## IMF Executive Board Concludes 2021 Article IV Consultation with Maldives

_IMF News, October 7, 2021_

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## Bibliographic details
- Published: October 7, 2021

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### Recent pandemic impact and policy response
- Real GDP contracted by 32 percent in 2020 due to an unprecedented pandemic-induced fall in tourism.
- Authorities deployed a prompt and comprehensive set of policy responses starting early 2020 that helped partially mitigate socio-economic impact and maintain financial stability.
- Rapid rollout of the COVID-19 vaccination program contributed to saving lives and alleviating impacts on households and businesses.
- Low aggregate demand, low oil prices, and price subsidies on utilities put inflation at -1.6 percent in 2020.
- The country reopened to tourism since mid-July 2020, initiating a moderate economic recovery.

### Growth outlook and inflation projections
- Growth is projected at about 19 percent in 2021.
- Medium-term prospects remain positive with projected growth path:
  - Real GDP: 18.9 (2021), 13.2 (2022), 12.1 (2023), 6.1 (2024), 5.4 (2025), — (2026 entry blank in table)
- Inflation projections:
  - Inflation (period average): 1.9 (2021), 1.8 (2022)
  - Inflation (end-of-period): 2.9 (2021), 1.1 (2022), 2.0 (2023)
- Inflation expected to increase to 2.3 in 2022 on the back of higher commodity and food prices (text statement).

### Fiscal position, public debt, and financing needs
- The total public and publicly guaranteed (PPG) debt-to-GDP ratio increased from 78 percent in 2019 to 146 percent in 2020.
- PPG debt is projected at 123 percent of GDP in 2026 (text statement).
- Central government fiscal indicators (In percent of GDP):
  - Revenue and grants: 27.9 (2020), 28.4 (2021), 28.0 (2022), 27.3 (2023)
  - Expenditure and net lending: 50.0 (2020), 46.0 (2021), 41.2 (2022), 37.2 (2023), 35.1 (2024), 33.9 (2025), 34.3 (2026)
  - Overall balance: -22.7 (2020), -18.1 (2021), -12.8 (2022), -9.1 (2023), -7.3 (2024), -7.1 (2025), — (2026 entry blank in table)
  - Overall balance excl. grants: -25.2 (2020), -20.2 (2021), -15.5 (2022), -11.4 (2023), -8.7 (2024), -7.5 (2025), -7.8 (2026)
  - Financing: 22.7 (2019), 18.1 (2020), 12.8 (2021), 9.1 (2022), 7.3 (2023), 7.1 (2024), 7.0? (table entries not all present)
  - Foreign financing: 4.2 (2017), 3.5 (2018), 4.8 (2019), 4.1 (2020)
  - Domestic financing: -1.1 (2017), -1.7 (2018), 5.5 (2019), 19.2 (2020), 5.2 (2021), 3.0 (2022), 3.8 (2023), 2.6 (2024)
  - Unsecured financing: 3.7 (2021), 2.8 (2022) [table note 4 indicates Unsecured financing includes planned new issuances of Sukuk, green and blue bonds]
  - Primary balance: -4.8 (2017), -20.0 (2020), -14.2 (2021), -9.0 (2022), -5.7 (2023), -3.9 (2024), -3.3 (2025), -4.0 (2026)
- External financing needs have been large and dollar shortages have persisted, reflected in large spreads in the parallel foreign exchange market.
- Recent USD 200 million Sukuk bond issuance on September 3, 2021 covers unsecured financing needs for 2021 (text statement).
- Staff note: table based on data as of July 30, 2021 and does not include the USD 200 million Sukuk bond issuance on September 3, 2021 (table footnote 1).

### Debt distress assessment and risks
- Maldives remains at a high risk of external debt distress and a high overall risk of debt distress.
- Drivers of elevated debt metrics include contraction in nominal GDP and expansion in nominal debt in 2020.
- Risks to the outlook are tilted to the downside:
  - COVID-19 variants increasing possibility of a protracted global pandemic.
  - Expenditure and policy pressures related to the 2023 presidential electoral cycle.
  - Uncertainty of vaccine coverage in many source tourism economies.
  - Ambitious infrastructure plan contributing to large pre-pandemic fiscal and external vulnerabilities.

