IMF Executive Board Concludes 2021 Article IV Consultation with Maldives

October 7, 2021

Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] with Maldives.

The economy is recovering after an unprecedented pandemic-induced fall in tourism. Real GDP contracted by 32 percent in 2020. The authorities deployed a prompt and comprehensive set of policy responses starting early 2020 that have helped to partially mitigate the socio-economic impact of the pandemic and maintain financial stability. These measures were complemented with a rapid rollout of the COVID-19 vaccination program. Low aggregate demand, low oil prices, and price subsidies on utilities put inflation at -1.6 percent in 2020. A moderate economic recovery started with the reopening of the country to tourism since mid-July 2020, while both a longer than initially expected global pandemic and an ambitious infrastructure plan are further contributing to large pre-pandemic fiscal and external vulnerabilities.

The strong but still partial recovery in tourism has improved the growth outlook. Growth is projected at about 19 percent in 2021, and medium-term prospects remain positive. Inflation is projected at 1.4 percent in 2021 and to increase to 2.3 in 2022 on the back of higher commodity and food prices. Nonetheless, fiscal and external positions are projected to remain weak over the medium term, underpinned by capital expenditure plans. The Maldives remains at a high risk of external debt distress and a high overall risk of debt distress. The total public and publicly guaranteed (PPG) debt-to-GDP ratio increased from 78 percent in 2019 to 146 percent in 2020, reflecting mostly the contraction in nominal GDP, but also an expansion in nominal debt. PPG debt is projected at 123 percent of GDP in 2026. External financing needs have been large and dollar shortages have persisted, as reflected in large spreads in the parallel foreign exchange market. The recent USD 200 million Sukuk bond issuance on September 3, 2021 covers unsecured financing needs for 2021. The risks to the outlook are tilted to the downside with COVID-19 variants increasing the possibility of a protracted global pandemic, expenditure and policy pressures related to the 2023 presidential electoral cycle, and the uncertainty of vaccine coverage in many source tourism economies.

Executive Board Assessment [2]

Executive Directors noted that the pandemic has hit the Maldives hard and welcomed the authorities’ prompt response to the pandemic as well as the rapid rollout of the COVID-19 vaccination program, which helped save lives and alleviate the impact of the crisis on households and businesses. However, Directors noted that risks to the outlook are substantial. They called for prudent and well-coordinated fiscal and monetary policies to safeguard macroeconomic stability, restore debt sustainability and sustain the current exchange rate peg, while supporting sustainable growth.

Directors stressed the importance of ensuring fiscal and debt sustainability over the medium term. They noted that a combination of revenue and expenditure measures is needed to achieve a growth‑friendly fiscal consolidation. In this context, Directors emphasized the need to mobilize revenue and diversify the tax base toward domestic sources once the current crisis abates. They recommended rationalizing capital spending plans, further controlling current spending, and containing external and domestic borrowing. Directors cautioned against central bank financing of the government and encouraged developing a comprehensive debt management strategy, coupled with public financial management reforms, to manage the risks from large infrastructure projects and state-owned enterprises. They also saw the need to develop contingency plans in case downside risks materialize.

Directors agreed that a tighter monetary policy stance may be needed to ensure compatibility with the exchange rate peg, lower external imbalances and build‑up reserves. They supported the Maldives Monetary Authority’s ongoing efforts to modernize monetary policy and the foreign exchange operations framework, including those aimed at eliminating exchange rate restrictions and multiple currency practices.

Directors welcomed the steps to safeguard financial stability and encouraged further efforts to strengthen bank supervision, governance, transparency, and the AML/CFT framework. They welcomed that the Maldives has undertaken a Fiscal Transparency Evaluation mission and commended the authorities for their continued collaboration during capacity development activities.

Directors underscored the importance of addressing climate change-related vulnerabilities. In this regard, they welcomed the Strategic Action Plan, which sets goals on the blue economy, climate resilience and sustainability, and good governance, and their links to the sustainable development goals. However, Directors agreed with the authorities on the need to secure grants and concessional financing to address climate resilient investment needs in a sustainable manner given limited fiscal resources.


Maldives: Selected Economic Indicators, 2017–2026 1/

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

Prel.

Proj.

