ECONOMYNEXT – A 29 million US dollar program for the Indian Ocean tourist paradise of Maldives will go to the board of the International Monetary Fund on April 22, 2020, as Coronavirus hits many South Asian nations.
The funds have been requested for the Maldives Monetary Authority under the lender Rapid Credit Facility.
“So, we want to process it quickly,” Changyong Rhee, Director Asia Pacific Department of the IMF said.
The IMF is forcasing Maldives’ gross domestic product to shrink 8.1 percent as tourism collapses due to Coronavirus in 2020 but recover strongly in 2021 by 13.1 percent.
The Monetary Authority of Maldives has given the most stability to the economy among South Asian central banks at an absolute level through its dollar peg, helping per capital income to grow to 13,200 US dollars and the freest trade in the region.
The peg however is periodically threatened with looser monetary policy both from open market operations and MMA credit to government (printed money) such as through ways and means advances.
The IMF gave surprisingly good advice to the country in 2019 in sharp contrast to advice given to Sri Lanka.
“Directors indicated that a tighter monetary policy stance would ensure compatibility with the
exchange rate peg, and together with fiscal consolidation would contribute to lower external
imbalances and a build-up in reserves,” the IMFs Executive Directors said in an assessment in June 2019.
The Rufiyaa is at 15.4 to the US dollar, down from an original 4.70 to the US dollar (at par with Indian) rupee like most of South Asia.
In contrast Sri Lanka’s central bank has busted the rupee to around 190 to the US dollar with more liquidity injections made from February, when a IMF program was suspended.
In 2018 the IMF allowed the central bank to inject liquidity both through domestic assets purchases and Soroso-style swaps that brought down the Bank of Thailand and others during the East Asian crisis. The rupee fell from 151 to 182 to the US dollar in 2018.
The Maldives however has deposit dollarization of about 48 percent, indicating that the ability of MMA to destroy savings and deny capital for re-investment is much less than a country like Sri Lanka where forex deposits are a smaller share.
Maldives however is now threatened by Chinese debt and state owned enterprises.
Public and Public Guaranteed debt is close to 80 percent of GDP and about half the external debt was owed to China last year, the IMF has said.
With GDP expected to shrink 8.0 percent as tourism collapses due to Coronavirus, the debt dynamics would worsen. (Colombo/Apr18/2020)