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Maldives: Quarterly Economic Bulletin - December 2017

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Maldives: Quarterly Economic Bulletin - December 2017


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  1. Quarterly Economic Bulletin December 2017 Volume 23 Issue 4
  2. This bulletin is compiled by the Research Division (RD) of the Maldives Monetary Authority (MMA). It covers developments in the domestic and international economy during the fourth quarter of 2017. The analyses are based on information provided by relevant government authorities, commercial banks operating in the country, public enterprises and other private sector sources, as at 19 February 2018. Where actual data is not readily available, estimates have been made by RD based on available information. The timely receipt of data is therefore crucial to the compilation of this publication and the analyses contained herein.
  3. Contents Recent Economic Developments International Economic Developments 1 Output1 Inflation 2 Commodity Prices4 Domestic Economic Developments5 Real Economy5 Public Finance8 Money and Banking11 External Trade13 Statistical Appendix
  4. Abbreviations bpsbasis points c .i.f. cost, insurance, freight CPI consumer price index f.o.b. free on board GDP gross domestic product GIR gross international reserves GST goods and services tax HICP Harmonised Index of Consumer Prices IMF International Monetary Fund MACL Maldives Airports Company Limited MMA Maldives Monetary Authority MRR minimum reserve requirement NCG net claims on central government NDA net domestic assets NFA net foreign assets NPL non-performing loan ODF Overnight Deposit Facility OPEC Organisation of Petroleum Exporting Countries PCE personal consumption expenditure PMI Purchasing Managers Index UAE United Arab Emirates UK United Kingdom US United States
  5. Recent Economic Developments
  6. International Economic Developments Based on preliminary GDP data for the euro area , growth momentum in the region continued to gain steam and recorded an annualised growth of 2.7% in Q4-2017, albeit decelerating slightly from the previous quarter. Growth continued to Output be underpinned by strong domestic consumption and labour market improvements. Unemployment Following the cyclical recovery that began in rate in the region marked the lowest since January the second half of 2016, global growth continues 2009. This is further evidenced by the Economic to firm up and outperformed expectations for Sentiment Indicator (ESI), as an upward trend the year 2017, with the output estimated to have persisted in both consumer and business confidence grown by 3.7%. This upward revision is broadly indicators. Looking at the main economies in the based on advanced economies; and key emerging region, Germany maintained its strong underlying markets and developing economies. While growth pace of growth on the back of strong labour market is bolstered by strong pickups in global trade, conditions and robust industrial activity. Growth investments have soared up in advanced economies in France was driven by the increase in exports and and manufacturing output has improved in business investment. Similarly, economic activity emerging markets and developing economies. in Italy benefited from higher exports and buoyant Looking at the advanced economies, the United States (US) economy slowed down to 2.6% in Q4-2017, after recording 3.2% at the end of Q3-2017. Growth stemmed from personal consumption expenditure (PCE)—the main driver domestic demand, albeit growth decelerated slightly when compared with the previous months. Meanwhile, domestic demand continued to support growth in Spain together with a positive contribution from external demand. of the economy—which remains buoyant due to In Japan, economic growth expanded for the eighth tightening in labour market as unemployment rate consecutive quarter and posted an annualised is low and projected to further decline. Meanwhile, growth rate of 0.5% during the quarter—the longest an increase in inventory investment as well as growth streak since the 1980’s boom. However, the higher government spending stemming from the pace of growth decelerated slightly when compared reconstruction efforts after Hurricane Harvey also with the preceding quarters. Growth was driven contributed considerably to real GDP growth. by a strong rebound in private consumption which However, these positive developments were accounts for roughly 56% of GDP, together with slightly offset by an increase in imports, which an increase in capital expenditures by the private contributed negatively. sector. On the other hand, a turnaround in imports Quarterly Economic Bulletin - December 2017 1
