IMF Staff Completes 2017 Article IV Mission to Maldives
IMF News, July 17, 2017
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Bibliographic details
- Published: July 17, 2017
Mission summary
- Mission dates: visited Malé during July 5-18.
- Press release date: July 17, 2017.
- Team leader: Mr. Philippe Karam.
- Statement context: End-of-Mission press release conveying preliminary findings; staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision. The team’s report is tentatively scheduled to be considered by the IMF’s Executive Board in September 2017.
Growth, inflation, and medium-term outlook
- GDP growth projections:
- "projected to recover gradually to above 4.5 percent in 2017 and 2018."
- "projected to recover gradually to over 4.5 percent in 2017 and 2018 and stabilize at close to 5 percent over the medium term, on account of strong construction and tourism activity."
- Inflation: expected to be low (described as "low inflation").
- Drivers of growth: strong construction and tourism activity; large investments in housing, health, airport facilities and other infrastructure aimed at diversifying the economy.
Fiscal and external positions
- Fiscal position: described as "fragile" and "continued weak fiscal" with the fiscal deficit having widened in 2016; fiscal deficit is "projected to decline gradually in 2017 and over the medium term."
- External position:
- Current account deficit: "expected to increase significantly due to the infrastructure ramp up and higher material imports."
- Reserves: "to remain low."
- Real exchange rate: "to appreciate."
- Debt vulnerability: large infrastructure surge increases Maldives’ vulnerability arising from high public and external debt.
Risks
- External risks:
- Slower growth in the advanced economies that could affect tourism and undermine the weak external position.
- Climate risks:
- Maldives "remains highly vulnerable to adverse climate change."
- Recommendation for advance identification and easier access to disaster-related financing.
- Domestic risks:
- Large infrastructure scale up in the Greater Malé region increases vulnerability from high public and external debt, despite potential benefits (consolidating population, closing gaps in electricity, transportation, social services, promoting climate change adaptation, expanding tourism and employment).
Policy recommendations and priorities
- Overall focus: reduce large fiscal and external deficits, build foreign reserves, develop the financial sector, and enhance longer-term growth potential through structural reforms.
- Fiscal policy:
- Continue fiscal consolidation to restore sustainability.
- Support consolidation with further revenue and expenditure reforms.
- Note: government has implemented measures aimed at reducing spending, including subsidy reforms and wage and employment rationalization, and strengthened public financial management for better commitment control and cash management.
- Additional revenue-raising measures are needed to cover large scale-up costs.
- Monetary policy:
- "Monetary policy should be tightened to support the exchange rate peg from any pressures arising from government financing and balance of payments."
- Peg regime: described as appropriate given the small scale, high openness and dollarized nature of the economy.
- With greater tourism from Asia and potential increased financing from the region, "consideration could be given to an import-weighted currency composite in the future."
- Continue to strengthen stress testing and oversight capacity of the banking sector.
- Structural and sectoral policies:
- Support measures in investment, electricity generation, renewable energy, and waste management.
- Strengthen active labor market policies to promote investment in job skill training.
- Foster competition and promote economic diversification.
- Climate and disaster resilience:
- Integrate risk reduction and disaster response programs into the core budget, public investment planning, and a sound debt management framework.
- Make climate change adaptation part of an overall national development strategy to capitalize on infrastructure investment while managing fiscal risks.
Engagement and next steps
- Team met with: Minister of Finance and Treasury Mr. Ahmed Munawar; Governor of Maldives Monetary Authority Dr. Azeema Adam; the Economic Affairs and Public Finance Committees of the Majlis; Cabinet ministers and senior officials; banks; tourism operators; private sector representatives; and multilateral organizations.
- The team will prepare a report for IMF management approval and IMF Executive Board consideration (tentatively scheduled for September 2017).
Source: IMF Staff Completes 2017 Article IV Mission to Maldives, July 17, 2017.