The International Monetary Fund (IMF) expressed concerns over the deteriorating fiscal and external sectors of the Maldives despite projections that the archipelago can maintain low inflation rates and sufficiently increase its Gross Domestic Product (GDP).
Speaking at a press conference held Monday by the IMF delegation that arrived July 5 to look into the economic landscape of the Maldives, IMF’s Deputy Division Chief Philippe Karam noted that the points raised are solely based on the delegation’s findings in the Maldives and do not represent the views of IMF’s executive board. He stated that delegation will compile a report on their findings and submit it to the board for discussion.
According to Karam, the GDP of the Maldives is projected to exceed 4.5 percent this year and the next. Shedding light on the economic situation, Karam declared that the major investments in the sectors of health, housing, airport development and other industries are expected to advance the Maldives’ economy.
However, he noted that there are risks to the country’s economy in the future, such as deterioration of fiscal and external sectors, slumps in economic progress of developed countries which could pull down tourism, and negative repercussions of climate change. Karam stressed that the ongoing major infrastructural development projects in the Maldives must be carried out proficiently in order to offset their debts.
Karam also urged the government to shape its policies accordingly in order to minimise fiscal and foreign debts, increase foreign-exchange reserves, develop the financial sector and facilitate long term productivity. He stated that the foreign-exchange reserves are unlikely to increase in light of materials and equipment that may have to be imported for development projects, which would increase the country’s current account debt.
IMF further noted that the government has followed the organisation’s counsel on policies of subsidies and wages in order to cut down state expenditures. Karam further highlighted that management of state finances has also been strengthened.
He urged the Maldives to maintain its monetary policy in the face of negative effects on exchange rates which may stem from increasing balance of payments deficit over inclining government expenditures. Highlighting that the Maldives is a small and open economy highly dependent on the US Dollar, he stated that exchange rates pegged to the US Dollar is currently the most suitable for the archipelago. However, Karam advised the Maldives to consider changing its exchange rate system to an import weighted currency composite in the future should the nation’s tourism and finances for development projects increase.
Moreover, Karam highlighted the importance of conducting stress tests on banks and strengthening their supervision and management in order to minimise risks to banks.
Expressing confidence that the government will take precautions against negative impacts on the foreign-exchange reserves in the future, Karam added that the Maldives must plan meticulously on how to repay the loans taken for its development projects without adverse effects to the reserves.
The IMF delegation will submit its report on the Maldives’ economy to its executive board coming September.