IMF Mission Warns Maldives of Fiscal Challenges and Urgent Policy Adjustments

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Minister of Finance Shafeeq (R) and his advisor Munawar (R-2): The Maldivian authorities are developing a comprehensive fiscal reform agenda.

An International Monetary Fund (IMF) mission recently visited the Maldives, issuing a stark warning about the country’s economic stability. During their stay from January 23 to February 6, 2024, the mission discussed the country’s economic outlook and policy priorities in the context of the 2024 Article IV consultation.

According to a press statement released by Piyaporn Sodsriwiboon, who led the mission, without significant policy changes, the Maldives is at risk of high fiscal deficits and public debt levels. She emphasised the need for urgent policy adjustments to address these challenges.

The IMF mission noted that the Maldivian economy rebounded with a 13.9 percent growth in 2022 following the pandemic-induced contraction. However, growth is expected to moderate to 4.4 percent in 2023 and 5.2 percent in 2024. The expansion of the Velana Airport terminal and hotel accommodations is projected to boost growth potential, but uncertainties remain high.

Sodsriwiboon highlighted the vulnerability of the Maldives to climate change risks, including floods and rising sea levels, which could have severe economic consequences.

Addressing the country’s fiscal challenges, the IMF mission emphasised the importance of fiscal consolidation through expenditure rationalisation and domestic revenue mobilisation. They called for reforms in state-owned enterprises (SOEs) to reduce fiscal burdens and strengthen fiscal institutions.

Monetary policy was also discussed as a tool to address macroeconomic vulnerabilities. The IMF mission recommended tightening monetary and macro-prudential policies to ensure compatibility with the exchange rate peg and enhance financial sector oversight.

Currently government is developing a comprehensive fiscal reform agenda. This includes subsidy reforms, healthcare insurance reform, and rationalisation of public sector investments, among other measures.

Overall, the IMF mission underscored the need for swift policy actions to address fiscal challenges and climate risks in the Maldives.

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