Ongoing ADB loan and grant portfolio (as of November-end 2014, $ million): TOTAL — 45.350.
  - ADB technical assistance ongoing total $3.075 million (as of November-end 2014).
- Statistical assessment:
  - Data adequacy for surveillance: Category B.
  - Main official publication: Statistical Yearbook of Maldives.
  - IMF reporting: authorities report macroeconomic data regularly and generally timely for IFS, BOPSY, and GFSY.

*Source: Maldives — IMF staff report (excerpts from _cr1568).*

### 1. Data Revisions to the Balance of Payments _____________________________________________________  6

### _cr1568 - 1. Data Revisions to the Balance of Payments _____________________________________________________  6

### Context
- Tourism accounts directly and indirectly for around three-quarters of output and underpins the $6740 per capita GDP in 2013.
- Geography and macro features: 200 inhabited islands covering around 90,000 sq.km; high import-intensity; dollarization; stabilized exchange rate regime and open capital account.
- Labor market: only 40 percent of youth is in employment.
- Past decade: persistent fiscal deficits, intermittent pressure on official reserves and the exchange rate, financing partly via domestic monetization and arrears.

### Recent developments (2013–14)
- Growth:
  - Real growth was 4.7 percent in 2013.
  - Staff projects 5 percent in 2014 and 2015.
- External sector and reserves:
  - Current account deficit reduced to around 8.4 percent of GDP in 2014 following data revisions.
  - Gross official reserves rose to $614 mn (2.8 months imports); net reserves remained low.
  - Parallel foreign exchange market premium narrowed to 3–4 percent.
- Inflation:
  - Inflation contained at 1.1 percent in November (2014).
  - Inflation forecast: 0.3 percent in 2015; expected to settle at around 4 percent in the medium term.
- Fiscal:
  - Staff estimates the deficit at 7.8 percent of GDP in 2013 versus authorities reporting 3.9 percent of GDP.
  - Sharp rise in recurrent expenditures likely widened the deficit to 11.6 percent of GDP in 2014.
  - 2015 Budget measures aim to rein in the deficit.
- Public debt:
  - Public debt (including SOEs, excluding arrears) rose from 52 percent in 2009 to 75 percent of GDP in 2014.
  - Staff-estimated outstanding stock of arrears would add 6.3 percent of GDP to the debt ratio.
  - Arbitration over airport concession could pose a sizable contingent fiscal liability; MACL paid $4mn in immediate costs.

### Box 1 — Data Revisions to the Balance of Payments: main elements and effects
- Revisions follow IMF technical assistance and new data sources; current account deficits reduced from around 20 percent of GDP to single digits in 2012–13.
- Higher tourism exports:
  - Use of Tourism Goods and Services Tax (TGST) data and inclusion of the bed-nights tax.
  - Net effect: reduces the current account deficit by 2.1 and 9.5 percentage points of GDP in 2012 and 2013 respectively.
- Lower imports of goods and services:
  - Eliminated double counting of jet fuel imports; imports of services revised upwards using withholding tax data.
  - Net effect: reduces the current account deficit by 3.2 and 4.1 percentage points of GDP in 2012 and 2013 respectively.
- Higher net income:
  - Improved methods for estimating outward company profits and foreign workers’ remittances.
  - Net effect: reduces the current account deficit by 3.7 and 0.6 percentage points of GDP in 2012 and 2013 respectively.
- Financial account estimation improved using:
  - Annual FDI survey; MMA’s monetary and financial statistics for bank flows; Bank of International Settlements data for non banks; IMF’s Coordinated Portfolio Investment Survey database.
- Residuals:
  - Revisions reduce the scale of errors and omissions in 2012 ($24mn), though remain large in 2013 ($98 mn).

### Financial sector and monetary conditions
- Financial soundness:
  - Bank profitability has increased; nonperforming loans in tourism and construction are falling from crisis-era highs.
- Money and credit:
  - Base money and broad money growing rapidly financed by reserve accumulation and sharply higher NFA of banks.
  - Private sector credit growth subdued at 0.5 percent in November 2014 year on year.
  - Funding channeled into MMA’s Overnight Deposit Facility or Treasury bills despite lower yields.

### Outlook and risks
- Staff’s baseline forecasts and key projections:
  - Medium term growth projected around 4½ percent (slower than historical average of 6½ percent).
  - Current account expected to narrow to around 4.7 percent of GDP by 2019.
  - Fiscal consolidation implied by the 2015 Budget expected to have a mildly negative effect on growth (around ¾ of a percentage point in 2016–17).
- Sensitivities and risks:
  - Limited policy buffers make the economy vulnerable to fiscal slippages and inward spillovers.
  - In a large external shock, foreign capital inflows may weaken and reserves could erode; accelerated fiscal consolidation and expenditure control would be needed.
- Authorities’ view:
  - Authorities expect stronger growth than staff, projecting around 8 percent average real GDP growth over the next three years.
  - Authorities emphasize boosting growth potential via infrastructure and Special Economic Zones (SEZs) to build buffers.

### Policies for fiscal sustainability — assessment and recommendations
- Background:
  - Public spending rose by 9.9 percentage points of GDP since 2011 driven by wages, subsidies and social welfare.
  - 2015 Budget focuses on revenue measures (green tax, SEZ acquisition fees, higher import duties) and some temporary expenditure restraint (public employment freeze, better subsidy targeting).
- Staff assessment:
  - 2015 Budget expected to deliver primary deficit improvement of around 4.1 percentage points in 2015; contain primary deficit to 2.4 percent of GDP over the medium term under staff baseline.
  - Under staff baseline, public debt would continue to increase and remain well above the Fiscal Responsibility Law anchor of 60 percent of GDP.
  - Staff recommends additional and more permanent consolidation of around 3 percentage points of GDP over 2015–19 to bring debt ratios down.
  - If authorities’ ambitious capital spending plans are fully realized, further adjustment would be needed.
  - Benefits of consolidation: reduce pressure for monetary financing, strengthen external position by cutting import demand and reduce crowding out; some near-term growth cost expected.

### Fiscal projections comparison (selected figures as percent of GDP)
- Summary of Fiscal Projections 2015–17: Authorities and Staff (in percent of GDP)
  - Total Revenue & Grants: Authorities 45.9 / Staff 35.3 (2015); Authorities 43.4 / Staff 35.9 (2016); Authorities 41.2 / Staff 35.4 (2017).
  - Tax Revenue (o/w): Authorities 27.5 / Staff 23.8 (2015); Authorities 31.3 / Staff 26.0 (2016); Authorities 31.5 / Staff 26.1 (2017).
  - Import Duties: Authorities 5.2 / Staff 4.6 (2015); Authorities 6.3 / Staff 5.6 (2016); Authorities 6.1 / Staff 6.0 (2017).
  - Green Tax: Authorities 0.7 / Staff 0.4 (2015); Authorities 2.7 / Staff 1.5 (2016); Authorities 2.6 / Staff 1.5 (2017).
  - Tourism GST: Authorities 10.4 / Staff 8.1 (2015); Authorities 10.9 / Staff 8.0 (2016); Authorities 11.3 / Staff 7.8 (2017).
  - Resort Lease Rentals/SEZ acquisition: Authorities 10.1 / Staff 5.7 (2015); Authorities 5.4 / Staff 4.3 (2016); Authorities 4.3 / Staff 3.9 (2017).
  - Total Expenditure & net lending: Authorities 47.6 / Staff 43.4 (2015); Authorities 46.2 / Staff 43.1 (2016); Authorities 40.0 / Staff 43.3 (2017).
  - Current Expenditure (o/w): Authorities 32.4 / Staff 36.0 (2015); Authorities 29.8 / Staff 35.8 (2016); Authorities 27.0 / Staff 36.0 (2017).
  - Wage Costs: Authorities 13.6 / Staff 13.3 (2015); Authorities 12.3 / Staff 12.8 (2016); Authorities 11.4 / Staff 12.3 (2017).
  - Interest Costs: Authorities 2.9 / Staff 3.5 (2015); Authorities 3.5 / Staff 3.8 (2016); Authorities 2.3 / Staff 4.6 (2017).
  - Social Welfare Contributions: Authorities 3.5 / Staff 5.6 (2015); Authorities 3.0 / Staff 6.0 (2016); Authorities 2.8 / Staff 6.4 (2017).
  - Subsidies & Transfers: Authorities 3.0 / Staff 6.3 (2015); Authorities 2.9 / Staff 5.9 (2016); Authorities 2.7 / Staff 5.4 (2017).
  - Capital Expenditure (o/w): Authorities 15.1 / Staff 6.7 (2015); Authorities 16.5 / Staff 6.7 (2016); Authorities 13.1 / Staff 6.7 (2017).
  - Primary Balance: Authorities 1.3 / Staff (4.6) (2015); Authorities 0.7 / Staff (3.5) (2016); Authorities 3.5 / Staff (3.4) (2017).
  - Overall Balance: Authorities (1.7) / Staff (8.1) (2015); Authorities (2.8) / Staff (7.3) (2016); Authorities 1.2 / Staff (7.9) (2017).
- Note: Staff estimates are based on the baseline scenario; authorities present estimates relative to staff's nominal GDP projections and project higher nominal GDP.

