Maldives should strengthen government finances- IMF

International Monetary Fund (IMF) has stated that the most pressing macroeconomical priority for Maldives is strengthening government finances, which have been weak for many years.

IMF made this remark in the statement at the conclusion of IFM mission led by Koshy Mathai to Maldives during October 30 to November 12 to conduct discussions for the 2012 Article IV Consultation, the IMF’s regular exchange of economical views with member countries.

During the visit, the team met with President Dr. Mohamed Waheed, Vice President Mohamed Waheed Deen, Minister of Finance Jihad, Maldives Monetary Authority (MMA) Governor Najeeb, members of the Peoples’ Majlis, and the other Cabinet ministers and senior officials, as well as representatives of civil society and the private sector.

“Economic growth is expected to slow to 3 ½ percent in 2012, as depressed tourist arrivals earlier in the year and weak global conditions have been only partially offset by strong performance in construction and fisheries-related manufacturing. A modest recovery is forecast for 2013 and beyond. Inflation is currently elevated on account of increases in the general GST and international food prices but is expected to slow to under 6 percent next year and decline further thereafter. The balance of payments continues to be weak, with the current account deficit forecast at nearly 30 percent of GDP this year. Gross international reserves at the MMA have been declining slowly, now account for just 1 ½ months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over,” IMF stated in the conclusion of the visit.

IMF noted that the most pressing macro-economical priority for Maldives is strengthening government finances, which have been weak for many years. They stated that the fiscal deficit is expected to rise in 2012 to 16 percent of GDP in cash terms, and likely even higher if one accounts for the government unpaid bills, accumulated in an increasingly challenging environment for financing.

In addition to this IFM stated that the large deficit has implied a rise in the public debt ratio, which now stands at over 80 percent of GDP, and has also helped to boost national imports, thus worsening dollars shortages in the economy and putting pressure on MMA researve.

IMF also recommended that it will be very important to design a realistic and prudent budget for 2013. While Maldives has relatively strong revenues overall, there is scope to increase tourism taxation and selectively reverse recent duty reductions. On the expenditure side, IFM added that electricity subsidies can be better targeted to the needy, costs of health program Aasandha can be further rationalized and reduced, wages should be controlled, including through the establishment of a Pay Commission, and a plan could be laid out for medium term civil service reform.