IMF Staff Concludes Visit to the Maldives

IMF News, July 27, 2022

Source details

Mission leader: Mr. Tidiane Kinda.
Mission dates: June 21-29, 2022.
Press release date: July 26, 2022.
Statement clarifies: "The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion."
Media contact: PRESS OFFICER: Pemba Sherpa; Phone: +1 202 623-7100; Email: MEDIA@IMF.org

Tourism-led recovery driving economic momentum:
- As of end-June, total tourist arrivals in 2022 were only about 6 percent below the corresponding pre-pandemic level.
- Projected real GDP growth: 8.7 percent in 2022.
Inflation outlook:
- Inflation is projected to reach 3.1 percent in 2022, reflecting partial pass-through from higher global food and energy prices and increasing price subsidies, and spending pressures for the 2023 elections.
Risks to the outlook:
- Significant downside risks include an economic slowdown in key source markets for tourism and tighter global financial conditions.

Fiscal deficit dynamics:
- The fiscal deficit is expected to widen and remain in double digits in 2022, driven by sustained high infrastructure spending and emerging spending pressures from rising subsidies, increased interest costs, and reforms of the wage bill.
State-owned enterprises (SOEs):
- Continued support to SOEs, mostly through subsidies and capital contributions to repay debt contracted with sovereign guarantees, remains a key factor adding to fiscal vulnerabilities.
Policy implications:
- The ongoing recovery provides a window to secure fiscal and debt sustainability by raising domestic revenue and rationalizing public spending.

Debt and reserve position:
- While public and publicly guaranteed debt has declined from the pandemic peak, Maldives remains at a high risk of debt distress.
- International reserves are declining, reflecting high food and fuel prices and fiscal spending pressures.
Foreign exchange market conditions:
- Dollar shortages have persisted with significant spreads in the parallel foreign exchange market.
- Higher external financing costs are limiting options to tap international capital markets in the near term.

Fiscal and debt sustainability measures recommended:
- Raise domestic revenue.
- Rationalize public spending, in particular capital spending.
- Reduce the interest burden by limiting non-concessional borrowing.
- Reform subsidies while providing targeted assistance to the most vulnerable.
Authorities’ planned measures welcomed by IMF staff:
- Planned increase of the tourism tax from 12 to 16 percent in 2023.
- Planned increase of the domestic goods and services tax from 6 to 8 percent in 2023.
- Swift implementation of subsidy reform and reducing the dependence of SOEs on the central government budget would help reduce fiscal vulnerabilities.
Timing note:
- Considering increased external financing costs, swift implementation of these reforms will help lower fiscal financing needs and contain pressures on reserve buffers.

IMF staff thanked the authorities and counterparts for their hospitality and discussions and looks forward to continuing the dialogue during the upcoming 2022 Article IV consultation in September.

Press Release No. 22/276, IMF Staff Concludes Visit to the Maldives — July 26, 2022.