*Source: Maldives — IMF staff report (excerpts from _cr1568).*

### Box 2. Maldives 2015 Budget Fiscal Adjustment Measures

### Box 2. Maldives 2015 Budget Fiscal Adjustment Measures

### Overview
- The 2015 Budget passed in December includes measures weighted to revenues and some expenditure restraint.
- Staff estimates that the package could help reduce the primary deficit by 4.1 percentage points in 2015.
- Staff project the deficit will be higher than the official target for reasons including: delayed introduction of some measures; uncertainty over revenue realization from the acquisition of land for SEZs; time needed to secure safety nets accompanying subsidy targeting; possible slippage on wages; and a different base given 2013 estimates.
- Offsetting factor: staff expect capital spending to come on stream more gradually than envisaged by the authorities, reducing the overall deficit.

### Revenue measures (2015)
- Green Tax: A tourism "green tax" ($6 per night) replaces the bednights tax ($ 8 per night).
  - Authorities savings estimate (change from 2014 pps of GDP): 0.7
- Import Duties: Rise in duties on some zero rated consumer items; vehicles duties and tobacco excises.
  - Authorities savings estimate: 1.2
- Resort Development: Ten new resorts a year to come on stream generating resort license income.
  - Authorities savings estimate: 1.1
- SEZ plus land reclamation: $100 mn from the acquisition of land for a Special Economy Zone in 2015
  - Authorities savings estimate: 4

### Expenditure measures (2015)
- Subsidies: Targeting electricity and food subsidies; 40 percent cut in subsidies in 2015.
  - Authorities savings estimate (change from 2014 pps of GDP): -2. 1
- Wage bill: The public employment freeze.
  - Authorities savings estimate: 1. 1
- Measures aim to contain current spending, including a public employment freeze, stricter control over public sector employment and the wage bill, and targeting subsidies.
- World Bank past work: half the electricity subsidy goes to the highest two income quintiles; food subsidies similarly poorly targeted (with subsidies also benefiting the tourist resorts).

### Capital expenditures (2015)
- Authorities plan a large increase in capital expenditures (for a Malé-airport road bridge and for airport development) financed by bilateral official loans.
- Staff expect capital spending to come on stream more gradually than envisaged by the authorities (feasibility studies for these projects have yet to be completed), which would reduce the overall deficit relative to the authorities’ plans.

### Staff projection, risks and implementation issues
- Staff project the package could reduce the primary deficit by 4.1 percentage points in 2015.
- Risks to achieving official targets include:
  - Delayed introduction of some measures.
  - Uncertainty over revenue realization from SEZ land acquisition.
  - Need for targeting of subsidies to be accompanied by measures to secure safety nets (this will take time, although some conditions are in place for proxy means testing).
  - Possible slippage on wages.
  - A different base given 2013 estimates.
- In the other direction, slower capital spending implementation could lower the deficit relative to authorities’ plan.

### Medium-term adjustment proposal (2016 onward)
- To return the debt ratio to the level of 2013 and bring it within reach of the 60 percent limit, staff proposes additional savings of 3 percentage points of GDP, beginning in 2016, with just over half of the additional savings deriving from the spending side.
- Expenditure measures: spending restraint over 2016–19 with structural measures to durably contain the wage bill (by establishing a pay body to set consistent rules across the public sector, by reducing the number of paid local councilors, and by embarking on public service reform), by containing rising healthcare costs and savings on transport and communications.
  - Saving: 1.7 percentage points of GDP.
- Revenue measures: an increase in the TGST rate from 12 to 15 percent in 2016 would help underpin revenues.
  - Increased revenues: 1.3 percentage points of GDP.

### Public financial management (PFM) and reform priorities
- Better public financial management is a prerequisite for fiscal sustainability. The recent Public Expenditure and Financial Accountability assessment identified deep rooted problems requiring greater fiscal discipline and better prioritization across government.
- Identified difficulties include: unrealistic budgets with spending allocations insufficient to meet commitments; reshuffling of spending between activities/ministries; unenforced spending ceilings.
- Suggested reforms include:
  - Baseline review of expenditures.
  - Better methods to track payments, including subsidies, to design targeting and monitor savings.
  - Compliance with the Fiscal Responsibility Law (came into force in May 2014) to support longer term fiscal goals; the Law includes debt and deficit limits and strict limits on MMA credit to government (preventing monetization).
- Box 3 (PFM Reform Plan 2015–2018) key actions (summarized):
  - Convene high level discussion among PFM agencies; develop capacity for budget, fiscal framework and audit analysis.
  - Improve policies for setting expenditure ceilings and information provision to line ministries; coordinate recurrent and capital budgets.
  - Review baseline expenditures for cash management; implement commitment control; develop policy on payment of arrears.
  - Develop a medium term fiscal framework in line with the Fiscal Responsibility Law; strengthen analytical capacity and forecasting.
  - Update the debt strategy, gather reliable debt data, make debt data public, expand primary domestic debt market.
  - Improve accounting, fiscal reporting, internal and external audit; roll out the Public Accounting System; use the Chart of Accounts.

### Authorities' views (on 2015 measures and reforms)
- Authorities expect the 2015 Budget measures to result in a larger fiscal consolidation than estimated by staff.
- The set up of Special Economic Zones would generate fee income from their acquisition and could significantly supplement revenues with no need for further revenue measures.
- Expenditure restraint, particularly the public sector employment freeze and review of local government pay structures, has political backing and could generate sizeable permanent cost savings.
- Authorities agreed that a public sector wide pay body could be helpful to ensure consistency of wages and salaries and drive public service reform.
- Strengthening public financial management is a key government priority; continued technical assistance on the fiscal chart of accounts and budget execution would be valuable.

*Source: Box 2. Maldives 2015 Budget Fiscal Adjustment Measures, IMF staff report content.*

### Box 6. Estimates of Tourism Spending and External Sector Assessment

### Box 6. Estimates of Tourism Spending and External Sector Assessment

### Approaches used to estimate tourist spending
- Three approaches were used to produce ballpark estimates of actual tourism expenditures:
  - a) Ministry of Tourism survey (arrivals and individuals’ reported spending habits):
    - Points to an estimate as high as $4.3bn (double official estimates).
    - Caveats: asks about ranges of spending; may indistinguishably include airfares and spending in nearby economies such as Sri Lanka; conducted for one month in February (high season) each year; response rate is low (25 percent).
    - Conclusion: given these caveats, the survey is likely an overestimate of tourist spending.
  - b) Sample of internet pricing from a range of resorts:
    - Points to spending roughly double the recorded estimates.
  - c) Errors and omissions in the BoP statistics:
    - In 2013 (after data revisions) errors and omissions were $97mn.
    - This would point to receipts of $2.4bn.
    - Caveat: would not capture flows kept offshore by residents (that return later as FDI).

### Cross-country comparisons
- Comparisons with tourism-dependent small islands suggest the discrepancy could be relatively small.
- Only Barbados recorded higher spending per tourist in 2013; Maldives does not appear to be a big outlier.

### Range of possible under-recording and implications
- The range of possible under-recording of receipts is very large: from around $100mn to up to $2bn.
- If under-recording of receipts were at the high end, outflows such as imports would also likely be under-recorded — implying a smaller net effect on the current account.

### Quantified approaches to external assessment (using official data and an estimate for under-recording of $100mn)
- The approaches estimate the current account norm to be between -4.8 to -5.7 percent of GDP.
- The resulting current account gap is estimated to be in the range from 0.2 to -3.6 percent of GDP.
- EBA lite suggests the fiscal policy gap can explain 2 percent of GDP of the current account gap.
- The corresponding REER estimates range from a small undervaluation to an overvaluation of up to 5 percent.

