Maldives: Monthly Economic Review - October 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 MVR528.7 million (0.8% 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 September 2017, total tourist arrivals increased markedly with an annual growth of 4% and totalled 105,984. This reflected increase in arrivals from the European market and the Asia and Pacific region. Key Tourism Indicators thousands The growth in the European market stemmed from a significant rise in arrivals from Germany, coupled with the increase in arrivals from Russia, Spain and Italy. Meanwhile, the growth in the Asia and Pacific region was driven by a remarkable increase in arrivals from India, Thailand and Korea during this period. However, this was partly offset by the significant fall in arrivals from China. During the month, the total bednights of the resorts increased by 4% in annual terms and the average duration of stay registered a slight decline from 5.8 days in September 2016 to 5.7 1 GDP growth rates are based on market prices. 2 According to the supplementary budget for 2017 submi ed to the Majlis. Source: Ministry of Tourism annual percentage change
2. Monthly Economic Review October 2017 days . The occupancy rate of the resorts dropped to 62% in September 2017 from 69% in September 2016, reflecting the annual increase in operational bed capacity of resorts by 15%. Fisheries Fish Exports annual percentage change In September 2017, fish purchases made by fish processing companies totalled 1,513.9 metric tons, registering an annual and monthly decline of 47% and 44%, respectively. During September 2017, both the volume and earnings from fish exports registered a growth of 14% and 8%, respectively, in annual terms. The growth in both earnings and volume of fish exports was largely due to significant increase in frozen yellowfin tuna and canned or pouched tuna exports.In contrast, both volume and earnings from frozen skipjack tuna declined over the period. In monthly terms, both the volume and earnings from fish exports registered a decline of 49% and Source: Maldives Customs Service IMF Commodity Price Index annual percentage change 44%, respectively. The decline in both the volume and earnings was driven by decline in frozen skipjack tuna. Global Prices During June3 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 Source: International Monetary Fund 2 end of June 2017, recording a fall of 3% and 8% in annual and monthly terms, respectively. 3  Data relating to global prices was available only upto June 2017 at the time of compilation of this report 4  Monthly average of Brent, Dubai Fateh and West Texas Intermediate.
3. Monthly Economic Review October 2017 In ation The rate of in flation (measured by the annual percentage change in the Consumer Price Index [CPI] ) accelerated to 2.9% at the end of September 2017 after registering 2.7% at the end of August 2017. This was due to an increase in prices of cigare es, housing rentals, staple food items and fish despite a decrease in electricity prices. As for the monthly percentage change in the CPI, it marked a turn Consumer Price Index annual percentage change around from a negative inflation of 0.4% recorded at the end of previous month, registering 0.5% in the review month. This was due to a sharp increase in fish prices coupled with the increase in prices of housing rentals and vegetables during the month. Public Finance According to monthly government revenue and expenditure data , total revenue (excluding grants) 5 during September 2017 amounted to MVR1.2 billion, which was an annual decline of MVR306.1 million. Meanwhile, total expenditure (excluding amortisation) decreased by MVR32.8 million in annual terms and Source: National Bureau of Statistics Government Revenue and Expenditure millions of ru yaa totalled MVR1.6 billion in September 2017. The decrease in total revenue was due to a sizeable decrease in non-tax revenues, most notably from decreases in land acquisition and conversion fees and resort rent. Meanwhile, tax revenues registered a slight growth, mainly due to increase in revenue from airport service charge and business profit tax. As for the decrease in expenditure, current expenditure decreased slightly despite a growth in capital expenditure during the period. The decrease in current expenditure largely reflected the decrease in expenditure on financing and interest costs, while Source: Ministry of Finance and Treasury the increase in capital expenditure was mainly due to increase in the public sector investment program during this period. 