IMF Executive Board Concludes 2022 Article IV Consultation with Maldives
IMF News, December 20, 2022
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- Published: December 20, 2022
Near-term macroeconomic recovery and outlook
- Real GDP growth recovered to 37 percent in 2021 from -33.5 percent in 2020, driven by tourism rebound.
- Staff projects Real GDP growth of 10.5 percent in 2022 and 6.6 percent in 2023; medium-term projections: 5.7 percent (2024), 6.5 percent (2025), 5.9 percent (2026), 5.5 percent (2027).
- Average headline inflation rose from 0.2 percent (y/y) in 2021 to 2.7 percent in July 2022; projections indicate inflation will reach 4.9 percent in 2023 before moderating (period-average inflation: 4.9 in 2023, 2.4 in 2024).
- Table highlights (selected series, annual percentage change or percent of GDP as indicated):
- Inflation (end-of-period) series: 0.5 (2018), 1.7 (2019), -2.0 (2020), 0.2 (2021), 7.0 (2022), 3.2 (2023), 2.0 (2024).
- GDP deflator: 3.1 (2018), -1.1 (2019), 0.4 (2020).
- Tourism receipts (in nonfactor services, net): 57.2 (2018), 56.4 (2019), 37.4 (2020), 66.7 (2021), 65.0 (2022), 62.2 (2023).
- Tourist arrivals (000'): 1,484 (2018), 1,703 (2019), 556 (2020), 1,322 (2021), 1,626 (2022), 1,709 (2023), 1,856 (2024), 2,126 (2025), 2,319 (2026), 2,499 (2027).
Fiscal developments, vulnerabilities, and projections
- Revenue and grants (percent of GDP): 27.2 (2018), 26.4 (2019), 26.6 (2020), 28.9 (2021), 29.6 (2022), 29.2 (2023), 28.8 (2024), 28.7 (2025).
- Expenditure and net lending (percent of GDP): 32.5 (2018), 33.0 (2019), 49.9 (2020), 40.9 (2021), 43.1 (2022), 39.5 (2023), 39.0 (2024), 34.7 (2025), 33.5 (2026), (2027 not listed for this series).
- Overall balance (percent of GDP): -5.3 (2018), -6.6 (2019), -23.5 (2020), -14.3 (2021), -9.9 (2022), -9.8 (2023), -5.9 (2024), -4.8 (2025), -4.3 (2026).
- Overall balance excluding grants (percent of GDP): -6.3 (2018), -7.9 (2019), -25.2 (2020), -15.6 (2021), -15.4 (2022), -11.4 (2023), -10.6 (2024), -5.4 (2025), -5.0 (2026).
- Primary balance (percent of GDP): -3.5 (2018), -20.7 (2019), -11.7 (2020), -11.0 (2021), -6.2 (2022), -6.1 (2023), -2.3 (2024), -1.3 (2025), -1.0 (2026).
- Financing (percent of GDP): total financing 5.3 (2018), 23.5 (2019), 14.3 (2020), 9.9 (2021), 9.8 (2022), 4.8 (2023), 4.3 (2024). Foreign financing: 1.1 (2018), 4.4 (2019), 2.8 (2020), 2.2 (2021), 1.9 (2022), 1.5 (2023), -0.2 (2024). Domestic financing 2/: -1.7 (2018), 19.2 (2019), 7.8 (2020), 11.4 (2021), 7.7 (2022), 7.9 (2023), 5.4 (2024), 3.3 (2025), 4.5 (2026).
- Public and publicly guaranteed debt (percent of GDP): 72.0 (2018), 78.8 (2019), 154.4 (2020), 124.3 (2021), 122.6 (2022), 117.5 (2023), 117.7 (2024), 112.9 (2025), 107.7 (2026), 103.2 (2027).
- Executive Board: Maldives is at a high risk of external debt distress and a high overall risk of debt distress; PPG debt-to-GDP declined from 154 percent in 2020 but is expected to remain high over the medium-term.
External sector, reserves, and risks
- Current account (percent of GDP): -28.4 (2018), -26.6 (2019), -35.5 (2020), -8.8 (2021), -16.5 (2022), -15.2 (2023), -13.8 (2024), -13.6 (2025), -9.7 (2026), -9.3 (2027).
- Exports (percent of GDP): 6.4 (2018), 5.6 (2019), 5.2 (2020), 5.1 (2021), 5.0 (2022).
- Imports (percent of GDP): -52.2 (2018), -49.2 (2019), -45.7 (2020), -46.0 (2021), -51.2 (2022), -50.0 (2023), -48.3 (2024), -45.3 (2025).
- Gross international reserves (in millions of US$; e.o.p.): 712 (2018), 754 (2019), 985 (2020), 806 (2021), 695 (2022), 582 (2023), 611 (2024), 591 (2025), 510 (2026), 697 (2027).
- Memorandum items:
- GDP (in millions of rufiyaa): 81,586 (2018), 86,259 (2019), 57,569 (2020), 80,192 (2021), 92,094 (2022), 103,002 (2023), 111,526 (2024), 121,113 (2025), 130,866 (2026), 140,884 (2027).
- GDP (in millions of U.S. dollars): 5,294 (2018), 5,598 (2019), 3,736 (2020), 5,204 (2021), 5,976 (2022), 6,684 (2023), 7,237 (2024), 7,859 (2025), 8,492 (2026), 9,142 (2027).
- Dollar shortages have persisted, evidenced by large spreads in the parallel foreign exchange market.
- Risks to the outlook are tilted to the downside: sharp global economic slowdown, high commodity prices, tighter global financial conditions; upside risk: resumption of tourist arrivals from China.
Financial sector and monetary policy concerns
- Banking system remains sound with strong buffers, but risks arise from the sovereign-bank nexus due to large bank exposure to the sovereign.
- Directors noted expiration of pandemic-related lending support schemes and urged vigilance to safeguard financial stability.
- Monetary policy recommendations and concerns:
- Maldives Monetary Authority (MMA) advances to the government should be gradually phased out to lower pressures on international reserves and prices.
- MMA should stand ready to further tighten monetary policy should inflationary pressures increase and/or the elevated parallel market premium widen further.
- Implementation of FX reforms was urged.
- Directors encouraged continued enhancements in the AML/CFT framework and looked forward to the planned FSAP to help prioritize financial sector reforms.
Policy recommendations and reform priorities
- Top priority: sustained fiscal consolidation relying on both expenditure rationalization and domestic revenue mobilization, supported by conservative debt management.
- Fiscal policy actions recommended:
- Rationalize capital spending and subsidies, while providing targeted assistance to the most vulnerable.
- Continue SOE reforms to reduce fiscal contingent liabilities.
- Swiftly implement approved tax reforms: General Goods and Services Tax (GST) and Tourism Goods and Services Tax (TGST).
- Develop a Medium-Term Revenue Strategy and pursue planned reforms of the Fiscal Responsibility Act.
- If downside risks materialize, reorient scarce fiscal resources toward targeted and temporary measures for the most vulnerable.
- External financing and reserves management:
- Anticipate rising external financing needs that will draw on thin reserve buffers and increase debt rollover risks.
- Climate and governance:
- Recognizing extreme vulnerability to climate change, Directors stressed the importance of investments in climate-resilient infrastructure to boost prospects for more inclusive and resilient growth.
- Significant financial support from the international community will be needed for climate adaptation.
- Directors supported continued Fund technical assistance to enhance public financial management and improve access to climate-related funds, and they stressed the need to further strengthen governance.
IMF Executive Board Concludes 2022 Article IV Consultation with Maldives — Press Release No. 22/449