### Estimates of Tourist Spending Per Arrival (as presented)
- Table headings: Spending Per Arrival | Annual Revenue Estimate | Difference from official data
- Units: US Dollars | $ Millions | Percent
- Reported rows (values preserved exactly):
  - Official data: 1,877 | 2,112
  - Survey of tourists spending habits (conducted peak season): 3,873 | 4,357 | 106
  - Back of the Envelope based on internet prices: 3,703 | 4,166 | 97
  - Estimate that would reduce errors and omissions in the BoP: 2,065 | 2,323 | 10

### Staff assessment and policy implications related to tourism and the external sector
- The assessment of the external position is highly uncertain given data issues, but on balance it looks modestly weaker than implied by fundamentals and desirable policies.
- Following revision, the reported current account deficit is substantially narrower than previously estimated.
- Tourism expenditures may still be underestimated and the current account deficit overstated.
- The real exchange rate has been broadly stable recently and the parallel market premium has narrowed.
- Overall, the external position appears modestly weaker than fundamentals and desirable policies, and the real exchange rate modestly overvalued (within a large uncertainty range).
- The stabilized exchange rate regime remains suitable for Maldives.
- With low levels of official reserves, the MMA continues to ration foreign exchange to commercial banks and the parallel market premium is greater than 2 percent, leading to a multiple currency practice and exchange restrictions.
- Without a timetable for removal of these measures, Fund approval is not sought at this time.

### Data and statistical issues relevant for policy
- It is not possible to check official tourism data against partner countries because these data are not collected for tourism services.
- Balance of payments data reliability is uncertain due to many transactions occurring outside the country and no international counterparty data on tourism services to validate revenue estimates.
- Staff recommend further work to improve balance of payments and national accounts statistics and to finalize the expenditure measure and a fiscal chart of accounts.
- A statistics law providing the legal authority to collect data from the nonfinancial corporate sector and households would greatly enhance data provision.

*Source: Box 6, "Estimates of Tourism Spending and External Sector Assessment."*

### 42. It is recommended that the next Article IV consultation be held on the standard 12

### _cr1568 - 42. It is recommended that the next Article IV consultation be held on the standard 12

### Real and external sector developments
- Tourism performance and exchange rate
  - "Tourism has performed well compared to competitors ...and the real exchange rate is broadly stable."
  - Tourism bednights (000'): 2011: 6,529; 2012: 6,451; 2013: 7,045; 2014: 7,503; 2015 (est.): 7,916; 2016 (proj.): 8,311; 2017 (proj.): 8,311; 2018 (proj.): 8,810; 2019 (proj.): 9,899.
  - Tourism bednights (% change): 2011: 9.1; 2012: -1.2; 2013: 9.2; 2014: 6.5; 2015 (est.): 5.5; 2016 (proj.): 5.0; 2017 (proj.): 6.0; 2018 (proj.): 6.0; 2019 (proj.): 6.0.
  - Real Effective Exchange Rate, 2010–14 (Index, 2010 Jan=100): chart indicates Maldives alongside Sri Lanka, Mauritius, Seychelles (text: "real exchange rate is broadly stable").
- Trade, current account, and reserves
  - Goods trade: "a little weaker with a drop in volatile fish exports."
  - Current account: "Current account data have been revised and the deficit is substantially smaller than in earlier years."
  - Current account (in percent of GDP), Table 1 baseline: 2011: -18.1; 2012: -10.6; 2013: -6.5; 2014: -8.4; 2015 (est.): -5.0; 2016 (proj.): -6.2; 2017 (proj.): -5.6; 2018 (proj.): -5.1; 2019 (proj.): -4.7.
  - Gross international reserves (in millions of US$; e.o.p.), Table 1 baseline: 2011: 335; 2012: 305; 2013: 368; 2014: 614; 2015 (est.): 832; 2016 (proj.): 1,005; 2017 (proj.): 1,188; 2018 (proj.): 1,377; 2019 (proj.): 1,555.
  - Reserve cover (months of GNFS imports), Table 1 baseline: 2011: 1.7; 2012: 1.7; 2013: 1.9; 2014: 2.8; 2015 (est.): 3.7; 2016 (proj.): 4.1; 2017 (proj.): 4.5; 2018 (proj.): 4.8; 2019 (proj.): 5.0.
- Capital flows
  - "FDI inflows are offsetting other outflows."
  - Capital and financial account (including e&o), Table 1 baseline (in percent of GDP): 2011: 17.5; 2012: 9.4; 2013: 8.9; 2014: 17.0; 2015 (est.): 12.2; 2016 (proj.): 11.6; 2017 (proj.): 10.8; 2018 (proj.): 10.1; 2019 (proj.): 8.9.
  - Of which: General government, net (in percent of GDP): 2011: 3.4; 2012: 1.6; 2013: 0.7; 2014: 1.4; 2015 (est.): 1.7; 2016 (proj.): 1.7; 2017 (proj.): 1.5; 2018 (proj.): 1.6; 2019 (proj.): 1.5.

### Fiscal developments and public debt
- Fiscal stance and trends (Figure 3 summary)
  - "Fiscal Revenues are high compared to others ...but expenditures are high and increasing."
  - "The overall fiscal deficit is large... ...despite relatively high indirect tax rates and good revenue performance."
  - "High primary deficits drive the weak fiscal position... the 2015 Budget will rein in the deficit ... but not sufficiently to stop public debt rising."
  - "The spending structure is rigid—wages, pensions, subsidies and social welfare at close to 30% of GDP ...with subsidies and social welfare schemes being poorly targeted."
- Key central government fiscal aggregates (Table 1, baseline scenario; in percent of GDP unless otherwise indicated)
  - Revenue and grants: 2011: 27.6; 2012: 26.0; 2013: 28.6; 2014: 32.4; 2015 (est.): 35.3; 2016 (proj.): 35.9; 2017 (proj.): 35.4; 2018 (proj.): 35.2; 2019 (proj.): 34.9.
  - Expenditure and net lending: 2011: 34.1; 2012: 33.7; 2013: 36.5; 2014: 44.0; 2015 (est.): 43.4; 2016 (proj.): 43.1; 2017 (proj.): 43.3; 2018 (proj.): 42.9; 2019 (proj.): 42.6.
  - Overall balance: 2011: -6.6; 2012: -7.6; 2013: -7.8; 2014: -11.6; 2015 (est.): -8.1; 2016 (proj.): -7.3; 2017 (proj.): -7.9; 2018 (proj.): -7.7; 2019 (proj.): -7.6.
  - Overall balance excluding grants: 2011: -8.6; 2012: -8.6; 2013: -8.1; 2014: -12.6; 2015 (est.): -8.8; 2016 (proj.): -7.9; 2017 (proj.): -8.4; 2018 (proj.): -8.1; 2019 (proj.): -8.0.
  - Primary balance: 2011: -4.5; 2012: -4.8; 2013: -5.3; 2014: -8.7; 2015 (est.): -4.6; 2016 (proj.): -3.5; 2017 (proj.): -3.3; 2018 (proj.): -2.4; 2019 (proj.): -2.4.
  - Public and publicly guaranteed debt (in percent of GDP): 2011: 59.9; 2012: 62.8; 2013: 66.7; 2014: 75.0; 2015 (est.): 78.6; 2016 (proj.): 80.7; 2017 (proj.): 82.5; 2018 (proj.): 83.7; 2019 (proj.): 84.5.
- Detailed central government finances (selected 2013 figures from Table 2a, in millions of rufiyaa)
  - Total revenue and grants (2013): 12,609
  - Revenue (excluding privatization receipts, 2013): 12,049
  - Tax revenue (2013): 8,469
  - Goods and services tax (GST) (2013): 3,877 (of which General GST: 1,006)
  - Tourism GST and related tourism tax entries shown (tourism GST and $8 bed tax details included).
  - Expenditure and net lending (2013): 13,973
  - Current expenditure (2013): 10,265 (of which Salaries and allowances: 5,363)
  - Capital expenditure (2013): 3,819
  - Overall balance (2013): -1,364
  - Financing (2013): 1,364 (composition includes external and domestic elements listed).
- Alternative (staff’s recommended adjustment) scenario (Table 5 highlights)
  - Overall balance (in percent of GDP): 2015 (est.): -7.9; 2016 (proj.): -4.8; 2017 (proj.): -5.0; 2018 (proj.): -3.8; 2019 (proj.): -3.1.
  - Primary balance (in percent of GDP): 2015 (est.): -4.5; 2016 (proj.): -1.0; 2017 (proj.): -0.5; 2018 (proj.): 1.1; 2019 (proj.): 1.6.
  - Public and publicly guaranteed debt (in percent of GDP) under adjustment scenario: 2015 (est.): 78.4; 2016 (proj.): 78.1; 2017 (proj.): 77.1; 2018 (proj.): 74.9; 2019 (proj.): 71.9.
  - Current account (in percent of GDP) under adjustment scenario: 2015 (est.): -5.0; 2016 (proj.): -5.5; 2017 (proj.): -4.9; 2018 (proj.): -4.4; 2019 (proj.): -3.9.
  - Gross international reserves (in millions of US$; e.o.p.) under adjustment scenario: 2015 (est.): 832; 2016 (proj.): 1,030; 2017 (proj.): 1,240; 2018 (proj.): 1,458; 2019 (proj.): 1,668.
  - Reserve cover (months of GNFS imports) under adjustment scenario: 2015 (est.): 3.7; 2016 (proj.): 4.3; 2017 (proj.): 4.8; 2018 (proj.): 5.1; 2019 (proj.): 5.4.

