Maldives’ currency reserves “dwindling to critical levels”: World Bank

Currency reserves in the Maldives have “dwindled to critical levels”, according to the World Bank’s bi-annual South Asia Economic Focus report.

The report highlighted that growth in South Asian countries – including the Maldives – is still below pre-economic crisis levels.

“Much of the recent slowdown in economic growth can be attributed to stagnating investment,” the World Bank stated in its findings. “Economic recovery could falter in the absence of a stronger investment climate.”

South Asian countries are “now more vulnerable” due to widening current account balances, slowing foreign direct investment, and persistently high inflation that has “limited the ability” of central banks to counter economic downturn via monetary policies.

Rising imports, and the Maldives dependency on those imports, also leaves the country more vulnerable to commodity price increases, argued the findings.

“Countries will need to improve their business climate to attract the private sector investment needed for these new entrants to find productive jobs, thereby reducing poverty and boosting shared prosperity,” said Martin Rama, Chief Economist for the South Asia Region at the World Bank.

Improving tax revenue collection and curbing energy subsidies are required for further progress to be achieved.

Maldives Monetary Authority (MMA) statistics released in January 2013 indicated that gross state reserves have shrunk to MVR 4.9 billion (US$317.7 million).

This is essentially only enough for one month of imports.

Between November and December 2012, reserves dropped 14 percent, or MVR 849.7 million (US$55 million). In comparison with the start of 2012 – when the State reserve was MVR 5.3 billion (US$343 million) – January 2013 had seen an eight percent decline.

MMA statistics explained that the reason for the downward slide at the end of 2012 was due to depletion of state funds in local and foreign banks, according to local media.

The ballooning 2012 budget deficit alerted the International Monetary Fund (IMF), which previously expressed concern that without raising revenue and cutting expenditures, the country risked exhausting its international reserves and sparking an economic crisis.

Finance Minister Abdulla Jihad told MPs in December 2012 that additional revenue was needed to finance the fiscal deficit and rein in soaring public debt, which was projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.

The governor of the country’s central bank said back in May 2012 that the Maldives was facing its worst economic crisis in recent memory.

Fiscal responsibility

Despite parliament recently rejecting an increased airport service charge, legislation on fiscal responsibility submitted in 2011 by former President Mohamed Nasheed’s government was passed with 42 votes in favour and 10 against at a sitting of parliament on April 15.

If the bill is ratified, the government would be prohibited by law from obtaining loans after January 1, 2016, in order to finance recurrent expenditure or loan repayments.

The bill also sets limits on government spending and public debt based on the proportion of GDP, mandating the state to not allow public debt to exceed 60 percent of GDP.

Borrowing from the central bank or MMA should not exceed seven percent of the projected revenue for the year, while such loans would have to be paid back in a six-month period under additional finance conditions outlined under the recently approved legislation.

Moreover, a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

The current government has pointed the finger at the previous administration for the current budgetary issues, whilst simultaneously implementing a series of policies which have added to its financial obligations.

These deficit expanding policies have included promoting 1000 police officers, the hiring of 110 new police officers, and a reinterpretation of the legal provision for the payment of resort island lease extensions which had cost the government MVR92.4million (US$6million) already in comparison with the same point last year.

The government also chose to reintroduce MVR100 million (US$6.5 million) fishing subsidies and to reimburse MVR443.7 million (US$28.8 million) in civil servant salaries, reversing measures implemented during the previous government’s own austerity drive.


11 thoughts on “Maldives’ currency reserves “dwindling to critical levels”: World Bank”

  1. Old news and why do we care? Both Gayoom and Nasheed fail to take necessary action due to the close association with business community despite the advices given by experts. Poor Waheed and Governor are puppets

  2. The current govt along with the cabal of 'ithihad' parties have a strategy of implementing short term populist measures which give them a popularity boost at the expense of long term welfare of everyone.

    In 2009 the MDP was left with the thankless tasks of eliminating subsidies, reducing the bloated unproductive civil service, privatisation of under performing state assets, and implementing a tax system for govt revenues.

    Nearly everything is undone.

