IMF Calls for Urgent and Stronger Fiscal Consolidation in the Maldives

The International Monetary Fund (IMF) has emphasized the need for urgent and stronger fiscal consolidation in the Maldives, in addition to the revenue mobilization measures already implemented by the government.

This statement follows an IMF mission, led by Ms. Piyaporn Sodsriwiboon, which visited the Maldives from February 3 to 16, 2025, to discuss recent economic developments, outlook, and policy priorities as part of the 2025 Article IV consultation.

In its post-visit statement, the IMF stressed the importance of holistic expenditure rationalization to curb excessive spending, while simultaneously improving spending efficiency and protecting priority social programs.

The organization also called for subsidy reforms to phase out untargeted subsidies and implement well-targeted direct income transfers to vulnerable households, as planned in the 2025 Budget.

Key Recommendations from the IMF

Public Sector and SOE Reforms:

• The reprioritization and rationalization of the Public Sector Investment Program (PSIP) is critical to addressing immediate fiscal challenges.

• Reforms in state-owned enterprises (SOEs) and Aasandha healthcare should continue to build on recent progress.

• Strengthening the public financial framework is essential for enhancing fiscal policy credibility and effectiveness.

• A comprehensive debt strategy is needed to restore debt sustainability and improve debt management.

Macroeconomic Stability and Monetary Policy:

• A coordinated tightening of the policy mix is essential to address macroeconomic vulnerabilities.

• The Maldives Monetary Authority’s (MMA) commitment to resuming active monetary operations is a positive step.

• If inflationary or external pressures increase, the MMA should be ready to further tighten monetary policy.

• Heightened systemic risks from the bank-sovereign nexus necessitate tighter macroprudential policies and stronger financial sector oversight.

Foreign Exchange and Debt Management:

• Prudent foreign exchange reserve management, along with substantial and immediate fiscal and monetary policy adjustments, is essential to safeguard the exchange rate peg.

Maldives at a Pivotal Moment

The IMF stated that the Maldives is at a pivotal moment, requiring urgent action to restore macroeconomic stability and debt sustainability.

• The swift implementation of expenditure reform measures, as outlined in the 2025 Budget, is key to reducing economic imbalances in an orderly manner.

• Despite fiscal challenges, the Maldives’ strong tourism sector has helped sustain economic growth.

• Real GDP growth is projected at 5% in 2025, supported by the expansion of airport terminals, which will help ease supply-side bottlenecks in tourism and sustain growth momentum over the medium term.

• Inflation is expected to rise to 2.3% in 2025, partly due to higher import duties. However, the IMF warned that significant uncertainties remain, with risks tilted to the downside.

During the visit, the IMF delegation met with Finance Minister Moosa Zameer, MMA Governor Ahamed Munawar, senior government officials, as well as representatives from the private sector and development partners.