### Monetary and financial sector developments
- Monetary aggregates and credit
  - "Monetary aggregates have picked up reflecting larger fiscal deficits and monetization ...But credit is subdued."
  - Broad money (annual percent change), Table 1 baseline: 2011: 20.1; 2012: 6.4; 2013: 16.8; 2014: 17.9; 2015 (est.): 6.6; 2016 (proj.): 8.5; 2017 (proj.): 8.5; 2018 (proj.): 8.7; 2019 (proj.): 9.0.
  - Domestic credit (annual percent change), Table 1 baseline: 2011: 11.3; 2012: -2.4; 2013: 3.9; 2014: 5.4; 2015 (est.): 5.0; 2016 (proj.): 7.0; 2017 (proj.): 8.5; 2018 (proj.): 8.7; 2019 (proj.): 9.0.
- Banking sector indicators and liquidity
  - "The recent cut in reserve requirements has boosted commercial bank excess reserves."
  - Commercial banks' reserves (in percent of total deposits), charted values include rising reserves and MRR references.
  - "Cuts in treasury bill yields have not dampened purchases."
  - 28-day T-bills yield (monthly average of weighted average yields) chart presented (no specific numeric series transcribed here beyond chart labels).
  - Credit growth: private sector and public sector series charted (text: "But credit is subdued.").
- Asset quality, profitability, and capital (Table 6, selected indicators)
  - Regulatory capital to risk-weighted assets: 2007: 15.4; 2008: 21.0; 2009: 24.7; 2010: 28.9; 2011: 30.3; 2012: 35.8; 2013: 34.0; 2014Q1: 39.4; 2014Q2: 31.7; 2014Q3: 31.2.
  - Nonperforming loans (gross) to total loans (gross): 2007: 1.7; 2008: 8.9; 2009: 12.7; 2010: 17; 2011: 19.4; 2012: 16.7; 2013: 15.9; 2014Q1: 15.6; 2014Q2: 12.2.
  - Return on assets: 2007: 5.3; 2008: 3.4; 2009: 2.2; 2010: 2.0; 2011: 2.6; 2012: 2.4; 2013: 5.1; 2014Q1: 4.0; 2014Q2: 3.8; 2014Q3: 4.6.
  - Assets of Banks (rufiyaa billions): 2007: 18.3; 2008: 22.7; 2009: 25.1; 2010: 25.9; 2011: 28.7; 2012: 27.6; 2013: 32.7; 2014Q1: 38.9; 2014Q2: 37.1; 2014Q3: 37.6.
  - Deposits of banks (rufiyaa billions): 2007: 10.2; 2008: 12.2; 2009: 14.3; 2010: 15.5; 2011: 18.3; 2012: 19.2; 2013: 22.6; 2014Q1: 27.7; 2014Q2: 26.4; 2014Q3: 25.6.

### Macroeconomic projections and key indicators (staff baseline)
- Output and inflation (Table 1 baseline)
  - Real GDP (annual percentage change): 2011: 6.5; 2012: 1.3; 2013: 4.7; 2014: 5.0; 2015 (est.): 5.0; 2016 (proj.): 3.9; 2017 (proj.): 4.2; 2018 (proj.): 4.4; 2019 (proj.): 4.6.
  - Inflation (end-of-period, CPI-Male definition): 2011: 16.7; 2012: 5.4; 2013: 3.1; 2014: 1.2; 2015 (est.): 0.4; 2016 (proj.): 2.8; 2017 (proj.): 4.0; 2018 (proj.): 4.5; 2019 (proj.): 4.5.
  - GDP deflator (annual percent change): 2011: 8.6; 2012: 6.8; 2013: -0.9; 2014: 0.7; 2015 (est.): 1.5; 2016 (proj.): 3.0; 2017 (proj.): 4.1; 2018 (proj.): 4.2; 2019 (proj.): 4.1.
- External sector (Table 4, selected)
  - Trade balance (in US$ millions): 2011: -1,370; 2012: -1,261; 2013: -1,372; 2014: -1,572; 2015 (est.): -1,585; 2016 (proj.): -1,786; 2017 (proj.): -1,970; 2018 (proj.): -2,097; 2019 (proj.): -2,265.
  - Travel receipts (US$ millions): 2011: 1,942; 2012: 1,951; 2013: 2,333; 2014: 2,584; 2015 (est.): 2,821; 2016 (proj.): 3,026; 2017 (proj.): 3,289; 2018 (proj.): 3,575; 2019 (proj.): 3,887.
  - Exports (f.o.b., US$ millions): 2011: 346; 2012: 314; 2013: 331; 2014: 369; 2015 (est.): 313; 2016 (proj.): 308; 2017 (proj.): 342; 2018 (proj.): 396; 2019 (proj.): 445.

### Vulnerabilities and development indicators
- External vulnerability metrics (Table 4 memoranda)
  - External debt (in percent of GDP): 2011: 42.6; 2012: 34.3; 2013: 32.2; 2014: 34.5; 2015 (est.): 33.9; 2016 (proj.): 33.7; 2017 (proj.): 32.9; 2018 (proj.): 32.0; 2019 (proj.): 31.1.
  - Debt service (in percent of domestic GNFS exports): 2011: 9.7; 2012: 9.3; 2013: 7.6; 2014: 6.8; 2015 (est.): 7.3; 2016 (proj.): 6.8; 2017 (proj.): 6.5; 2018 (proj.): 5.6; 2019 (proj.): 5.2.
- Selected social and development indicators (Table 7 highlights)
  - Population (in 1,000; 2012 est.): 331
  - GDP per capita (in U.S. dollars; 2012 est.): 6,675
  - Employment to population ratio, total (%): 1990: 45; 1995: 46; 2000: 49; 2005: 54; 2012: 59
  - Literacy rate, youth female (% ages 15-24): 1990: 98; 1995: 98; 2000: 98; 2005: 99; 2012: ..
  - Improved water source (% of population with access): 1990: 93; 1995: 94; 2000: 95; 2005: 97; 2012: 99
  - Improved sanitation facilities (% of population with access): 1990: 68; 1995: 70; 2000: 79; 2005: 89; 2012: 99

### Policy-relevant observations and implicit recommendations (from source text)
- Timing of surveillance
  - "It is recommended that the next Article IV consultation be held on the standard 12 month cycle."
- Fiscal policy
  - Revenue measures: "New and sustainable tax measures have helped raise the revenue ratio since 2009."
  - Expenditure rigidities: wages, pensions, subsidies, and social welfare account for "close to 30% of GDP" and are "poorly targeted"—implying scope for fiscal consolidation through expenditure reform and better targeting.
  - 2015 Budget: "will rein in the deficit ... but not sufficiently to stop public debt rising"—indicating need for stronger corrective measures to stabilize public debt trajectories in baseline.
- External and reserve policy
  - Reserve cover: "has increased but is still low"—suggesting continued emphasis on rebuilding gross international reserves.
- Financial sector and monetary policy
  - Recent reserve requirement cuts "have boosted commercial bank excess reserves."
  - Monetary expansion has accompanied fiscal deficits ("Monetary aggregates have picked up reflecting larger fiscal deficits and monetization"), with subdued credit—highlighting potential transmission and balance-sheet concerns.

