Maldives: Financial Sector Assessment Program-Technical Note on Macroprudential Policy

IMF Staff Country Reports, January 19, 2024

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Maldives: Financial Sector Assessment Program-Technical Note on Macroprudential Policy

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Bibliographic details

• Published: January 19, 2024
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400266430.002

Key findings

• Creation of a macroprudential committee with a clear mandate and decision-making powers is recommended.
• The committee should rely on a well-resourced financial stability unit to act as a secretariat and provide data-driven recommendations.
• The Maldives Monetary Authority (MMA) needs to develop a set of early warning indicators and further develop its macroprudential toolkit.
• A comprehensive dashboard of both broad-based and sectoral indicators would help monitor systemic risks.
• Indicators to consider for implementation include credit, real-estate development, corporate performance, and household indebtedness.
• Introduction of several key macroprudential instruments would help prevent the emergence of systemic risk.
• MMA should follow through on its plan to introduce two household-related instruments.
• The Financial Sector Assessment Program team recommends developing additional instruments to:
  • safeguard bank liquidity, and
  • reduce the currency mismatch of banks,

as well as adopt other instruments recommended by the Basel Committee on Banking Supervision.

Policy recommendations

• Establish a macroprudential committee with explicit mandate and decision-making authority.
• Resource and staff a financial stability unit to serve as the committee’s secretariat and to prepare data-driven policy recommendations.
• Create and maintain a comprehensive dashboard combining broad-based and sectoral early warning indicators.
• Implement household-related macroprudential instruments as planned by MMA.
• Develop liquidity-focused macroprudential instruments to safeguard bank liquidity.
• Introduce measures to reduce banks’ currency mismatch consistent with Basel Committee recommendations.
• Expand MMA’s overall macroprudential toolkit in line with international best practices.

Suggested indicators and monitoring

• Broad-based indicators:
  • Credit indicators
  • Real-estate development indicators
  • Corporate performance indicators
  • Household indebtedness indicators
• Sectoral indicators: (to be included in the comprehensive dashboard alongside broad-based indicators)

Implementation priorities and sequencing

• Immediate: Establish committee, staff the financial stability unit, and begin producing data-driven recommendations.
• Near-term: Create the dashboard and a set of early warning indicators.
• Short- to medium-term: Introduce the two planned household-related instruments.
• Medium-term: Develop liquidity protection instruments and measures to reduce currency mismatch; adopt additional Basel Committee–recommended instruments.

International Monetary Fund. Maldives: Financial Sector Assessment Program-Technical Note on Macroprudential Policy, January 19, 2024.

Content in this bundle

• IMF FSAP Technical Note — Maldives
  • IMF FSAP Technical Note — Maldives (Markdown version)
  • IMF FSAP Technical Note — Maldives (PDF)