In its report, the mission noted that 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.
An International Monetary Fund (IMF) mission to Maldives to discuss the recent economic developments returned to Washington with concern over the need to reduce vulnerabilities and restore the sustainability of public finance and debt. It felt that a sustained fiscal consolidation is needed, accompanied by tighter monetary and macroprudential policies.
In a statement, the leader of the mission, Piyaporn Sodsriwiboon, said that, “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.”
In its report, the mission noted that 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.
It said, “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.”
The provisional findings published after IMF concluded its visit to the Maldives states that the Maldivian economy expanded by 13.9 per cent in 2022 and is estimated to grow by 4.4 percent in 2023. It further states that growth is projected at 5.2 percent in 2024, owing to the expectation of increased tourist arrivals.
During the week, Maldives President Mohamed Muizzu had expressed his government’s inability to launch any new development projects due to the debt situation in the country. He had said that he did not want to mislead the public about the economic situation that his administration “inherited”.
Ambitious homegrown fiscal reform agenda
However, the IMF emphasized the risks and uncertainty involved, urging swift policy adjustments to address this.
“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 statement reads.
Welcoming the discontinuing of the use of the Maldives Monetary Authority (MMA) advances, the mission statement said that monetary and macroprudential policies need to be tightened to ensure compatibility with the exchange rate peg, while encompassing fiscal-monetary policy coordination.
The mission noted the need for swift implementation of a strong and credible form of fiscal consolidation, comprising holistic expenditure rationalization and domestic revenue mobilization in the light of “limited policy space and growing balance of payments pressures.”
This would require broader financial reforms, as the mission report document says, “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,” it says.
In this regard, it welcomed the steps taken by the authorities 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.
On the larger environmental front, the report reads, “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.”