Output and prices

(Annual percentage change)

Real GDP

7.2

8.1

7.0

-32.0

18.9

13.2

12.1

6.1

5.4

5.4

Inflation (end-of-period) 2/

2.2

0.5

1.7

-2.0

2.9

1.1

2.0

2.0

2.0

2.0

Inflation (period average) 2/

2.3

1.4

1.3

-1.6

1.4

2.3

1.9

1.8

2.0

2.0

GDP deflator

1.4

3.1

-0.5

-2.4

2.9

2.3

1.9

1.8

2.0

2.0

Central government finances

(In percent of GDP)

Revenue and grants

27.7

27.2

26.4

27.2

27.9

28.4

28.0

27.9

27.3

27.2

Expenditure and net lending

30.8

32.5

33.0

50.0

46.0

41.2

37.2

35.1

33.9

34.3

Overall balance

-3.1

-5.3

-6.6

-22.7

-18.1

-12.8

-9.1

-7.3

-6.6

-7.1

Overall balance excl. grants

-3.5

-6.3

-7.9

-25.2

-20.2

-15.5

-11.4

-8.7

-7.5

-7.8

Financing

3.1

5.3

6.6

22.7

18.1

12.8

9.1

7.3

6.6

7.1

Foreign

4.2

7.0

1.1

3.5

7.1

4.8

6.1

3.5

4.1

-3.1

Domestic 3/

-1.1

-1.7

5.5

19.2

7.2

5.2

3.0

3.8

2.6

7.3

Unsecured financing 4/

…

…

…

…

3.7

2.8

…

…

…

2.9

Primary balance

-1.6

-3.5

-4.8

-20.0

-14.2

-9.0

-5.7

-3.9

-3.3

-4.0

Public and publicly guaranteed debt

64.6

72.0

78.3

146.0

137.2

133.3

128.2

128.4

126.8

122.9

Monetary accounts

(Annual percentage change)

Broad money

5.2

3.4

9.6

14.2

10.7

9.0

9.1

8.0

7.6

7.5

Domestic credit

1.7

5.2

5.6

35.6

11.2

8.5

6.0

6.2

5.9

7.7

Balance of payments

(In percent of GDP, unless otherwise indicated)

Current account

-21.6

-28.4

-26.5

-29.9

-15.9

-13.9

-8.9

-9.0

-8.6

-8.1

Of which:

Exports

6.7

6.4

6.4

6.9

6.7

6.4

5.9

5.4

5.3

5.3

Imports

-46.9

-52.2

-48.9

-45.7

-47.2

-43.7

-39.3

-39.5

-39.8

-40.2

Tourism receipts (in nonfactor services, net)

57.8

57.2

56.1

37.4

59.4

61.4

63.1

65.5

66.4

67.8

Income (net)

-7.9

-9.3

-9.9

-7.6

-9.7

-8.9

-8.6

-8.7

-8.6

-8.4

Current transfers

-9.9

-9.3

-10.3

-5.0

-3.4

-7.3

-7.7

-7.4

-7.7

-7.6

Capital and financial account (including e&o)

24.2

30.8

27.2

35.3

4.8

14.7

15.9

13.2

12.1

4.5

Of which:

General government, net

7.0

3.0

1.9

3.9

5.4

5.6

7.0

4.6

3.7

-3.4

Banks and other sectors, net

-7.5

17.0

3.9

15.3

0.7

1.1

0.9

0.6

0.5

0.5

Overall balance

2.5

2.4

0.7

5.4

-11.1

0.9

7.0

4.2

3.5

-3.6

Gross international reserves (in millions of US$; e.o.p.)

587

712

754

985

508

553

976

1,251

1,496

1,220

In months of GNFS imports

1.7

2.1

3.7

3.7

1.7

1.8

2.8

3.3

3.6

2.8

Exchange rate (rufyiaa/US$, e.o.p.)

15.41

15.41

15.41

15.41

…

…

…

…

…

…

Memorandum items:

GDP (in millions of rufiyaa)

73,155

81,568

86,788

57,603

70,478

81,608

93,219

100,676

108,280

116,392

GDP (in millions of U.S. dollars)

4,747

5,293

5,632

3,738

4,573

5,296

6,049

6,533

7,027

7,553

Tourism bednights (000')

8,596

9,477

10,689

4,500

8,500

10,179

11,957

13,394

14,613

15,872

Tourist arrivals (000')

1,386

1,484

1,703

555

1,000

1,434

1,960

2,196

2,396

2,602

Tourism bednights (% change)

10.6

10.2

12.8

-57.9

88.9

19.8

17.5

12.0

9.1

8.6

Tourist arrivals (% change)

7.8

7.1

14.7

-67.4

80.0

43.4

36.7

12.0

9.1

8.6

Dollarization ratio (FC deposits in percent of broad money)

48.7

48.8

52.9

45.8

…

…

…

…

…

…

Sources: Maldivian authorities and IMF staff projections.

1/ Based on data as of July 30, 2021 and does not include the USD 200 million Sukuk bond issuance on September 3, 2021.

2/ CPI-Male definition.

3/ Domestic financing includes MMA advances, SDF contribution and India’s USD 250 million bond from the State Bank of India branch in Male.

4/ Unsecured financing includes planned new issuances of Sukuk, green and blue bonds.


[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .

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