Update Country Report Maldives 01 Apr 2020

Event

The World Bank has extended assistance of US$10m to the Maldives to support the government's response to the novel coronavirus (Covid-19) outbreak.

Analysis

The economy is heavily reliant on tourism activity, which has taken a major hit owing to the restrictions on arrivals into the country, which have been in place since early February to combat the spread of the virus. On March 27th the president, Ibrahim Mohamed Solih, announced a nationwide lockdown, barring entry into the country for anyone. The loss of revenue as a result of the freeze on tourism activity is severely affecting the economy. The aid received from the Bank will boost the government's ability to implement fiscal measures that aim to subsidise wages.

The Maldives has also received financial aid from the Asian Development Bank (ADB), which has approved a US$500,000 grant from its Asia Pacific Disaster Response Fund. This follows a US$100,000 technical assistance grant that the ADB had earlier provided for initial emergency support. The ADB's grants will help the government to procure diagnostic equipment and other medical goods and supplies, which are essential to tackle the public health emergency arising from the spread of the coronavirus.

In addition to a shortage of funds to tackle the outbreak, the government is also saddled with debt repayments for loans taken on from China by the previous administration. Mr Solih has stated that his government is in talks with creditors to negotiate more lenient repayment terms, in a bid to stave off a possible balance-of-payments crisis.

Impact on the forecast

Even with the financial aid received from multilateral donors, the government will also have to increase fiscal spending to support the economy as the country copes with the repercussions of the pandemic. Owing to the anticipated deceleration in economic growth and higher government expenditure in 2020, we will revise our fiscal forecast to reflect a wider deficit than the current 3.2% of GDP.