Maldives: Monthly Economic Review - July 2017

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1. Outlook for 2017 After a weaker than expected ou urn in 2016 , the real GDP1 growth is estimated to increase to 4.7% in 2017, from an estimated 3.9% in 2016. This is to be driven by the expansion of the construction sector, stemming from large infrastructure projects planned for 2017. Tourism sector is also expected to pick up pace in 2017, which will boost overall economic growth. The fiscal deficit2 is projected to decrease to MVR303.7 million (0.5% of GDP) in 2017 from an estimated MVR4.3 billion (7.4% of GDP) in 2016. Meanwhile, according to the balance of payments forecasts of March 2017, the current account deficit is projected to contract to US$650.5 million (16% of GDP) in 2017 from an estimated US$840.0 million (22% of GDP) in 2016. Tourism During June 2017, total tourist arrivals increased markedly with an annual growth of 8% and totalled 85,222. This reflected a significant increase in arrivals from the European market and the Middle East, Key Tourism Indicators thousands which offset a slight decrease in arrivals from the Asia and Pacific region. The growth in the European market stemmed from a significant rise in arrivals from Germany, coupled with an increase in arrivals from Russia. Meanwhile, arrivals from India and the UAE increased during this period. However, this was entirely offset by a significant fall in arrivals from China. During the month, the total bednights of the resorts increased by 8% in annual terms and the average duration of stay also increased slightly from 5.6 days in June 2016 to 5.7 days. Reflecting the annual increase in operational bed capacity of 1 GDP growth rates are based on market prices. 2 According to the national budget for 2017 submi ed to the Majlis. Source: Ministry of Tourism annual percentage change
2. Monthly Economic Review July 2017 resorts , the occupancy rate of the resorts dropped to 51% in June 2017 from 55% in June 2016. Fisheries In May3 2017, fish purchases made by fish processing companies Fish Exports annual percentage change totalled 2,921.0 metric tons. This represented a monthly and an annual decline of 47% and 35%, respectively. During May 2017, the volume of fish exports registered a considerable growth of 78% while earnings from fish exports also increased by 28%, in annual terms. The growth in both the volume and earnings of fish exports was almost entirely due to the significant increase in frozen yellowfin tuna and frozen skipjack tuna exports. Meanwhile, the volume and earnings from fresh or chilled yellowfin tuna exports decreased during the review period. Source: Maldives Customs Service Global Prices IMF Commodity Price Index annual percentage change During June 2017, the International Monetary Fund commodity price index registered an annual increase of 1%, while it registered a decline of 3% in monthly terms. The annual increase largely stemmed from a hike in metal prices which was partially offset by the decrease in oil and food prices. Meanwhile, the monthly fall was led by declines in oil and metal prices which was slightly offset by an increase in food prices. The price of crude oil4 stood at US$46.1 per barrel at the end of June 2017, recording a fall of 3% and 8% in annual and monthly terms, respectively. Source: International Monetary Fund 2 3  Data relating to fisheries sector was available only upto May 2017 at the time of compilation of this report. 4  Monthly average of Brent, Dubai Fateh and West Texas Intermediate.
3. Monthly Economic Review July 2017 In ation The rate of in flation (measured by the annual Consumer Price Index annual percentage change percentage change in the Consumer Price Index [CPI]5) accelerated further to 4.6% at the end of May6 2017 after registering 4.5% at the end of April 2017. This was mainly due to an increase in prices of staple food items; fish; cigare es; and an increase in housing rentals and electricity price. As for the monthly percentage change in the CPI, it registered 0.2% in the review month. While prices of fish, fruits, vegetables, and housing increased during the month, this was partly offset by decreases in prices of staple food items, furniture and household equipments. Source: National Bureau of Statistics Public Finance According to monthly Government Revenue and Expenditure government revenue millions of ru yaa and expenditure data7, total revenue (excluding grants) during June 2017 amounted to MVR1.2 billion, which was an annual decline of MVR379.9 million. Meanwhile, total expenditure (excluding amortisation) fell by MVR735.1 million in annual terms and amounted to MVR1.5 billion in June 2017. The decrease in total revenue was primarily due to declines in tax revenues — revenue from the business profit tax fell significantly owing to an extension of the deadline, while revenue from the general goods Source: Ministry of Finance and Treasury and services tax and the tourism goods and services tax also contributed negatively during the month. In addition, non-tax revenue registered a decline, mainly on account of a decrease in land acquisition fees. As for the decrease in expenditure, this was due to an annual decline in both current and capital expenditure during the period. The decrease in capital 5  Inflation analysis is based on CPI data at the national level. 6  Data relating to inflation was available only upto May 2017 at the time of compilation of this report 7  Monthly income and expenditure data are subject to change and may vary from month-to-month as public accounting system data are updated regularly. 3
4. Monthly Economic Review July 2017 expenditure largely re flected the lower expenditure on the public sector investment program, while the decrease in current expenditure was mainly due to the fall in administrative and operational expenses. Government Securities Treasury Bills and Treasury Bonds millions of ru yaa The total outstanding stock of government securities, which includes treasury bills and treasury bonds, decreased by MVR460.7 million in monthly terms and totalled MVR22.9 billion at the end of June 2017. The investment in treasury bills fell by MVR455.9 million, while investment in treasury bonds largely remained unchanged during the month. The monthly decrease in treasury bills investment was due to a decline in treasury bills investment by commercial banks and public non-financial corporations. Source: Maldives Monetary Authority In annual terms, the outstanding stock of government Treasury Bills by Holder significant increase in the outstanding amount millions of ru yaa securities registered a growth of 7%, owing to a of treasury bonds and a marginal increase in the outstanding treasury bills. The outstanding treasury bonds and treasury bills rose by MVR1.5 billion and MVR22.1 million, respectively. The growth in treasury bills was mainly due to the increase in treasury bills holdings by the commercial banks which offset the decrease in such investment by other financial corporations. Meanwhile, the growth in treasury bonds largely reflected the conversion of part of the treasury bills to treasury bonds. Source: Maldives Monetary Authority 4
