- The Maldives' post pandemic growth has been strong, but recently normalized. Growth is projected at 5.2 percent in 2024, as tourist arrivals are expected to rise further. Nevertheless, fiscal and external vulnerabilities have increased, calling for urgent policy adjustment.
- A sustained fiscal consolidation, accompanied by tighter monetary and macroprudential policies, is needed to reduce vulnerabilities and restore the sustainability of public finance and debt. In this regard, the authorities are taking a welcome step to develop an ambitious and homegrown fiscal reform agenda and committed to urgently implement this.
- Given the Maldives' climate vulnerabilities, strengthening institutions to support climate adaptation and mitigation efforts will help enabling access to additional climate financing and delivering on the climate pledges. Looking ahead, improving the business climate, strengthening governance, and enhancing skill developments will also support strong, inclusive, and sustainable growth.
Washington, DC: An International Monetary Fund (IMF) mission, led by Ms. Piyaporn Sodsriwiboon, visited Malé during January 23 – February 6, 2024, to discuss recent economic developments, the outlook, and the country's policy priorities in the context of the 2024 Article IV consultation.
At the end of the mission, Ms. Sodsriwiboon issued the following statement:
"Following the pandemic-induced contraction, the Maldivian economy expanded by 13.9 percent in 2022 and is estimated to grow by 4.4 percent in 2023. As tourist arrivals are expected to rise further, growth is projected at 5.2 percent in 2024. The Velana airport terminal expansion and associated increase in hotel accommodation capacities is projected to boost growth potential. Nevertheless, uncertainty surrounding the outlook remains high and risks are tilted to the downside, calling for urgent policy adjustment.
"Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated, and the Maldives remains at high risk of external and overall debt distress. Amid elevated fuel prices coupled with continued strong import demands, the current account deficit in 2024 is projected to remain large, albeit gradually narrowing over the medium term. The Maldives is highly vulnerable to climate change risks, with potentially severe economic costs due to floods and rising sea level.
"With limited policy space and growing balance of payments pressures, swift implementation of a strong and credible form of fiscal consolidation, comprising holistic expenditure rationalization and domestic revenue mobilization, is needed. Reforming the state-owned enterprises (SOEs) is also warranted to reduce additional fiscal burdens. Strengthening fiscal institutions and public financial and debt management frameworks is critical to enhance the credibility and effectiveness of fiscal policy. In this regard, the authorities are taking a welcome step to develop an ambitious and homegrown fiscal reform agenda, including subsidy reforms that phase out existing subsidies and replace them with targeted direct income transfers, Aasandha—healthcare reform, reprioritization and rationalization of public sector investment program (PSIP), and SOE reforms, and committed to urgently implement this.
"Monetary policy, in concertation with other policy levers, can contribute more effectively to addressing macroeconomic vulnerabilities. Discontinuing use of the Maldives Monetary Authority (MMA) advances is a welcome first step. Monetary and macroprudential policies need to be tightened to ensure compatibility with the exchange rate peg, while encompassing fiscal-monetary policy coordination. Together with enhancing financial sector oversight and crisis management, the financial safety net needs to be strengthened.
"Given the Maldives' vulnerabilities to climate change and natural disasters, strengthening institutions to support climate adaptation and mitigation efforts will help enabling access to additional climate financing and delivering on the climate pledges. Looking ahead, improving the business climate, strengthening governance, and enhancing skill developments will also support strong, inclusive, and sustainable growth.
"The IMF team is grateful to the Maldivian authorities and other stakeholders for their hospitality and candid discussions. The team held meetings with Finance Minister Mohamed Shafeeq, Governor Ali Hashim, and other senior government and MMA officials. The team also met with representatives from the private sector, bilateral donors, and development partners."
