The International Monetary Fund (IMF) on Friday approved US$92.5 million in financial arrangements to help the Maldives adjust to the aftermath of the global recession and support the government’s economic policy.
The “blended financing arrangements” include a 36-month US$79.3 stand-by agreement, 600 per cent of the Maldives’ quota, and a 24-month US$13.2 under the fund’s exogenous shock facility high access component.
“The Maldivian economy was severely hit by the global crisis through significant declines in Maldives’ tourism receipts, capital inflows, and goods exports. Coming after unsustainable public spending over the last few years—partly reflecting post-tsunami reconstruction efforts—the crisis led to a very large fiscal deficit, a sharply weakened balance of payments position, and reserve losses,” reads a statement by Takatoshi Kato, deputy managing director and acting chair of the IMF executive board.
“The government’s ambitious policy program, supported by the IMF, is aimed at addressing the impact of the global economic crisis and restoring macroeconomic stability and fiscal sustainability. At the core of the program is a very strong effort to bring down the fiscal deficit while protecting social spending. To that end, the authorities are taking immediate action to cut spending, including unwinding part of the recent large wage increases, and are introducing new revenue measures to broaden the tax base. They have also taken steps to reform the civil service, improve the targeting of subsidies to the poor, and transfer enterprises and services to the private sector.”
In September, the Maldives Monetary Authority (MMA) ceased printing money to finance the budget deficit and launched open market operations to absorb excess liquidity of the rufiyaa in order to alleviate the dollar shortage.
Meanwhile, the government debt at the MMA has been converted to tradable securities, while it announced the issuance of treasury bonds denominated in US dollars last week.
“The authorities’ program, while subject to considerable risks, is strong, comprehensive, and well-focused, and deserves strong support of the international community. If fully implemented, it will put the Maldivian economy back on a path of macroeconomic stability and set the conditions for sustained economic growth and poverty reduction,” concludes the statement.
The government’s policy to restore macroeconomic stability and fiscal sustainability involves reducing expenditure and increasing revenue to lower the large budget deficit and introducing targeted subsidies to the poor for food and electricity.