### Executive Board assessment and recommendations
- Directors welcomed authorities’ prompt pandemic response and rapid vaccination rollout.
- Directors called for prudent and well-coordinated fiscal and monetary policies to:
  - Safeguard macroeconomic stability.
  - Restore debt sustainability.
  - Sustain the current exchange rate peg while supporting sustainable growth.
- Fiscal and debt sustainability measures emphasized:
  - Combination of revenue and expenditure measures to achieve a growth‑friendly fiscal consolidation.
  - Mobilize revenue and diversify the tax base toward domestic sources once the crisis abates.
  - Rationalize capital spending plans, further control current spending, and contain external and domestic borrowing.
  - Caution against central bank financing of the government.
  - Develop a comprehensive debt management strategy, coupled with public financial management reforms, to manage risks from large infrastructure projects and state-owned enterprises.
  - Develop contingency plans in case downside risks materialize.
- Monetary policy and exchange rate:
  - Directors agreed a tighter monetary policy stance may be needed to ensure compatibility with the exchange rate peg, lower external imbalances and build‑up reserves.
  - Support for Maldives Monetary Authority’s efforts to modernize monetary policy and the foreign exchange operations framework, including steps aimed at eliminating exchange rate restrictions and multiple currency practices.
- Financial sector and governance:
  - Directors welcomed steps to safeguard financial stability and encouraged further efforts to strengthen bank supervision, governance, transparency, and the AML/CFT framework.
  - Directors welcomed that Maldives has undertaken a Fiscal Transparency Evaluation mission and commended authorities for collaboration during capacity development activities.
- Climate change and sustainability:
  - Directors underscored importance of addressing climate change-related vulnerabilities.
  - Welcomed the Strategic Action Plan on the blue economy, climate resilience and sustainability, and good governance, and noted need to secure grants and concessional financing to address climate resilient investment needs given limited fiscal resources.

### Key macroeconomic and external indicators (selected table entries)
- Real GDP (annual percent change): 7.2 (2017), 8.1 (2018), 7.0 (2019), -32.0 (2020), 18.9 (2021), 13.2 (2022), 12.1 (2023), 6.1 (2024), 5.4 (2025)
- Inflation (period average, CPI-Male): 2.3 (2017), 1.4 (2018), 1.3 (2019), -1.6 (2020), 1.9 (2021), 1.8 (2022)
- Public and publicly guaranteed debt (percent of GDP): 64.6 (2017), 72.0 (2018), 78.3 (2019), 146.0 (2020), 137.2 (2021), 133.3 (2022), 128.2 (2023), 128.4 (2024), 126.8 (2025), 122.9 (2026)
- Current account (percent of GDP): -21.6 (2017), -28.4 (2018), -26.5 (2019), -29.9 (2020), -15.9 (2021), -13.9 (2022), -8.9 (2023), -8.6 (2024), -8.1 (2025)
- Tourism receipts (in nonfactor services, net, percent of GDP): 57.8 (2017), 57.2 (2018), 56.1 (2019), 37.4 (2020), 59.4 (2021), 61.4 (2022), 63.1 (2023), 65.5 (2024), 66.4 (2025), 67.8 (2026)
- Gross international reserves (in millions of US$, e.o.p.): 587 (2017), 712 (2018), 754 (2019), 985 (2020), 508 (2021), 553 (2022), 976 (2023), 1,251 (2024), 1,496 (2025), 1,220 (2026)
- GDP (in millions of rufiyaa): 73,155 (2017), 81,568 (2018), 86,788 (2019), 57,603 (2020), 70,478 (2021), 81,608 (2022), 93,219 (2023), 100,676 (2024), 108,280 (2025), 116,392 (2026)
- GDP (in millions of U.S. dollars): 4,747 (2017), 5,293 (2018), 5,632 (2019), 3,738 (2020), 4,573 (2021), 5,296 (2022), 6,049 (2023), 6,533 (2024), 7,027 (2025), 7,553 (2026)
- Tourism bednights (000'): 8,596 (2017), 9,477 (2018), 10,689 (2019), 4,500 (2020), 8,500 (2021), 10,179 (2022), 11,957 (2023), 13,394 (2024), 14,613 (2025), 15,872 (2026)
- Tourist arrivals (000'): 1,386 (2017), 1,484 (2018), 1,703 (2019), 555 (2020), 1,000 (2021), 1,434 (2022), 1,960 (2023), 2,196 (2024), 2,396 (2025), 2,602 (2026)
- Tourism bednights (% change): 10.6 (2017), 10.2 (2018), -57.9 (2020), 88.9 (2021), 19.8 (2022), 17.5 (2023), 12.0 (2024), 8.6 (2025)
- Tourist arrivals (% change): 7.8 (2017), -67.4 (2020), 80.0 (2021), 43.4 (2022), 36.7 (2023)
- Dollarization ratio (FC deposits in percent of broad money): 48.7 (2017), 48.8 (2018), 52.9 (2019), 45.8 (2020)

*IMF Executive Board Concludes 2021 Article IV Consultation with Maldives. Press Release No. 21/287 (October 7, 2021).*

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