  7. contributed negatively during the quarter although November 2017 in the wake of an unusual warm an increase in exports was observed . weather. Nevertheless, growth continued to be driven by strong consumption, supported by Meanwhile, the United Kingdom (UK) economy recorded a modest growth of 1.5% during the quarter, decelerating from 1.7% in the preceding quarter. Services sector which accounts for 80% growing real wages. Moreover, increased external demand stemming from improved global trade has also aided to maintain a positive GDP growth in the economy during the period. of GDP, continued to be the main driving force behind the growth. Growth in the sector was In India, activity remained muted at the beginning spurred by a strong performance of the business of the review quarter primarily due to sluggish services and finance sector. However, growth in demand owing to the pass through effect of GST the quarter slowed because of a further weakening (introduced in July). However, economic growth in the construction sector. accelerated towards the end of the year as domestic demand picked up. This was indicated by the Looking at the emerging markets and developing economies, the Chinese economy outperformed improved Purchasing Managers Index (PMI) for both manufacturing and services sector. expectation and maintained a steady pace of growth in Q4-2017, recording a growth rate of 6.8% for the second consecutive quarter. Growth was Inflation benefitted by the continued buoyancy in services Global inflation further strengthened in Q4- sector which accounts for almost half of the GDP. 2017, amid an improvement in the global growth Meanwhile, strong services sector also helped to outlook. Similar to the preceding quarter, headline boost domestic demand against the background inflation in most of the advanced economies of the rebalancing efforts. Moreover, recovery in accelerated, despite core inflation continuing to external demand on the back of a robust global be timid and remaining below the central banks’ economy also contributed to the growth during the target. However, both core and headline inflation quarter. across key emerging markets and developing After maintaining a remarkable growth in the earlier part of the year, Russian economy slowed down in economies picked up slightly, largely reflecting the strong recovery in global energy prices. Q4-2017 as manufacturing output dropped due to Looking at the price developments in the advanced temporary factors. For instance, crude oil extraction economies, inflation in the US accelerated slightly decreased due to the base effect of the production to 2.1% during the quarter from 2.0% in the cut agreement and natural gas production fell in preceding quarter, primarily on the back of higher 2 Quarterly Economic Bulletin - December 2017
  8. global energy prices . Thereby, a large increase was depreciation of the pound sterling. Although observed in the price of gasoline during the quarter. inflation rose broadly across all major categories, In addition, the rise in price of shelter, medical care a sharp increase was concentrated in the prices of and food prices also contributed to the inflation transport; and food and non-alcoholic beverages. growth during the quarter. Looking at the emerging markets and developing In the euro area, the rate of inflation as measured economies, the rate of inflation in China rose to by the annual change in the Harmonised Index 1.8% in Q4-2017 from 1.6% recorded in Q3-2017. of Consumer Prices (HICP) remained below the The growth in inflation mainly stemmed from European Central Bank’s target and stood at 1.4%, medical care, despite a sluggish growth in prices of maintaining the same rate as the previous quarter. food and tobacco. The slow growth in food prices Inflation in the region continued to be driven by was largely attributed to weaker vegetables and the increase in prices for energy-related items such meat prices throughout the year. as transport fuels, while price of dairy products also observed a hike during the period. However, this was partially offset by a decline in prices of telecommunication. In India, inflation further accelerated in Q4-2017, fuelled by a rise in both energy and non-energy prices. While growth in general commodity prices can be attributed to the base effect of the fall in In Japan, inflation rate has remained at the same prices