IMF warns of inflation and decline in reserves

International Monetary Fund (IMF) has said that the price of food and fuel will increase further in the future and Maldives' reserve will go into decline.

The institute released the statement on Wednesday after a delegation from IMF visited the Maldives from June 21-29; affirming that the Maldives will be adversely affected by the current status of the global economy. The agency expects the inflation rate of the country to rise by three percent.

The government has also estimated that inflation is at risk of rising to three percent by the end of this year.

According to the IMF, state debt has increased due to the taking of several loans to finance government expenditure during the Covid-19 pandemic. Increased Loan repayment risk brings rise to the need of special policies to be formulated to overcome the situation, the agency said.

The statement also noted that the dollar rate is rising in the black market. It is also expected that this will result with the international reserve of Maldives to decline, leading to an increase in the price of food and fuel, ultimately increasing reserve expenditure as well.

The IMF said this was the time to reform policies to manage debt and meet costs in a more efficient manner. The agency recommended that subsidy policies should be reformed to identify ways to increase state revenue.

The state had recently decided to provide fuel subsidies to those who need it the most in Maldives. While MVR 341.5 million was allocated in this year's budget for fuel subsidies, the government has spent MVR 910.3 million on the subsidy by the end of June alone. The government has estimated that the cost of fuel will quadruple in the future and its expenditure is expected to rise to MVR 1.3 billion by the end of the year.

IMF and the World bank has been recommending the state to reform subsidies and to provide them with target subsidies. However, the government has yet to take sufficient action in this regard.

The IMF said that the government's efforts to increase GST in the tourism and domestic sectors were a good measure.

"The government should welcome the hike in Tourism Goods and Services Tax (T-GST) from 12 percent to 16 percent and Goods and Services Tax (GST) collection from the public from six percent to eight percent. It is also important to reduce the dependency of state-owned enterprises on the government," the statement said.