*Source: Maldives — IMF staff report content provided in the supplied PDF content unit.*

### Annex I. Revisions to Nominal GDP

### Annex I. Revisions to Nominal GDP

### Summary of methodological change
- The authorities adopted the methodology of using a market price GDP as their aggregate instead of the previous approach of presenting gross value added figures at basic prices (which exclude taxes and subsidies on products from the estimation of gross output).
- The adjustment from basic to market prices is consistent with the purchasers’ price valuation of the components of the expenditure measure of GDP.
- The change is in line with international practice and enables more consistent cross-country comparisons.
- The revision was considered important given the introduction of TGST, a Goods and Services Tax, and changes to import duties in recent years.
- The revised calculation of nominal GDP is consistent with the expenditure measure of GDP and is being used by staff to replace previously published nominal GDP figures.

### Quantitative impact
- The effect is to revise up the level of nominal GDP by 13 percent in 2013.
- Reported comparison: 2.6 bn $US dollars vs. 2.3 bn $US dollars in 2013.
- Time series captioned: "Maldives: Nominal GDP at market and basic prices (mn Rf, 2001-13)". (Chart shows Revised Nominal GDP at market prices and Total GVA (gross value added) at basic prices for 2001–2013.)

### Implications for aggregates and ratios
- The revisions affect sectoral contributions to GDP and economic aggregates commonly calculated as ratios to nominal GDP.
- Ratios for the fiscal deficit, public debt and the current account are all a little lower than previously reported.

### Institutional response and follow-up
- The authorities and staff agree on the importance of credibility in final revisions of the GDP data and are collaborating closely.
- Technical assistance is being provided by the Fund to support further revisions to real GDP data and to more broadly support improvements in GDP methodology.  

*Source: Annex I. Revisions to Nominal GDP (Maldives staff report).*

### Appendix I. Maldives IMF-World Bank Joint Management Action Plan

### Appendix I. Maldives IMF-World Bank Joint Management Action Plan

### I. Mutual Information on Relevant Work Program
- Bank work program (items and expected date of delivery)
  - A. Strategy and Analytical Work
    - Systematic Country Diagnostic — FY2015
    - Sustainable Fisheries Support — FY2015
    - Gender Study — FY2015
    - Youth Engagement — FY2015
    - Poverty and Shared Prosperity in Maldives — FY2016
  - B. Lending Program
    - Environmental Management Project — Approval Date June 2008
    - Pension and Social Protection Administration — Approval Date May 2009
    - Climate Change Trust Fund I (three projects) — Approval Date December 2009
    - Statistical Capacity Building — Approval Date November 2012
    - Enhancing Education Development Project — Approval Date April 2013
    - Public Financial Management Systems Strengthening Project — Approval Date June 2014
    - Accelerating Sustainable Private Investments in Renewable Energy (ASPIRE) Project — Approval Date June 2014
    - Climate Change Trust Fund II — FY2015
  - C. Technical Assistance
    - Forecasting Tourism Flows TA — FY2015
- IMF work program in the next 12 months
  - A. Missions: Staff visit and Article IV consultation — April 2015, December 2015.
  - B. Analytical Work: drivers of inflation, fiscal sustainability and tourism competitiveness.
  - C. Technical Assistance: Fiscal issues — Public finance management, developing a fiscal Chart of Accounts and support for cash management. Financial sector issues — training for supervisors and deposit insurance. Statistics — continuing assistance on balance of payments statistics and national accounts.
- IMF request to Bank / Requests for Work Program Inputs
  - Poverty and social impact analysis of the electricity tariff increases — FY2010 Ongoing
  - Request for assistance in targeting subsidies — FY2010 Ongoing
- Joint product
  - Debt sustainability analysis — Jan. 2015

### II. Relations with the Asian Development Bank (As of November 30, 2014)
- ADB interim CPS 2014–2015 endorsed October 2014; focus: energy, transport, finance (MSMEs). Full CPS work to commence early 2015.
- Loans and grants (cumulative since 1981 to 2014-end)
  - Total approved amount $209.91 million.
  - As of November-end, 2 loans and grants active with a net amount of $45.350 million.
  - October 2014 approval: Outer Island Sustainable Energy Development Project — ADF $38.08 million of total cost.
- Table 1. Ongoing Loan and Grant Portfolio (As of November-end 2014, in $ million)
  - Inclusive Micro, Small and Medium-Sized Enterprise Development (Grant) — Amount 4.450 — Closing Date 31 Dec 2016
  - Inclusive Micro, Small and Medium-Sized Enterprise Development (Loan) — Amount 2.820 — Closing Date 31 Dec 2016
  - Outer Island Sustainable Energy Development — Amount 38.080 — Closing Date 20 June 2020
  - TOTAL — 45.350
- Technical Assistance (As of November-end 2014)
  - ADB approved 68 TA projects to the Maldives, total amount $26.90 million.
  - Ongoing 4 TA projects total $3.075 million (2 in energy $1.9 million; 2 in public sector management $1.175 million).
- Table 2. Ongoing TA Portfolio (As of November-end 2014, in $ million)
  - Capacity Development for the Maldives Energy Authority — Energy — 0.800 — 30 Sept 2017
  - Outer Islands Sustainable Energy Development — Energy — 1.100 — 31 Dec 2014
  - Strengthening Capacity for Operations Management — PSM — 0.325 — 31 Dec 2015
  - Enhancing Tax Administration Capacity — PSM — 0.850 — 31 Dec 2015
  - TOTAL — 3.075
  - Note: PSM = public sector management
- Contract awards / commitment performance (Without program loans as of September 30, 2014)
  - Table 3 (values shown in source with compact formatting):
    - 2011 Projected ($ million) 7.1
    - 2011 Achieved ($ million) 3.8
    - 2011 Achieved (Percent) 53.5
    - 2011 Contract Awards/Commitment Ratio (%) 40.9
    - 2012 Projected ($ million) 6.5
    - 2012 Achieved ($ million) 6.0
    - 2012 Achieved (Percent) 92.3
    - 2012 Contract Awards/Commitment Ratio (%) 26.6
    - 2013 Projected ($ million) -
    - 2013 Achieved ($ million) 0.3
    - 2013 Achieved (Percent) -
    - 2013 Contract Awards/Commitment Ratio (%) 5.9
    - a No contract awarded for 2014
    - b Refers to full year projection.
- Disbursements (As of September 30, 2014)
  - Table 4. Disbursement Performance (values preserved as in source)
    - A. Disbursements
      - 1 Projected ($ million)
        - With Program Loans 10.1 18.2 0.1 0.8
        - Without Program Loans 10.1 1.8 0.1 0.8
      - 2 Achieved ($ million)
        - With Program Loans 7.0 20.0 0.6 0.8
        - Without Program Loans 7.0 3.5 0.6 0.8
      - 3 Achieved (Percent)
        - With Program Loans 69.3 109.9 600.0 99.1
        - Without Program Loans 69.3 194.4 600.0 99.1
    - B. Disbursement Ratio (%)
      - With Program Loans 14.1 3.7 7.8 n/a
      - Without Program Loans 42.5 12.2 7.8 n/a
  - Note: Total disbursements in 2012 were high due to the ERP; since its closure, disbursements have declined. The disbursement ratio in 2013 was 7.8 percent both with and without program loans.
- Partnerships and cofinancing
  - Outer Island Sustainable Energy Development Project cofinancing resources $72 million: $50 million European Investment Bank, $12 million SREP, $10 million Islamic Development Bank.
  - By end-2013 cumulative direct value-added official cofinancing for Maldives: $14.2 million for four investment projects and $2.3 million for four technical assistance projects.
- Private sector operations
  - 2008 approvals: direct loan $7.5 million and equity investment $4.5 million in Housing Development Finance Corporation.
  - As of year-end 2013 cumulative approvals in 2 projects amounted to $16.5 million (including $4.5 million equity).
  - Total outstanding balances and undisbursed commitments to nonsovereign projects as of 31 December 2013: $5.7 million (0.1% of ADB’s total nonsovereign portfolio).
- Regional cooperation and studies
  - ADB-supported study: Regional Economics of Climate Change (RECCSA).
  - ADB-supported study on Indian Ocean Cargo and Passenger Ferry feasibility to connect Maldives with India (Tuticorin and Cochin) and Sri Lanka (Colombo).
  - Maldives became full member of SASEC in May 2014 (together with Sri Lanka).