5. Interest Rates of Treasury bills Treasury bills of all maturities continue to be issued Monthly Economic Review July 2017 Interest Rates of Treasury Bills percent under a tap system since they were reverted back in the year 2014 . Since the rates on 28-, 91-, 182- and 364-day treasury bills were lowered to 3.50%, 3.87%, 4.23% and 4.60%, respectively in October 2015, it has remained unchanged up until the review month. Broad Money The annual growth rate of broad money (M2) remained relatively unchanged after recording an annual decline of 4% at the end of May 2017, and stood at MVR31.8 billion at the end of June 2017. This Source: Maldives Monetary Authority Determinants of Broad Money annual percentage change was mainly contributed by an annual decrease in the net foreign assets (NFA) of the banking system, largely owing to a fall in the NFA of commercial banks. However, the decrease in NFA of the banking system was partly offset by the increase in net domestic assets (NDA). The NDA of the banking system increased owing to growth in commercial banks’ investment in government securities and credit to the private sector. Source: Maldives Monetary Authority Monetary Base The annual growth rate of the monetary base (M0) Determinants of Monetary Base annual percentage change further decreased by 9% at the end of June 2017, after recording an annual decline of 3% at the end of May 2017, and amounted to MVR10.2 billion at the end of the month. The fall in M0 was driven by a significant annual decline in the NDA of the MMA coupled with the decrease in NFA of the MMA. Source: Maldives Monetary Authority 5
6. Monthly Economic Review July 2017 Monetary Operations The two main instruments available to the MMA to Monetary Operations millions of ru yaa absorb excess liquidity in the banking system are the Overnight Deposit Facility (ODF) and the open market operations (OMO). However, the OMO continue to remain suspended since May 2014 and the excess liquidity in the system is absorbed by the commercial banks’ continuous and persistent placement of these funds in the ODF. In June 2017, the total liquidity absorbed averaged MVR2.0 billion, which was a decline of MV567.2 million and MVR1.1 billion in both monthly and annual terms, respectively. Source: Maldives Monetary Authority Imports and Exports During May8 2017, total merchandise exports rose Imports and Exports millions of US dollars by 56% (US$11.6 million) in annual terms and the expenditure on imports increased by 4% (US$8.3 million). The growth in exports was due to a significant increase in re-exports and a 29% increase in domestic exports. The increase in domestic exports was mainly due to a growth in earnings from frozen skipjack tuna and frozen yellowfin tuna despite a decrease in earnings from fresh or chilled yellowfin tuna exports. The annual growth of import expenditure resulted from an increase in import of petroleum products, mainly diesel. The Source: Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport increase in import of construction related items; machinery and mechanical appliances; and food items also contributed to the annual growth in total imports. In contrast, import of transport equipment declined during the period. 8  Data relating to trade was available only upto May 2017 at the time of compilation of this report 6
7. Monthly Economic Review July 2017 Gross International Reserves Gross international reserves (GIR) stood at US$603.4 million at the end of June 2017, which is a decline of 3% in annual terms although it reflected a 13% increase in monthly terms. Usable reserves9 amounted to US$248.8 Gross International Reserves millions of US dollars million at the end of June 2017, registering a monthly and an annual increase of 66% and 15%, respectively. This largely reflected the proceeds from a sovereign bond issued by the government in the international market. However, this was partly offset by the repayment of the foreign currency swap agreement between the Reserve Bank of India and the MMA. Exchange Rate With effect from 11 April 2011, the Maldivian rufiyaa was allowed to fluctuate within a horizontal band of 20% on either side of a central parity of MVR12.85 per US dollar. However, immediately after the introduction Source: Maldives Monetary Authority Bilateral Exchange Rates of the Ru yaa annual percentage change of the exchange rate band, the exchange rate of the rufiyaa per US dollar moved towards the upper limit of the band and since then it has remained virtually fixed at MVR15.42 per US dollar. Mirroring the movements of the US dollar against the currencies of major trading partners of the Maldives during June 2017, the rufiyaa appreciated in annual terms against the pound sterling, Sri Lankan rupee, Chinese yuan and the Singapore dollar, while it depreciated against the Indian rupee and the euro. As for the monthly changes, the rufiyaa depreciated Source: Bank of Maldives Plc against the Indian rupee, while it appreciated against the Sri Lankan rupee, pound sterling and the Chinese yuan. Meanwhile, it remained largely unchanged against the euro and the Singapore dollar. 9  Usable Reserves = GIR – Short-term foreign liabilities. This shows the amount of funds that are readily available for use by the MMA in the foreign exchange market. This report is prepared by the Economic Research and Analysis Section of the MMA. For further enquiries please contact us at 3328028 or e-mail us at ersd@mma.gov.mv 7
8. MALDIVES MONETARY AUTHORITY Boduthakurufaanu Magu Male ’ - 20182 Republic of Maldives Tel: (960) 330 8679 Fax: (960) 332 3862 Email: mail@mma.gov.mv Website: www.mma.gov.mv