Maldives is expected to achieve a 3.5 per cent real GDP (gross domestic product) growth this year, according to the International Monetary Fund (IMF).
The multilateral agency, which recently held consultations with the authorities of Maldives, said the country’s economy, “after outperforming its peers for several years,” slowed sharply in 2015 to 1.5 percent from 6.5 percent the previous year, as tourism arrivals decelerated (especially impacted by lesser tourist arrivals from China, as per a report by the Maldives Monetary Authority).
Even though growth was expected to pick up this year, the outlook was clouded by “the risks of less robust growth in Asia and uncertain returns from large-scale infrastructure scaling up,” the IMF said, adding that there would be a “modest recovery” in tourism.
The IMF cautioned Maldives that the infrastructure scale up being planned by the government could bring with it external financing risks, “if not implemented appropriately,” as the projects required significant external financing that would add to the “already elevated” public debt. So, the country should pursue the development strategy while preserving fiscal and external sustainability. Male had planned a “substantial” infrastructure scale-up comprising three mega projects—airport expansion, Hulhumalé island development and bridge, and port enlargement —which were aimed at supporting further development of the tourism sector and improving resilience to climate change. It had planned to double capital spending in the next three years and raise external debt to finance such projects.
Calling for a “durable fiscal adjustment” to keep public debt “on a sustainable trajectory,” the multilateral agency said this should include prioritising overall capital expenditures; leveraging the well administered tax system to generate higher revenues (including user fees for new infrastructure and broadening the tax base), and strengthening controls on current spending. “Enhanced public financial management, with a particular focus on public investment management, would also be a key for successful fiscal adjustment.”