### III. Statistical Issues (As of January 22, 2015)
- Assessment of data adequacy for surveillance
  - Overall: Category B — macroeconomic statistics have improved but significant data gaps remain in balance of payments, government finance, and national accounts statistics.
  - Main official publication: Statistical Yearbook of Maldives.
  - APD receives monthly electronic statistical report, Quarterly Economic Bulletin (QEB), and Annual Report (AR) of the Maldives Monetary Authority (MMA) albeit with lag.
- Real sector
  - National accounts: available only annually and with considerable lag; authorities working on quarterly GDP.
  - GDP estimates from production and expenditure approaches are inconsistent.
  - Base year for constant price estimates is 2003.
  - CPI rebased to June 2012=100; weights based on 2012 household income and expenditure survey.
- Fiscal sector
  - General government data reported in GFS Yearbook latest published data for 2011.
  - Monthly revenue and expenditure data available but reporting system is new and untested; weak consistency with below-the-line financing numbers.
  - Data on external debt require reconciliation; state enterprise operations data limited.
- Monetary sector
  - APD receives weekly electronic report on monetary statistics covering MMA and commercial banks.
  - Integrated monetary database completed and operational in 2010.
  - Inconsistencies between monetary and fiscal data on financing of fiscal deficit due to timing and coverage.
- External sector
  - MMA compiles balance of payments annually; coverage improved but limited in some areas.
  - Travel credits estimated from tourism GST receipts; withholding tax on services improved coverage of other services debits.
  - Inward FDI estimated via survey and administrative data.
  - Other private financial flows estimated using CPIS and BIS data but coverage needs improvement.
  - International investment position incomplete — private sector data not available.
  - Quarterly data on external debt and debt service available for government and monetary authority; no data for nonfinancial private sector.
  - STA TA mission planned in March 2015 to improve private financial flows, International Investment Position, and other items.
  - Official reserve assets reported weekly with variable one-week lag.
- Data standards and quality
  - Maldives has participated in GDDS since October 14, 2011.
  - No data ROSC available.
- Reporting to STA
  - Authorities report macroeconomic data to IMF regularly and generally timely for publication in the IFS, BOPSY, and GFSY.
- Table of Common Indicators Required for Surveillance (As of January 7, 2015) — selected entries preserved exactly
  - Exchange Rates — Date of Latest Observation 01/19/2015 — Date Received 01/20/2015 — Frequency of Data D — Frequency of Reporting D — Frequency of Publication D
  - International Reserve Assets and Reserve Liabilities of the Monetary Authorities — 01/19/2015 — 01/20/2015 — D — D — D
  - Reserve/Base Money — 01/15/2015 — 01/20/2015 — W — W — M
  - Broad Money — 01/15/2015 — 01/22/2015 — W — W — M
  - Central Bank Balance Sheet — 01/15/2015 — 01/22/2015 — W — W — M
  - Consolidated Balance Sheet of the Banking System — 01/15/2015 — 01/22/2015 — W — W — M
  - Interest Rates — 01/19/2015 — 01/20/2015 — W — W — M
  - Consumer Price Index — 11/30/2014 — 12/31/2014 — W — W — M
  - Revenue, Expenditure, Balance and Composition of Financing – General Government — 2013 — 11/30/2014 — A — M — M
  - GDP/GNP — 2013 — 11/30/2014 — A — M — M
  - Gross External Debt — 2013 — 11/30/2014 — A — M — M
  - International investment Position — 2013 — 12/31/2013 — A — A — A
  - Note 7 frequency codes: D Daily; W Weekly; M Monthly; Q Quarterly; A Annually; I Irregular; NA Not Available.

### IV. Debt Sustainability Analysis (Staff Report for the 2014 Article IV Consultation)
- Key findings
  - Public debt is already very high by international standards and without fiscal adjustment would be on an unsustainable path.
  - Total public and publicly guaranteed debt expected to have reached 74.6 percent of GDP in 2014 (excluding domestic arrears).
  - Public external debt is 27.7 percent of GDP (mainly with multilateral and bilateral creditors).
  - Under authorities’ current policies, public debt continues to rise to 104 percent of GDP in 2034.
  - Domestic financing reaches 76 percent of GDP in 2034 under baseline.
  - Maldives public debt problem is largely a domestic one.
- Risks and policy implications
  - Fiscal policy mistakes and shocks to tourism exports or foreign direct investment could trigger debt distress.
  - Staff proposes additional focus on expenditure restraint and public financial management reforms.
  - A further rise in Tourism Goods and Services Tax (TGST), together with expenditure restraint and PFM reforms, would place debt ratios on a sustainable path.
  - Maldives judged to face a moderate risk of external debt distress but a heightened overall risk of public debt distress driven largely by domestic debt vulnerabilities.
  - Potential additional risks to external debt if future financing relies more on external sources than currently assumed.
- Recent debt developments
  - Total public debt rose from around 36 percent of GDP in 2004 to 74.6 percent of GDP in 2014, excluding domestic arrears.
  - Increase initially reflected tsunami-related expenditure needs and more recently recurrent spending on wages, social welfare, and subsidies.
  - Public debt is held mainly by domestic banks, the Maldives Monetary Authority (MMA), and official multilateral and bilateral creditors.
  - The economy has relied heavily on issuance of treasury bills and monetization as well as external borrowing to finance deficits; buildup in domestic arrears estimated.
- Institutional and assessment notes
  - In 2011 Maldives classified as a medium performer by World Bank CPIA averaging 3.28 over 2011–13.
  - Indicative CPIA thresholds for medium performers shown in source (PV of debt to GDP 40 percent; debt to exports 150 percent; PV of debt to revenue 250 percent; debt service to exports 20 percent; debt service to revenue 20 percent) — thresholds applicable to PPG external debt only.
- Report metadata
  - Approved By Rachel Van Elkan and Catherine Pattillo (IMF) and Satu Kahkonen (IDA)
  - Prepared by the staffs of the International Monetary Fund (IMF) and the International Development Association (IDA) — January 27, 2015

*Source: _cr1568 - Appendix I. Maldives IMF-World Bank Joint Management Action Plan (selected content preserved exactly from the provided document).*

### 6.3 percent of GDP in 2013. The DSA baseline assumes

### _cr1568 - 6.3 percent of GDP in 2013. The DSA baseline assumes

### External debt and arrears
- Arrears stood at 6.3 percent of GDP in 2013. The DSA baseline assumes the authorities clear these arrears going forward over a period of five years.
- The stock of external debt in 2013 is substantially lower than previously projected but has been on a rising trajectory:
  - 2013 external debt estimated at 32 percent of GDP (down from 98 percent of GDP projected in the 2013 DSA).
  - PPG external debt is estimated at 27.6 percent in 2013 (down from 44 percent of GDP in the 2013 DSA).
  - Private external debt is estimated at 5 percent of GDP in 2013 (substantially lower than the projection of 53 percent in the previous DSA).
- Combined private external debt and total public debt are estimated at about $ 1.8 bn (67 percent of GDP) in 2013.
- Data caveats:
  - Revisions to external accounts reduced earlier estimates of the current account deficit and private external debt.
  - Data remain estimates and uncertain; with an open capital account and little reporting, private sector external debt data are subject to large errors and likely further revisions.

### Macroeconomic developments and revisions
- Revisions and recent developments:
  - Since the 2013 Article IV Staff Report, nominal GDP has been revised upwards: the authorities adopted market price GDP instead of gross value added at basic prices, raising the level of nominal GDP by 13 percent in 2013.
  - Official data now point to smaller current account deficits: 10.6 percent of GDP in 2012 and 6.5 percent of GDP in 2013.
  - A recovery in tourism is supporting real growth; Maldives is performing well compared to peers.
  - External debt estimates are lower; the large fiscal deficit has continued to widen following increases in recurrent spending.
- IMF staff view:
  - The primary deficit is projected to narrow but not sufficiently to bring debt ratios down.

