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IMF to loan USD 28.9 mln as COVID-19 support to Maldives

Fathmath Shaahunaz
23 April 2020, MVT 13:00
IMF’s Deputy Division Chief Philippe Karam speaks at a press conference held at MMA in July 2017. FILE PHOTO: HUSSAIN WAHEED / MIHAARU
Fathmath Shaahunaz
23 April 2020, MVT 13:00

The Executive Board of the International Monetary Fund (IMF) on Wednesday approved a USD 28.9 million disbursement to Maldives to address the country's financial challenges amid the COVID-19 pandemic.

In a press release, IMF stated that the funds would be issued from its Rapid Credit Facility (RCF), which provides rapid concessional financial assistance to low-income countries, with limited conditionality. IMF's Executive Board approved the disbursement less than a week after the Fund confirmed Maldives' request for financial assistance.

IMF stated that the disbursement would be used to cover balance of payments and other fiscal needs that arise from the coronavirus crisis, noting that the industries of tourism, transport and construction would be particularly affected in Maldives, deteriorating the country's economic activity.

"“The COVID-19 pandemic is having a pronounced negative impact on the Maldivian economy and is expected to cause a significant growth contraction. Containment measures are adversely affecting domestic economic activity. The temporary stop of tourist arrivals, the main source of foreign earnings, has severely weakened the fiscal and external positions, giving rise to large financing gaps", said Tao Zhang, the Deputy Managing Director and Chair of IMF's Executive Board.

He hailed the Maldivian government's quick response to the COVID-19 pandemic, highlighting the stringent travel restrictions imposed as well as other measures to reduce state expenditures and instead focus finances to control the spread of the virus, and support vulnerable households and local businesses.

"The authorities remain committed to fiscal and debt sustainability over the medium term. They intend to achieve a balanced fiscal adjustment based on the reduction of capital spending to historical averages, recurrent expenditure discipline, and revenue mobilization. Continued efforts are needed to improve governance, build resilience to climate change, and strengthen policy buffers", said Zhang.

Amid the ongoing crisis which has seen Maldives close its borders to tourists from March 27 onwards, placed the capital Male' City on lockdown until May 1 and impose a nationwide travel ban, Maldives Monetary Authority (MMA) has warned that the local economic growth might reach negative nine percent in the estimated worst case scenario of the economic recession caused by the global pandemic COVID-19.

The "worst case scenario" is that the whole country stays under lockdown until the last quarter of the year, with no tourist arrivals. According to MMA's Governor, a solution must be found in the tourism sector to improve the country's economic growth, as 30 percent of direct revenue and 60 percent of indirect revenue is generated by the industry alone.

With over 70 percent of the country’s GDP attributed to revenue generated by the tourism industry, Maldives’ economy continues to face severe repercussions due to travel restrictions imposed over the COVID-19 outbreak. It is estimated that the country will face a shortfall of approximately USD 450 million (MVR 6.9 billion) in foreign currency.

In a bid to counteract the financial impact of the COVID-19 pandemic on the local economy, Maldivian government introduced an economic relief fund with MVR 2.5 billion intended to prevent the closing down of local businesses and the loss of jobs.

Meanwhile, Maldives is endeavouring to secure financial assistance from abroad. Earlier this month, the World Bank approved to grant Maldives USD 7.3 million to fund a COVID-19 Emergency Response and Health Systems Preparedness Project, while the Organization of Petroleum Exporting Countries (OPEC) pledged to grant USD 20 million as a Public Sector Investment Program (PSIP) Emergency Loan.

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