IMF Cautions Maldives on Slowdown After Positive Post-Pandemic Growth, Urges Implementation of Proposed Fiscal Reforms
The Maldives’ post pandemic growth has been strong, but recently normalised, with growth in 2024 projected at 5.2 percent even as tourist arrivals are expected to rise further, the International Monetary Fund noted after a mission to Maldives to discuss recent economic developments, the current outlook, and the country’s policy priorities.
The IMF mission, which visited Maldives between 23 January and 6 February and was led by Piyaporn Sodsriwiboon, also highlighted that fiscal and external vulnerabilities have increased and called on the administration to implement urgent policy adjustments.
“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,” Sodsriwiboon said in a press statement at the conclusion of the IMF mission.
While authorities are taking a welcome step to develop an ambitious and homegrown fiscal reform agenda and are committed to urgently implement it, a sustained fiscal consolidation, accompanied by tighter monetary and macro-prudential policies—with a view to safeguard financial stability—is needed to reduce vulnerabilities and restore the sustainability of public finance and debt, the international financial organisation noted.
The IMF recommended reforming state-owned enterprises (SOEs) so as to reduce additional fiscal burdens and called on the authorities to strengthen fiscal institutions and public financial as well as debt management frameworks so as to enhance the credibility and effectiveness of fiscal policy. The IMF welcomed proposed reforms such as subsidy reforms that phase out existing subsidies, replacing them with targeted direct income transfers; Aasandha—healthcare reform; reprioritising and rationalising the public sector investment program (PSIP); and SOE reforms.
The global financial institution went on to commend the Maldives for discontinuing use of the MMA advances, calling it a ‘welcome first step.’
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, the IMF noted.
“… 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,” Sodsriwiboon cautioned.
Looking ahead, improving the business climate, strengthening governance, and enhancing skill developments will also support strong, inclusive, and sustainable growth, the IMF observed.
The IMF mission met with Finance Minister Mohamed Shafeeq, Maldives Monetary Authority (MMA) Governor Ali Hashim, and other senior administration and MMA officials as well as with representatives from the private sector, bilateral donors, and other development partners.
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