International Monetary Fund (IMF) has projected that the Gross Domestic Product (GDP) of the Maldives will grow at 10.5% and 6.6% in 2022 and 2023 respectively. The agency made the statement in a press release following the conclusion of the IMF Executive Board’s discussion on the report submitted by the staff team that visited the Maldives earlier this year.
IMF stated that the economic activity of the Maldives rebounded strongly from the COVID-19 pandemic-induced contraction, supported by the government’s decisive policy measures. It stated that Real GDP growth recovered sharply to 37% in 2021 from the unprecedented contraction of 33.5% in 2020, as tourism activities bounced back. Inflation has risen but is contained due to price subsidies and average headline inflation rose from 0.2% in 2021 to 2.7% in July 2022, mostly reflecting higher costs of energy, food, transportation, and healthcare.
IMF further stated that the recovery is expected to continue in the near term on the back of strong tourism growth and associated spillovers to related sectors such as transportation and trade. The staff team projected the GDP to grow at 10.5% and 6.6% in 2022 and 2023 respectively. Inflation is projected to increase further, reaching 4.9% in 2023, reflecting the persistence of high costs of energy and food, spending pressures for the 2023 elections, and the one-off impact of the planned tax hikes in 2023.
The Executive Board welcomed the rapid economic recovery from the pandemic, underpinned by a swift vaccination rollout, policy support, and a strong rebound in tourism. However, IMF stated that fiscal and external vulnerabilities remain elevated, and risks to the outlook are tilted to the downside, including from a sharp slowdown in key source markets for tourism, high commodity prices, and tighter global financial conditions. Against this background, the directors urged steadfast implementation of comprehensive reforms to reduce vulnerabilities and strengthen economic resilience.
The directors also advised that the Maldives Monetary Authority (MMA) advances to the government should be gradually phased out to lower pressures on international reserves and prices. They stated that MMA should stand ready to further tighten monetary policy should inflationary pressures increase and/or the elevated parallel market premium widen further.