due to demonetisation, prices of oil-related level of 0.6% for the second consecutive quarter. items increased against the background of global The moderate increase in inflation resulted from oil price rally. Moreover, rising housing prices a rise in prices for energy-related items such as triggered from a policy revision also contributed to fuel, gas and utilities, together with an increase in the price growth during the period. prices of medical care. Meanwhile, prices of food items remained relatively low over the period. It is also noteworthy that inflation remains far below the Bank of Japan’s target rate although a positive inflation was observed throughout the year. Meanwhile, Inflation in Russia followed its downward trend to record 2.6% in Q4-2017, which is well below the target set by the Central Bank of Russia for the year. The slowdown in inflation was mainly driven by softer food prices because of The annual rate of inflation in the UK increased a bumper crop. Similar to the preceding quarter, further to 3.0% during the quarter, strongly lower non-food prices due to a stronger ruble in the reflecting the hike in global oil prices coupled global market also contributed to the slowdown in with the rise in import prices following the past prices. Quarterly Economic Bulletin - December 2017 3
  9. Commodity Prices According to the World Bank commodity price prices were observed for sugar and oils . In contrast, index, global commodity prices observed a prices of grains such as rice and wheat increased substantial increase in both annual and quarterly during the period. As for industrial inputs, metal terms during Q4-2017, largely due to the increase prices continued to surge and recorded an annual in energy prices stemming from higher oil prices. growth of 20% during the quarter. The upsurge Non-energy prices contributed to the price growth in metal prices reflected strong demand for metal moderately during the period as a considerable rise commodities, particularly in China. Meanwhile, in metal prices was largely offset by a fall in food supply bottlenecks caused due to introduction of prices. environmental regulation in China also contributed Prices of crude oil recorded an average of US$58.7 per barrel1 in Q4-2017, representing an annual growth of 20%. Similar to the preceding quarter, crude oil prices increased because of supply side factors as well as better-than-expected global demand. On the supply side, the Organisation of Petroleum Export Countries (OPEC) and some nonOPEC producers agreed to extend oil production cuts until the end of 2018, while geopolitical tensions in the Middle East continued to disrupt global oil supply. Furthermore, the supply shortages partly reflected the closure of the pipeline system in the North Sea for repairs. On the demand side, crude oil prices were pushed up by better-than-expected global demand from China, together with a fall in inventories because of increased refining activity in the US. Looking at major commodities in the non-energy group, global food prices as measured by the World Bank food price index decreased by 1% in annual terms during Q4-2017. Major declines in food 1  Quarterly average of Brent, West Texas Intermediate and the Dubai Fateh. 4 Quarterly Economic Bulletin - December 2017 to the rise in metal prices.
  10. Domestic Economic Developments Real Economy Tourism Activity in the tourism sector continued to strengthen and gained further momentum towards the end of 2017 . Accordingly, the number of tourist Figure 1: Quarterly Inbound Tourist Arrivals , 2014–2017 (thousands, annual percentage change) 450 arrivals showed a marked growth of 15% in annual 400 terms and totalled 391,533 in Q4-2017. In quarterly 300 terms, the number of arrivals showed the same 200 pace of growth, signifying the seasonal patterns 100 (Figure 1). The growth in arrivals was mainly 0 350 250 150 50 driven by a substantial increase in arrivals from Europe, followed by the Asia and Pacific region 2014 2015 2016 Arrivals (left axis) 2017 16 14 12 10 8 6 4 2 0 -2 -4 Annual growth (right axis) Source: Ministry of Tourism and the Americas. Looking at other key indicators of the tourism sector, resort bednights recorded a significant growth of 21% in annual terms, reflecting the increase in the number of tourist arrivals coupled with a slight increase in the average duration of Figure 2: Quarterly Bednight Growth of Resorts and Average Stay, 2014–2017 (annual percentage change, days) 24 stay which recorded 6.2 days in Q4-2017, up from 20 6.0 days in Q4-2016 (Figure 2). Mirroring these 12 positive developments, total tourism receipts for the quarter is estimated to have increased by 25% in annual terms to US$819.4 million. As for the supply side, the operational bed capacity of resorts increased by 11% in annual terms 6.6 16 6.2 8 5.8 4 0 5.4 -4 -8 -12 2015 2016 Bednight growth (left axis) 2017 5.0 Average stay (right axis) Source: Ministry of Tourism and averaged 28,580 beds during the quarter, contributed by the opening of 9 new resorts during Quarterly Economic Bulletin - December 2017 5
