- The IMF Executive Board approves the 30th request for emergency financial assistance to help its member countries address the challenges posed by COVID-19.
- The pandemic is inflicting significant damage, especially on tourism activity, and is expected to result in a substantial weakening of the Maldives’ GDP growth, the balance of payments and the fiscal position.
- The government of the Maldives acted quickly to put in place containment measures and is seeking support from the international community for its crisis response plan.
- IMF financing will help to catalyze further assistance from the international community.
The Executive Board of the International Monetary Fund (IMF) approved the disbursement of SDR 21.2 million (about US$28.9 million) to be drawn under the Rapid Credit Facility (RCF) to help cover the balance of payments and fiscal needs, stemming from the COVID-19 pandemic. Global and domestic containment measures are leading to a substantial reduction in economic activity, with sectors such as tourism, transport, and construction hit particularly hard. As a result, the short-term economic outlook has deteriorated significantly, with large uncertainties surrounding the duration of the pandemic and the timing of the recovery of tourism.
The authorities have acted fast to mitigate the impact of the pandemic by increasing health spending and putting in place measures to contain the outbreak. They have also responded with a combination of fiscal, monetary, and prudential measures that seek to minimize its economic impact, as well as providing temporary support for vulnerable households and business most affected by the crisis. The IMF financing will help ease some of these measures and garner further donor support.
Following the Executive Board’s discussion of the Maldives, Mr Tao Zhang, Deputy Managing Director and Chair issued the following statement:
“The COVID-19 pandemic is having a pronounced negative impact on the Maldivian economy and is expected to cause a significant growth contraction. Containment measures are adversely affecting domestic economic activity. The temporary stop of tourist arrivals, the main source of foreign earnings, has severely weakened the fiscal and external positions, giving rise to large financing gaps.
“The authorities have responded quickly to the COVID-19 outbreak, including specific travel restrictions and subsequently more comprehensive travel measures. They also put together a set of measures to alleviate its social and economic fallout. The IMF’s financial assistance will cover part of the financing gap, supporting fiscal rebalancing and the implementation of the anti-crisis plan. Additional support from the international community will be needed.
“The temporary fiscal accommodation is appropriate. The authorities will reprioritize and cut capital expenditures, redirecting funds as needed to combat the pandemic and provide temporary and well-targeted support to the most vulnerable households and businesses while maintaining high standards of transparency and governance. The central bank focuses on providing targeted liquidity support to banks and avoiding a credit freeze, through temporary and targeted financial macroprudential easing.
“The authorities remain committed to fiscal and debt sustainability over the medium term. They intend to achieve a balanced fiscal adjustment based on the reduction of capital spending to historical averages, recurrent expenditure discipline, and revenue mobilization. Continued efforts are needed to improve governance, build resilience to climate change, and strengthen policy buffers.”
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