5  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 October 2017 Government Securities The total outstanding stock of government securities , which includes treasury bills and treasury bonds, remained relatively unchanged in both annual Treasury Bills and Treasury Bonds millions of ru yaa and monthly terms and totalled MVR21.8 billion at the end of September 2017. In annual terms, the outstanding stock of government securities remained largely unchanged, as the substantial increase in the outstanding amount of treasury bonds was offset by an equally large decrease in the outstanding stock of treasury bills. The outstanding treasury bonds rose by 13% (MVR1.1 billion) while outstanding treasury bills fell by 8% (MVR1.1 billion). The decline in treasury bills was due to a significant decrease in treasury bills holdings by commercial banks, coupled with a decrease in holdings by public non-financial Source: Maldives Monetary Authority Treasury Bills by Holder millions of ru yaa corporations. Meanwhile, the growth in treasury bonds largely reflected the conversion of part of the treasury bills to treasury bonds. In monthly terms, the investment in treasury bills rose by MVR41.5 million while investment in treasury bonds fell by MVR10.8 million. The slight increase in treasury bills investment was mainly due to the significant inrease in such investments by other financial corporations which was largely offset by the drastic decrease in treasury bills investments by commercial banks. Source: Maldives Monetary Authority 4
5. Monthly Economic Review October 2017 Interest Rates of Treasury bills Treasury bills of all maturities continue to be issued 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 recorded a further decline of 6%, after a 5% decrease recorded at the end of August 2017, and stood at MVR29.8 Source: Maldives Monetary Authority Determinants of Broad Money annual percentage change billion at the end of September 2017. This was mainly contributed by an annual decrease in the net foreign assets (NFA) of the banking system, largely due 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 the growth in domestic claims of commercial banks, primarily due to credit extension to the private sector. Source: Maldives Monetary Authority Monetary Base The monetary base decreased by 1% at the end of Determinants of Monetary Base annual percentage change September 2017, after recording an annual decrease of 3% at the end of August 2017, and amounted to MVR9.9 billion at the end of the month. The fall in reserve money was driven by a substantial decline in the NFA of the MMA despite an increase in NDA of the MMA. Source: Maldives Monetary Authority 5
6. Monthly Economic Review October 2017 Monetary Operations millions of ru yaa Monetary Operations The two main instruments available to the MMA to 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 September 2017, the total liquidity absorbed averaged MVR3.1 billion, which was a growth of MVR74.1 million and Source: Maldives Monetary Authority MVR232.4 million in monthly and annual terms, respectively. Imports and Exports Imports and Exports millions of US dollars During September 2017, total merchandise exports rose by 19% (US$2.4 million) in annual terms and the expenditure on imports increased by 12% (US$20.9 million). The growth in exports was due to an increase in both domestic exports and re-exports by 8% and 36%, respectively. The increase in domestic exports stemmed from the growth in earnings from frozen yellowfin tuna and canned or pouched tuna, while earnings from frozen skipjack tuna decreased during this period. The annual growth of import expenditure Source: Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport resulted from an increase in import of petroleum products, mainly diesel. In addition, increase in transport equipments and parts; food items; and construction related items also contributed to the annual growth in total imports. In contrast, import of machinery and mechanical appliances declined drastically over the period. 6
7. Monthly Economic Review October 2017 Gross International Reserves Gross international reserves (GIR) stood at US$519.4 million at the end of September 2017, registering a decline of 4% and 7% in annual and monthly terms, Gross International Reserves millions of US dollars respectively. Usable reserves6 amounted to US$191.9 million at the end of September 2017, representing a monthly decrease of 8% while it remained largely unchanged in annual terms. The monthly decrease in usable reserves largely reflected an increase in foreign currency sales by 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 of the exchange rate band, the exchange rate of the Source: Maldives Monetary Authority Bilateral Exchange Rates of the Ru yaa annual percentage change 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 September 2017, the rufiyaa appreciated in annual terms against the Sri Lankan rupee while it depreciated against the euro, the pound sterling and the the Indian rupee. Meanwhile, it largely remained unchanged against the Chinese yuan and the Singapore dollar. As for monthly changes, the rufiyaa appreciated Source: Bank of Maldives Plc against the Indian rupee, the euro and the Chinese yuan while it depreciated against the sterling pound. Meanwhile, it largely remained unchanged against the Sri Lankan rupee and the Singapore dollar. 6  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 Research Division 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