  11. the year . Despite the increase in the operational tonnes during Q4-2017, which was driven by a bed capacity, the average occupancy rate of resorts significant increase in skipjack tuna purchases increased to 79% in Q4-2017 when compared with coupled with a marginal increase in yellowfin tuna 73% recorded in the corresponding quarter of 2016. purchases. As for developments in major tourist markets, On the export front, the available data2 on fish Europe—accounting for 50% of the total arrivals exports indicated a weakening of activity during during the quarter—registered a significant growth the quarter as the volume of fish exports registered of 17% in annual terms. The increase in arrivals an annual decline of 8% during the period Oct- from Europe was led by Russia, Italy, Germany Nov 2017 when compared with the corresponding and the UK which grew by 32%, 31%, 13% and period of 2016. This was largely due to a significant 11%, respectively, in annual terms. Other European decline in the volume of frozen yellowfin tuna markets that showed marked growth include exports coupled with a slight fall in dried tuna and France, Austria and Sweden, which registered an fresh or chilled skipjack tuna exports. The decline annual growth of 10%, 25% and 32%, respectively. in the volume of exports was partly offset by an Arrivals from the Asia-Pacific region—the second increase in frozen skipjack tuna and canned or largest source market—grew by 12% in annual pouched tuna exports. terms and accounted for 42% of the total arrivals during the period. The growth in the region was contributed by a considerable increase in arrivals from China, Thailand and India. Arrivals from other countries in the region such as Korea and Australia also posted a higher growth during the quarter. Construction Construction sector is expected to have maintained its continuous robust growth in Q4-2017, as indicated by the increase in both bank credit to the sector and construction-related imports–key indicators to measure the performance of the sector. Commercial bank credit to the construction Fisheries sector rose by 22% in annual terms during Q4-2017, Turning to the developments in the fisheries sector, largely owing to increases in loans for residential after a weak performance in the preceding quarter, housing, construction of guest houses and new the primary fishing activity depicted signs of resort development. In addition, construction- improvement during Q4-2017 as indicated by the related imports posted an annual growth of 21% 4% growth in fish purchases by fish processing during the period Oct-Nov 2017 when compared companies, when compared with the same period with the same period of 2016. The strong of 2016. Fish purchases recorded 22,877 metric 2  Trade data for December 2017 was not available at the time of compilation of the report. 6 Quarterly Economic Bulletin - December 2017
  12. performance of the sector is mainly attributed to the ongoing infrastructure projects . Wholesale and Retail Trade Activity in the wholesale and retail trade sector showed positive developments during Q4-2017 as indicated by bank credit to the sector and private sector imports – key indicators of the sector. Bank The rate of inflation (as measured by the annual change in consumer price index [CPI] at the national level) slowed markedly and recorded 0.9% Oct-17 Energy related items Transport Rent Food excluding fish Fish Other Health Education CPI (left axis) Dec-17 Jun-17 Aug-17 Apr-17 -2 Feb-17 -1 Oct-16 -1.0 -2.0 Dec-16 0 Jun-16 0.0 Aug-16 1 Apr-16 2 1.0 Feb-16 2.0 Oct-15 3 Dec-15 Inflation 4 3.0 Jun-15 2%. 