### Baseline scenario and policy measures included
- The baseline scenario is built on current policies, including the Authorities 2015 Budget measures:
  - introduction of the green tax on tourism (replacing the bednights tax),
  - increases in import duties,
  - better targeting of subsidies,
  - a public employment freeze.
- The baseline does not include:
  - estimates for revenues from the Special Economic Zones (SEZs),
  - any compensation amount from the arbitration ruling over the airport concession.
- The baseline assumes the stabilized exchange rate regime holds.

### Key macroeconomic assumptions and projections
- Overall: baseline macroeconomic assumptions are a little stronger than the previous DSA; the baseline includes significant fiscal adjustment but the primary balance does not improve sufficiently to prevent a rising debt profile.
- Growth and output:
  - Short-run: fiscal adjustment has a mild negative effect on growth, slowing to 4–4¼ percent in 2016–17.
  - Medium/long-run: averages 4.5 percent over 2020–34, a slower pace than the average of the past ten years (around 6.5 percent).
  - Estimates of potential output growth are around 5 percent.
  - Tourism sector: recovery driven by expansion from new markets (especially China) and pick-up in core markets; new resorts and airport development could add capacity.
- Inflation:
  - GDP deflator inflation remains low over the next two years reflecting lower oil prices and weaker global commodity prices partly offset by higher import duties, then rises to around 3.5 percent.
- Current account (non-interest):
  - Substantial data revisions have reduced the current account deficit compared to the previous DSA.
  - The non interest current account deficit narrows in 2015 to 3.7 percent of GDP with lower oil prices and narrows a little to 3.4 percent of GDP in 2019 with improving tourist receipts and some restraint on import demand from planned fiscal adjustment.
  - Thereafter the current account deficit widens a little. Reserves levels strengthen by 2019.
- Fiscal balance:
  - The primary deficit (under the baseline) improves by 3.7 percentage points in 2015, significantly boosted by the temporary impact of bringing forward the timing of extension of resort licenses.
  - In 2016 revenues strengthen with the full year effect of higher import duties and the imposition of the green tax.
  - Further consolidation is expected thereafter from gradual expenditure restraint, lowering the primary deficit to around (text ends).

### Comparative 2013–2014 indicators (as presented)
- 20132014
  - Real growth 4.14.5
  - Inflation4.63.5
  - Current Account (non interest) 25.54
  - FDI 8.48.6
  - Primary Deficit 8.92.4

*Source: IMF staff Debt Sustainability Analysis and related macroeconomic assumptions as presented in the provided content unit.*

### 2.4 percent of GDP. But this is less than the stabilizing primary deficit (0.8 percent of GDP)

### _cr1568 - 2.4 percent of GDP. But this is less than the stabilizing primary deficit (0.8 percent of GDP)

### Fiscal outlook and public debt dynamics
- Current policies lead to rising public debt levels and further adjustment is needed to build buffers and reduce the risk of public debt distress.
- Under the baseline:
  - PV of public debt rises from 70 percent of GDP in 2014 to 99 percent of GDP in 2034.
  - Public debt already at a very high level; debt ratios continue to rise even if the measures in the 2015 Budget are effectively implemented.
- Primary balance and stabilizing targets:
  - The stabilizing primary deficit is noted as 0.8 percent of GDP.
  - Staff recommend a further fiscal adjustment effort of around 3 percent of GDP over five years.
- Vulnerabilities:
  - Domestic debt is highly vulnerable to shocks to the primary balance and to growth.
  - Shocks to public debt, fiscal slippage, or a lower growth trajectory can push debt onto an unsustainable path.
  - Even with sustained consolidation, Maldives would remain vulnerable for a number of years.

### Financing patterns and risks
- Recent financing composition:
  - Bulk of deficit financing has been met from domestic sources, in particular through the domestic banking system and the pension fund.
  - From mid 2014 the government replaced the auction system with a 'tap system' (of fixed interest rates) which lowered interest costs by about 200bp on average across maturities.
  - This temporarily stabilized interest cost on domestic debt.
- Market conditions and assumptions:
  - Demand for T-bills has been sustained by the banking sector amid weak lending conditions.
  - If debt rises, lower yields may not be sustained; with global interest rates expected to rise, Maldives yields are assumed to remain high over the forecast period.
  - In the DSA it is assumed that the bulk of financing is sourced domestically.
- Risks in financing mix:
  - As the debt ratio rises, domestic financing may not be sustainable and raising external financing may become difficult.
  - A shift toward greater external borrowing is an upside risk to the external DSA.

### External and public debt sustainability (DSA) findings
- External debt:
  - Baseline present value (PV) of external debt falls back a little to 26.7 percent of GDP.
  - External burden remains comfortably below thresholds under baseline.
  - Improvement partly reflects continued domestic financing assumption; a shift to external borrowing is an upside risk.
  - External debt path vulnerable to:
    - Export shocks.
    - Combined shock to exports, GDP growth, US dollar GDP deflator and non-debt creating flows.
    - Scenario where data revert to historical averages (larger current account deficit and weaker growth). In the historical averages scenario two thresholds would be breached and a third rises close to the threshold.
- Public debt:
  - Public debt breach of benchmark under baseline.
  - PV of public debt rises from 70 percent of GDP in 2014 to 99 percent of GDP in 2034.
  - Domestic debt vulnerable to primary balance and growth shocks; arrears buildup could worsen non-tourism activity.
- Risk ratings:
  - External risk rating: moderate risk of external debt distress (based on public external debt).
  - Overall risk of debt distress: heightened, reflecting significant vulnerabilities related to domestic debt.
  - Lowering of external-risk rating from high to moderate largely reflects data revisions and much lower private external debt stock due to significant net repayments of private external debt during 2011–13.

### Policy recommendations and adjustment scenarios
- Near-term fiscal policy:
  - Additional fiscal consolidation measures are needed in the near term.
  - Staff recommend an adjustment of around 3 percent of GDP over five years.
- Composition of recommended measures:
  - Greater expenditure restraint, with focus on:
    - Control of the wage bill.
    - Containing rising healthcare costs.
    - Finding savings on transport and communications.
  - Public financial management reforms and better expenditure control.
  - Revenue measures: a further rise in the TGST rate from 12 to 15 percent would also help to underpin revenues.
- Expected effect of recommended path:
  - Such an adjustment path would help to stabilize debt by 2016 and then begin to bring the debt ratio down.

### Authorities’ and Executive Board views
- Authorities’ views:
  - Authorities believed the 2015 Budget measures would deliver bigger savings and larger revenue increases than staff projected, especially from SEZs and resort licenses.
  - Expected public employment freeze to generate substantial savings on the wage bill, sufficient to bring debt ratios down without further revenue measures.
  - Concurred with external risk rating but judged shock risks lower than staff assessment.
- Executive Board assessment:
  - Welcomed pickup in the real economy and improvements in reserves and statistics.
  - Noted risks remain, particularly in the fiscal sector.
  - Emphasized need for durable fiscal adjustment with focus on expenditure restraint, improvements in public financial management, and addressing domestic arrears.
  - Supported avoiding monetization of the fiscal deficit and strengthening official reserves.
  - Recommended making greater use of market-based financing for government debt and strengthening financial supervision, including for institutions in SEZs.
  - Stressed strict ring-fencing of tax exemptions for special economic zones and efficient scaling up of infrastructure investment.

### Key macroeconomic and selected indicators (highlights preserved exactly as in source)
- Growth and inflation:
  - Real GDP growth: 5 percent in 2014; staff expects growth around 5 percent in 2015.
  - Inflation (CPI-Male): 1.1 percent in November 2014; period average 2.5 percent in 2014.
- External sector and reserves:
  - Current account deficit around 8.4 percent of GDP in 2014 (after revisions).
  - Gross official reserves risen to around $614mn (2.8 months imports) in 2014.
  - Lower oil prices improving current account and inflation outlook in 2015.
- Fiscal balances and debt (selected figures):
  - Fiscal deficit increased to an estimated 7.8 percent of GDP in 2013; likely widened further in 2014.
  - Sustained primary deficits led to public debt increase from 52 percent in 2009 to 75 percent of GDP in 2014.
  - Central government: Revenue and grants 32.4 percent of GDP in 2014 (projected), Expenditure and net lending 44.0 percent of GDP in 2014 (projected), Overall balance -11.6 percent of GDP in 2014 (projected).
  - Public and publicly guaranteed debt: 75.0 percent of GDP in 2014 (projected), 78.6 percent of GDP in 2015 (projected).
- Monetary and financial:
  - Credit growth subdued at 0.5 percent year on year to November 2014.
  - Broad money growth: 14.2 percent in 2014 (projected).
- Other specific DSA figures (baseline projections and assumptions preserved):
  - PV of external debt: 26.7 percent of GDP (baseline).
  - PV of PPG external debt (percent of GDP): 23.1 (2024–34 average shown in Table 1).
  - Debt service-to-exports ratio (in percent): 3.7 for 2019 (Table 1).
  - Primary deficit that stabilizes the debt-to-GDP ratio: 0.8 percent of GDP (Table 3 and text).
  - Staff-recommended fiscal adjustment: around 3 percent of GDP over five years.

