Maldives: 2012 Article IV Consultation—Public Information Notice; Staff Report; and Statement by the Executive Director for Maldives

IMF Staff Country Reports, September 3, 2019

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Canonical URL: Maldives: 2012 Article IV Consultation—Public Information Notice; Staff Report; and Statement by the Executive Director for Maldives

Consultation year: 2012 (document published/posted: September 3, 2019).
Core assessment: fiscal position is weak, and external reserves are critically low.
Historical context: the country has a long history of fiscal and external imbalances.
Policy posture: Macroeconomic policies need adjustment; authorities took important steps in the 2013 budget to reduce the fiscal deficit, but further consolidation is required to ensure debt sustainability and strengthen the balance of payments.

Fiscal position described as weak.
External reserves described as critically low.
Long-standing fiscal and external imbalance in the Maldives economy.
The rufiyaa is assessed as currently overvalued.
Monetary stance: recommendation that monetary tightening would help prevent the need for a further devaluation.
Financial supervision weakness highlighted, particularly with regard to the state bank.

Further fiscal consolidation is needed to:
- ensure debt sustainability, and
- strengthen the balance of payments.
Exchange rate and trade policy:
- Devaluation recommended to address rufiyaa overvaluation and help curb imports.
- Devaluation should be combined with a restrictive incomes and subsidy policy.
Monetary policy:
- Monetary tightening recommended to reduce pressure for further devaluation.
Financial sector:
- Strengthen financial supervision, with particular attention to the state bank.
Engagement modality:
- Given the track record, a Staff Monitored Program could be the appropriate starting point for renewed engagement.
- Preconditions for discussions: a clear commitment by the authorities to implement a comprehensive set of policy adjustments.

Subjects: Economic sectors, Expenditure, External debt, Fiscal policy, Imports, International trade, Tourism.
Keywords as provided: CR, deficit, devaluation, dollar, East Asia, Europe, exchange rate, financing climate, Global, Imports, ISCR, Maldives economy, MMA liability, South Asia, targeted social assistance scheme, Tourism, wage growth.