4.0 Aug-15 Oct-Nov 2017, it registered an annual growth of 5 Apr-15 2016. As for private sector imports for the period 5.0 Feb-15 when compared with the corresponding quarter of (annual percentage change, percentage point contribution) Oct-14 recorded a marginal increase during the quarter Figure 3: Contribution of Sub-Categories to CPI Inflation, 2014-2017 Dec-14 credit to the wholesale and retail trade sector Source: National Bureau of Statistics during Q4-2017, down from 2.9% in Q3-2017. The drop in the inflation rate was mainly caused by a significant fall in electricity prices, which partially offset the growth in price of cigarettes and housing rentals. Meanwhile, food prices which accounts for a large share in the CPI basket, made only a small positive contribution to the overall inflation rate during the quarter (Figure 3), mainly because of the base effect from food subsidy has fully dissipated. Electricity prices registered a further decline and remained at negative 18.3% during the quarter. This decline was the result of a downward revision of import duties charged on petrol and Quarterly Economic Bulletin - December 2017 7
  13. diesel during June 2017 , which led to the removal Meanwhile, prices in the transport category also of fuel surcharge on electricity by the service showed a decline because of a fall in prices of motor providers—State Electric Company Limited and cycles and airline tickets, which fully offset the Fenaka Corporation Limited. However, the fall in hike in prices of fuels and lubricants. Furthermore, electricity prices was partly offset by the continued marginal decline in prices for recreation and increase in the rental prices of housing. Moreover, cultural services category contributed to the lower the base effects from the upward revision of import inflation rate during the quarter, while prices in duties on cigarettes continued into the quarter and communication sector posted a slight growth in recorded an inflation rate of 41.7%. However, the prices. base effects have started to dissipate gradually, which is evident from the slight deceleration in the price of cigarettes during the quarter. Public Finance Total government revenue (excluding grants) Looking at the sub-components of food prices, increased by MVR490.1 million and totalled fruits and vegetables showed a marked increase MVR4.5 billion during Q4-20173 (Figure 4) when in prices during the period, mainly reflecting the compared with the corresponding period of acceleration in prices of fresh citrus fruits, dried 2016, driven by increases in both tax and non-tax fruits, root crops, cabbages and potatoes. However, revenues. Tax revenue, which accounted for 70% of this was dampened by the decrease in the prices of the total revenue during the quarter, registered an staple food items which reflects the dissipation of annual increase of MVR271.5 million and amounted the base effects of food subsidy removal in October MVR3.2 billion. The significant increase in tourism 2016. A decline in fish prices – the most volatile and goods and services tax (T-GST), reflecting the heavily weighted item in the food category –also buoyant growth of the tourism sector, was the main curbed the food prices. In addition, prices of eggs contributor to this growth. As such, revenue from and oils posted a slight increase while the price of T-GST rose by MVR129.5 million while revenue bread and meat decreased during the period. from general goods and services tax (G-GST) grew Looking at other categories, a marked deceleration was observed for the prices of furnishing and household equipment. This largely reflected a decline in the prices of major household appliances, coupled with a deceleration in price of goods and by MVR45.9 million during the quarter. Looking at other main sources of tax revenues, revenue from import duties and airport service charge also recorded a solid growth, while business profit tax revenue fell during the period. services for household maintenance. 3  According to the latest data available from the Ministry of Finance and Treasury as at 19 February 2018. 8 Quarterly Economic Bulletin - December 2017
  14. As for non-tax revenue , which accounted for 30% of the total revenue, it increased by MVR214.8 million in annual terms and summed MVR1.3 billion during Q4-2017. This was mostly due to an upward base effect of receipts from airport development fee, which was introduced in May 2017. In addition, a growth in dividends from state-owned enterprises also contributed to the increase in non-tax revenue during the quarter. Meanwhile, the increase in such Figure 4: Government Revenue and Expenditure, 2016-2017 revenue was offset to some extent by a decline in (millions of rufiyaa) the revenue from land acquisition and conversion fees, reflecting the base effect of the large amount of arrears recorded in November 2016. 