*Source: IMF staff report and press release on the Maldives Article IV consultation (text and tables as provided).*

### 2009. At that time, the central government fiscal deficit was estimated at around 30 percent

### _cr1568 - 2009. At that time, the central government fiscal deficit was estimated at around 30 percent

### Fiscal Policy: recent consolidation and measures
- Central government fiscal deficit in 2009 was estimated at around 30 percent of GDP.
- Program interruption after the first review due mainly to staff uncertainty that authorities’ policies could deliver the envisaged reduction in the fiscal deficit.
- Achievements of the 2009 program objectives:
  - Raised sustainable budget revenues.
  - Reduced the overall and primary fiscal deficit.
  - Significantly raised international reserves.
- Primary fiscal deficit evolution (staff estimates vs. Ministry of Finance):
  - Reduced from 17 percent of GDP in 2009 to 5½ percent of GDP in 2013 (staff’s estimates).
  - Ministry of Finance preliminary estimate for 2013: 2½ percent.
- Revenue and fiscal measures implemented:
  - Introduction of a General Sales Tax in 2011, later broadened and rate increased.
  - New Business Profits Tax in July 2011.
  - Raised duties and some charges.
  - Introduction of universal health program and other social welfare contributions increased current spending and crowded out capital expenditures.
- 2015 Budget measures:
  - “Green tax” on tourists instead of bednights tax.
  - Raising import duties on some zero rated items.
  - New resorts licenses and land acquisition fees from the Special Economic Zones.
  - Public employment freeze.
  - Electricity and food subsidies cuts, with steps to improve targeting.
- Fiscal Responsibility Act (2013) target:
  - Limit public debt to 60 percent of GDP, down from current level of 75 percent of GDP.
- Authorities’ priorities and requests:
  - Review local government pay structures; consider a public pay body.
  - Strengthen public financial management; reduce government arrears; prevent further accumulation.
  - Request additional technical assistance from the Fund (fiscal chart of accounts and budget execution).
- Staff recommendation and assessment:
  - Staff suggests additional fiscal measures equivalent to 3 percent of GDP.
  - Authorities may out-perform staff’s fiscal projections as in the past.

### External Sector Assessment
- Authorities welcome staff’s revised external sector assessment.
- Current exchange rate regime viewed as suitable given high openness and seasonality of tourism revenues.
- Past exchange rate devaluations (latest 2011 experience) were unsuccessful due to rapid inflation pass-through offsetting nominal devaluation.
- Continuing fiscal improvement seen as best way to sustain exchange rate within current band.
- Authorities appreciate staff background work on foreign exchange market functioning and revised balance of payments estimates.
- Authorities have begun collecting more regular information on operations of exchange bureaus.
- Balance of payments revisions point to a considerably lower current account deficit than previously believed.

### Monetary and Financial Policies
- Maldives Monetary Authority (MMA) objectives: maintain price stability and adequate international reserves while promoting non-inflationary economic growth.
- Monetary conditions:
  - Monetary aggregates have been growing rapidly as MMA accumulates reserves.
  - Private sector credit growth remained subdued; banks cautious in extending new credit.
- Policy actions and stance:
  - Authorities consider reduction of minimum reserve requirement necessary given its unusually high level.
  - Policy stance eased in 2014 in response to macroeconomic conditions, including very low inflation.
  - MMA stopped monetizing the deficit since April 2014.
  - Monetary policy decisions have not been influenced by government finance considerations.
  - MMA continues to absorb liquidity through its overdraft facility and has temporarily stopped conducting Open Market Operations.
  - Steps considered to deepen and develop the Treasury bill market and introduce longer term instruments.
- Financial soundness:
  - Indicators continue to improve as strengthening of loan portfolios reflects a revival in tourism and construction sectors.

### Medium-term prospects and risks
- Authorities optimistic for medium-term growth pickup due to:
  - Development of the new airport.
  - Implementation of plans to improve infrastructure.
  - Investments in the Special Economic Zones.
- Priority to diversify economy beyond tourism and create employment opportunities.
- Plans intended to boost growth potential and build buffers against external shocks.
- Authorities recognize external vulnerabilities common to small open tourist-dependent states.
- Staff view: risks in the Matrix are plausible but appear over-stated; tourism sector has out-performed peers and Maldives has a broad spectrum of source countries and substantial unmet demand.

### Key statistics and data revisions (Table 1 excerpts)
- Real GDP growth - Jan 2013: 12.2 -3.6 7.1 7.0 3.5 3.8 4.0 4.1
- Real GDP growth - Jan 2015: 12.2 -3.6 7.1 6.5 1.3 4.7 5.0 5.0
- Old GDP (million of Rufiya) - 2013: 24,213 25,403 27,316 31,447 34,012 36,774 40,640 44,560
- New GDP (million of Rufiya) - 2015: 27,108 27,729 29,855 35,931 38,943 41,569 43,971 46,863
- CG Fiscal deficit in Rufiya mn - 2013: -2719 -5219 -4275 -3547 -4555 -5994 -5194 -5547
- CG Fiscal deficit in Rufiya mn - 2015: -2719 -5219 -4275 -2360 -2972 -3253 -5111 -3803
- CG Deficit as % GDP - Jan 2011: 17.1 -29.0 -17.9 -21.3 -18.8
- CG Deficit as % GDP - Jan 2013: -11.2 -20.5 -15.7 -11.3 -13.4 -16.3 -12.8 -12.4
- CG Deficit as % GDP - Jan 2015: -10.0 -18.8 -14.3 -6.6 -7.6 -7.8 -11.6 -8.1
- Primary balance as % GDP - Jan 2013: -10.1 -18.1 -13.2 -9.0 -10.7 -12.4 -9.0 -8.7
- Primary balance as % GDP - Jan 2015: -9.0 -16.6 -12.1 -4.5 -4.8 -5.3 -8.7 -4.6
- BoP Current account - in $ mn - Jan 2013: -612 -221 -197 -437 -585 -646 -700 -743
- BoP Current account - in $ mn - Jan 2015: -610 -226 -190 -423 -270 -176 -241 -152
- Current account as % of GDP - Jan 2013: -32.4 -11.1 -9.2 -20.5 -26.5 -27 -26.5 -25.7
- Current account as % of GDP - Jan 2015: -28.8 -10.4 -8.1 -18.11 -10.6 -6.5 -8.4 -5.0
- GDP $ - Jan 2013: 18921 98521 34213 22209 23882 63928 93
- GDP $ - Jan 2015: 21182 16623 32233 22534 26992 85530 43
- Total domestic public debt - Ruf mn - 2013: 5,036 7,972 10,175 12,220 14,218 15,590 17,899 20,268
- Total domestic public debt - 2015: 5,036 7,833 9,666 10,754 12,919 14,746 19,370 22,443
- External PPG debt ($mn) - 2013: 472 555 630 703 866 1,064 1,252 1,462
- External PPG debt ($mn) - 2015: 456 538 630 689 722 744 790 841
- Private external debt $ mn - 2013: 516 501 600 800 1,023 1,271 1,562 1,867
- Private external debt $ mn - 2015: 616 517 426 304 148 124 189 189
- Public + external private debt $ mn - 2013: 1,381 1,679 2,025 2,363 2,812 3,347 3,977 4,645
- Public + external private debt % of GDP - 2013: 73.0 84.6 94.9 110.8 127.3 140.2 150.7 160.5
- Public + external private debt $ mn - 2015: 1,466 1,667 1,812 1,691 1,709 1,826 2,238 2,487
- Public + external private debt % of GDP - 2015: 69.2 76.9 77.7 72.5 67.4 67.7 78.4 81.7

*Source: Table 1. Maldives--Staff's Data Revisions Since the Last Article IV Report (in Percent, Million Rufiya, Million $, or Percent of GDP as indicated).*

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