IMF concluded its Article IV consultation with Maldives and revealed its projections for the country's GDP and provided recommendations based on the findings.
International Monetary Fund (IMF) has estimated after its Executive Board concluded the Article IV consultation with Maldives that the country's real Gross Domestic Product (GDP) is expected to rise to 5.2 percent this year.
In a press release published by the IMF, it was detailed that Maldives' economy weathered the headwinds from the Ukraine war and showed resilience in its recovery from the effects of Covid-19, with inflation being maintained at 1.9 percent year on year by December 2023, which has led to a reduction in food and energy prices as well as price subsidies.
"The successful implementation of goods and services tax (GST) rate hikes has borne fruit, bringing sizable revenue windfalls in 2023. Nevertheless, the overall fiscal deficit is estimated to reach 13.4 percent of GDP in 2023, with public debt to rise further to 118.7 percent of GDP in 2023," said IMF.
Reflecting on surging capital goods imports, it was further highlighted that high import costs of food and fuel, and strong import demands associated with tourism activity, the current account deficit sharply widened to 22.8 percent of GDP in 2023 while gross international reserves declined to USD 589 million at the end of last year, covering about 1.4 months of prospective imports.
With this, IMF estimates the real GDP growth to gradually increase to 5.2 percent from its moderate 4.4 percent estimated for 2023. This is owed to the potential expansion of Velana International Airport (VIA) and associated increase in hotel accommodation capacities which is likely to further boost the potential for growth.
However, the IMF touched on the elevated commodity prices and continued import demands which remain strong, forecasting that the current account deficit is likely to remain large despite being gradually narrow over the medium term.
"Without significant policy changes, the Maldives remains at high risk of external and overall debt distress. Uncertainty surrounding the outlook is high and risks are tilted to the downside, including from delayed fiscal consolidation and weaker growth in key sources markets for tourism. The Maldives is highly vulnerable to climate change risks, with potentially severe economic costs due to floods and rising sea level," the IMF warned.
Considering the larger picture, the Executive Directors of IMF underlined that "large fiscal and external vulnerabilities persist and that risks are titled to the downside," while still appreciating the country's strong post-pandemic recovery. As such, IMF stressed on the need for immediate policy adjustments to safeguard macroeconomic and financial stability, restore debt sustainability, and support sustained strong and inclusive growth.
Directors also encouraged an acceleration of foreign exchange market reforms, stressed on the importance of strengthening public financial and debt management, holistic expenditure rationalisation as well as further domestic revenue mobilisation.
They also urged Maldivian authorities to adopt macro prudential policies (financial policies aimed at ensuring the stability of the financial system as a whole to prevent substantial disruptions in credit and other vital financial services necessary for stable economic growth) to help mitigate systemic risks, and encouraged the acceleration of reform efforts towards supporting inclusive and sustainable development.
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