12,000.0 10,000.0 8,000.0 6,000.0 Total expenditure (excluding debt amortisation) declined by MVR2.5 billion in annual terms during the Q4-2017 and amounted to MVR7.0 billion. The annual decline in total expenditure reflected a significant fall in capital expenditure coupled with 4,000.0 2,000.0 - Q1-2016 Q2-2016 Q3-2016 Q4-2016 Q1-2017 Q2-2017 Q3-2017 Q4-2017 Total Revenue (Excluding Grants) Total Expenditure (Excluding Amortization) Source: Ministry of Finance and Treasury a considerable decrease in current expenditure. Current expenditures fell by MVR696.8 million, largely due to a decline in expenditure on Aasandha, which fell by MVR334.0 million during the period. This was followed by a decrease in expenditure on trainings. Furthermore, salaries and wages—the largest component of the current expenditure— posted a slight decline during the period. As for the decline in capital expenditure, this was largely the result of a decline in spending on the Public Sector Investment Program, which fell by MVR1.5 billion. Quarterly Economic Bulletin - December 2017 9
  15. Domestic Financing Looking at the domestic financing data for Q42017 , the total outstanding stock of claims on government4—which includes treasury Figure 5: Composition of Domestic Claims on Government, 2016-2017 bills; treasury bonds and; loans and advances to the government—stood at MVR27.2 billion at the end 12% 33% Loans and advances Q4-2016 of December 2017, an increase when compared Treasury bills Treasury bonds with MVR25.5 billion at the end of September 2017. 55% This depicted a net borrowing of MVR1.7 billion in 14% Q4-2017 when compared with a net borrowing of MVR1.4 billion in Q4-2016. 34% Loans and advances With regard to the sources of domestic financing, Q4-2017 Treasury bills Treasury bonds 52% government securities (treasury bills and treasury bonds) remained as the primary source of borrowing during the quarter (Figure 5). The total stock of outstanding government securities Source: Maldives Monetary Authority amounted to MVR23.4 billion at the end of December 2017, representing a net issuance of MVR1.6 billion. This was entirely due to a net issuance of treasury bills during the quarter as treasury bonds recorded a marginal net repayment during the period (Figure 6). As for the loans and advances to the government, it amounted to MVR3.8 billion at the end of the quarter. This also reflected a net issuance of MVR41.4 million during the quarter. Figure 6: Treasury Bills by Holder, 2014-2017 (millions of rufiyaa) 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Delving into the composition of government securities during the quarter, treasury bills accounted for the largest share (60%) followed by treasury bonds (40%). At the end of the quarter, the outstanding stock of treasury bills amounted to MVR14.1 billion while treasury bonds stood 4  Domestic financing includes domestic debt of the government excluding publicly guaranteed debt. 10 Quarterly Economic Bulletin - December 2017 2014 Private parties 2015 PNFCs 2016 OFCs Source: Maldives Monetary Authority MMA 2017 Commercial banks
  16. at MVR9 .3 billion. Moreover, commercial banks With regard to the monetary operations of the remained as the largest investor in treasury bills MMA, the daily average liquidity absorbed followed by the pension fund. through commercial banks’ investments in the overnight deposit facility (ODF) stood at MVR3.4 billion in Q4-2017. This depicted an annual increase Money and Banking Looking at the developments of 13% (MVR398.9 million) compared with the in monetary corresponding quarter of 2016. aggregates, reserve money recorded an annual growth of 19% and stood at MVR10.7 billion at the Broad money (money supply) recorded an annual end of Q4-2017 (Figure 7). In comparison, reserve increase of 5% in Q4-2017 and totalled MVR32.0 money declined marginally during the preceding billion. This followed an annual decline of 6% in quarter. The expansion was largely due to the broad money at the end of the preceding quarter. growth in net foreign assets (NFA) of the MMA, With regard to its components, both the increase which grew by 64% in annual terms during the in local and foreign currency demand deposits and period. This mainly reflected an increase in foreign the increase in currency in circulation contributed currency deposits held abroad by the MMA. towards the increase in money supply during the Meanwhile, the decline in MMA’s foreign liabilities period. (a 77% annual decline) also contributed to the growth in NFA during the period. This reflected the base effects from the maturity of a foreign currency swap arrangement with the Reserve Bank of India during the year. Turning to the counterparts of broad