    I suppose democracy requires peoples' participation in more ways than voting and ranting.

  3. PPM and JP are calling for currency revaluation to make 1 USD = 12 rf again.

    In other words it will make dollars cheaper, fueling an import spree, instantly washing away any dollar 'reserves' left.

    The caveat of course being making ordinary citizens beg the resort owners for dollars. This sinister policy has already been announced by Gasim and PPM too.

    The world Bank ought to know or are surely aware that 'dwindling critical reserves' is just what PPM and Jumhooree wants and thats where MMA governor got his job from.

    The World Bank should call for an impartial central bank first.

  4. @ Dhivehi soru

    Why poor Waheed? And why do you say he is a puppet?

    Dr waheed made a conscious choice to receive the group representing those who wanted to remove President Nasheed from power at his residence at 1 am in the morning. he made a conscious choice to accept their invitation to step into the Office of the President once they rolled over President Nasheed. he made a conscious choice not to go to work to the Office of the President the day President Nasheed was confronted with a Police and Army mutiny, and held captive in the Army Headquarters. I have read that he said that he forgot it was a work day. Whatever.

    I believe Dr Waheed is doing exactly what he wants, and working with the people he wants to work with. The decisions and choices he makes are his own, not anyone else. He is the President of the Maldives. So no, I don’t believe Dr Waheed is a puppet. To say that is to absolve him of all responsibility for how the country is being governed since February 7 2012.

    As for the 2013 Presidential election, Dr Waheed can run for President as the candidate from his own party. He can even run as an independent if his party is dissolved and those who like him will vote for him. The party is all important in a parliamentary system but the people of the Maldives voted for a Presidential system where it is the PERSON not the party that the people vote for on Election Day. Remember we come from a culture where we have historically one person rule, from Sultans (Kings), Sultanas (Queens) and Presidents. It really is not a big deal at all to sell himself especially since he is the President and travelling all over the country and meeting people.I believe Dr Waheed is perfectly positioned to get the protest vote from those who don't like Anni and cannot manipulate Anni, fear Yaamin, and despise Gasim and Thasmeen.

    So why I wonder has Dr Waheed aligned himself with the pretentious and contentious party of Hassan Saeed who must be one the most despised “politicians” in the Maldives and easily the weakest link in Maldivian politics?

    We also have to wonder why Dr Waheed has aligned himself with the Adhalath Party which continue to spectacularly fail to live up to its name of Adhalath in the defence of the rights of women and children and restoring integrity to our crippled and dysfunctional justice system.

  5. Mordisians, don't deserve democracy, because they're willing to whore off the future of their nation and children for a 500Rf note.

    I am leaving this miserable country of bigots, idiots and thieves before it faces Allah's wrath.

  6. Dr. waheed had show leadership quality in the last one and half years and he is the best candidate we have on the table.

    Nasheed was a dictator and he ruled this country like Hitler .

    Hitler had so much power and so many people were behind him . Can we say that so many people were supported Hitler and then Hitler was the best man ?

    Basic point is that people like Hitler had fooled the people for his own personal gain and same things is happening here in Maldives too with Nasheed.

  7. To compare Nasheed with Hitler and not to say anything about the Gayoom administration says everything about you, Kuribee.

  8. Adhalath, DQP closing ranks with Dr Waheed is the beginning of whats to follow: ALL parties other than MDP will endorse Dr Waheed including PPM

  9. Hey what about the topic of this post
    It's about currency reserve not dr waheed

  10. @kuribee. I used to laugh at your comments when you were Modi and barely managing to say anything worth listening to. I just thought you were a good example of the type of self-centred people who wanted to hold on the status quo. But now, under your new name, I just feel pity for you. You hate Nasheed to such a degree, all you can do is spread your venom. You have nothing positive to contribute and nothing worth listening to. I feel this because such jealousy and hatred say more about you than about Nasheed.
    Or may be you are being a distraction. Maybe you are paid for exactly the purpose you serve- ie to stop people having decent, intelligent dialogue/discussuion on things that really matter to the people of the Maldives.


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