The International Monetary Fund ( IMF) is "surprised" by the resilience of the Maldives economy but has cautioned over the increasing deficit, local media reported here on Tuesday.
IMF Representative for Sri Lanka and Maldives Dr. Koshi Mathai, told reporters reserves at the Maldives Monetary Authority (MMA) have been low for many years. He also said that with the increasing expenditure of the government over revenue has led to a "precarious" fiscal deficit and remained so for a long period of time.
Dr. Mathai said that IMF had expected the Maldivian economy to run into some major problems due to these issues.
"We expected the economy to run into some problems, but we are happily surprised by the resilience Maldivian economy has shown," said Mathai.
Noting that the Maldivian economy is different from other countries, he said that IMF is very interested to know how the Maldivian economy has remained resilient. Mathai said that though the Foreign Currency Reserve is at an alarming stage, "wide ranges of imported goods are on the shelves of the shops."
He further stated that though the economy is in such a state, " people have motor scooters and cars and smart phones."
"So, obviously, there is something that we need to study carefully in order to understand how all of this is working. IMF will come back in a few months' time and will have the full consultation."
He said that IMF's biggest concern is governmental expenditure, adding that allotting finances for the Maldivian budget is very difficult every year. When the finances are not attained, then more money is printed via MMA, he said. As a result, the Maldivian Foreign Currency Reserve suffers and the inflation and dollar situation worsens.
"There are two ways to deal with this fiscal deficit: one is to cut back government expenditure according to revenue; the other is to generate other ways of financing the budget."
Mathai noted the tourism industry can be further taxed to finance the governmental budget. When comparing with regional countries and other countries of the world, he said that taxation rates are quiet low in the Maldives. He said that there is no problem with increasing the taxation rates in Maldives when the industry makes remarkable profit./.