money, the annual expansion in broad money is solely attributed to the increase in NFA of the banking system (a 31% annual increase) during the period. The increase in NFA of the banking system mainly Meanwhile, the decline in the net domestic assets reflected the increase in the MMA’s foreign currency (NDA) of the MMA slowed down the growth rate deposits held abroad, whereas commercial banks’ of reserve money during the period. The fall in deposits held abroad declined during the period. NDA (a 44% annual decline) mainly stemmed from Despite the increase in loans to private sector by the increase in government deposits held at the commercial banks, the NDA of the banking system MMA. Moreover, claims on public non-financial contracted in Q4-2017, primarily owing to a decline corporations declined in Q4-2017. This reflected in net claims on central government (NCG). As repayments received by the MMA for a foreign such, NCG declined by 13% in annual terms and currency corporate bond issued by the Maldives stood at MVR11.6 billion at the end of the quarter, Airports Company Ltd (MACL). when compared with the 15% annual contraction in Quarterly Economic Bulletin - December 2017 11
  17. the preceding quarter . The decline in NCG mainly reflects the fall in commercial banks’ investments in government securities during the period. With respect to loans to private sector, it registered an annual growth of 14% at the end of the quarter, which was higher than the annual growth recorded in the previous quarter. Both local and foreign currency denominated loans registered an annual increase of 25% and 6%, respectively, at the end of the quarter. Private sector credit growth was mainly driven by loans to real estate sector, which more than doubled (by MVR1.0 billion) in annual terms at the end of Q4-2017. This primarily reflected loans for residential and housing purposes. Moreover, loans to the tourism sector also increased by MVR871.2 million in annual terms, on account of the increase in lending to guest house development and working capital purposes. Meanwhile, personal loans grew significantly by MVR1.0 billion in annual terms, reflecting the increase in credit card and consumer durable loans. Looking at the weighted average interest rates on loans and advances to the private sector, the rates on local currency loans declined by 21 basis points (bps) at the end of the quarter compared with September 2017, while it declined by 80 bps when compared with December 2016. Meanwhile, the rates on foreign currency loans fell by 12 bps at the end of Q4-2017 when compared with the previous quarter, while it also decreased by 2 bps in annual terms. 12 Quarterly Economic Bulletin - December 2017 Figure 7: Changes in Reserve Money and Broad Money, 2014-2017 (annual percentage change) 50 40 30 20 10 0 (10) (20) (30) 2014 2015 2016 Growth in reserve money Growth in broad money Source: Maldives Monetary Authority 2017
  18. Banking Sector Performance The banking sector remained strong during the quarter , with key prudential indicators standing well above the regulatory minimum requirements. During the year pre-tax profits earned by the banks amounted to MVR2.3 billion, registering a decline of 17% in annual terms. This decline was mainly due to increased loan loss provisions during the year, amounting to MVR260.6 million. Despite the decline in the profits, the profitability ratios remained high, as indicated by the return on average equity of 15% during the period. The capital adequacy of the banking sector remained solid, with total capital to risk-weighted assets at 45% against the minimum requirement of 12%. This was on account of the significant portion of low risk assets in the portfolio. Leverage capital, as measured by equity to gross assets, stood at 20% compared with the minimum requirement of 5%. Liquidity remained high with liquid assets as a percentage of total deposits and borrowings at 62%, against 67% a year ago. MVR23.5 billion. Investments in treasury bills made up 17% of assets and amounted to MVR8.4 billion as at December 2017. As regards asset quality, the absolute value of non-performing loans (NPLs) increased by 15% compared with the previous year. However, NPLs as a percentage of total loans remained at 11%, at the end of the year, the same as a year ago, owing to the significant growth in total loans during the period. Banks have made loan loss provisions that cover 89% of the NPL portfolio. External Trade During the period Oct-Nov 20175, the total merchandise exports—comprising domestic exports and re-exports—grew by 16% (US$7.3 million) in annual terms and totalled US$53.7 million. This was mainly due to a growth in domestic exports and re-exports, which rose by 13% (US$3.9 million) and 20% (US$3.3 million), respectively, during the period. The annual growth in domestic exports was almost entirely due to a At the end of December 2017, banking sector rise in fish exports, while the annual increase in deposits stood at MVR31.2 billion, representing a re-exports was driven by a growth in jet fuel sold growth of 8% (MVR2.4 billion) in quarterly terms to international aircrafts, reflecting the growth in and 4% (MVR1.2 billion) in annual terms. The global oil prices. increase in deposits is attributed to the growth in tourism over the year, especially during Q4-2017. The annual growth in fish exports was largely due to the increase in earnings from frozen skipjack As at the end of Q4-2017, loans made up 48% of tuna; canned or pouched tuna; and fresh or chilled the asset portfolio, and registered a strong growth yellowfin tuna exports (Figure 8). Earnings from of 15% (MVR3.1 billion) in annual terms to reach 5  Trade data for December 2017 was not available at the time of compilation of the report. Quarterly Economic Bulletin - December 2017 13
  19. frozen skipjack tuna exports , which accounted for 30% of total fish exports during the period, grew by 35% when compared with the corresponding period of 2016. This reflected a growth in the volume of such exports during the period. Earnings from fresh or chilled yellowfin tuna (38% of total Figure 8: Composition of Fish Exports Earnings, Q3-2017 fish exports) also grew by 10% during the period, 5% reflecting higher yellowfin tuna prices in the 14% international market. Meanwhile, earnings from canned or pouched tuna (14% of total fish exports) 3% 30% Yellowfin tuna 1% Bigeye tuna Canned or pouched tuna recorded an almost twofold increase due to the Processed fish, nes growth in the volume of exports (Figure 9). Total merchandise imports (cif) recorded an Skipjack tuna 47% Other Source: Maldives Customs Service annual growth of 9% (US$31.3 million) during the period Oct-Nov 2017 when compared with the corresponding period of 2016. The increase in merchandise imports during the period stemmed mainly from petroleum products, particularly Figure 9: Annual Changes in the Value of Fish Exports, Q3-2017 diesel (marine gas oil) and aviation gas, reflecting (thousands of US dollars) the upsurge in global oil prices. Additionally, a 2500 significant increase was recorded for imports of 2000 construction-related items which reflects the on- 1500 going large public infrastructure projects as well 1000 the vibrant growth of the construction sector as 500 a whole. Food items, which accounted for 20% of 0 total important, also increased during the period -500 Skipjack tuna Yellowfin tuna Bigeye tuna (Figure 10). Source: Maldives Customs Service Direction of Trade The Asia and Europe remained as the main export destinations, accounting for 49% and 39% of total exports, respectively, during the period Oct-Nov 14 Quarterly Economic Bulletin - December 2017 Canned or Processed pouched tuna fish, nes Other
  20. 2017 . In annual terms, exports to Asia observed a marginal fall of 4%, while exports to Europe improved by 39%. The fall in exports to Asia was mainly due to a significant decline in exports to Sri Lanka and Thailand—major Asian markets accounting for 11% and 70% of total export to Asia, respectively. The decline in exports to Sri Lanka was mainly due to a significant decline in earnings from export of processed tuna, while exports of fresh or chilled yellowfin tuna also observed a marked Figure 10: Composition of Imports, 2016-2017 drop. As for Thailand, export earnings from frozen (millions of US dollars) 90 yellowfin tuna fell significantly, which more than 80 offset the growth in earnings from frozen skipjack 60 tuna exports. However, this was partly offset by a 40 notable increase in exports to new markets such as China and Vietnam, with the bulk of exports being frozen yellowfin tuna and, fresh or chilled yellowfin tuna, respectively. As for Europe, the 70 50 30 20 10 0 Food items Petroleum products Wood, metal, Machinery cement and and aggregates mechanical appliances and parts Oct-Nov 2016 Electrical machinary and equipment and parts Transport equipments and parts Oct-Nov 2017 growth in exports was largely due to the increase in exports to the UK (27% of exports to Europe) Source: Maldives Customs Service and France (24%). The growth in exports to the UK, accounting for 11% of the total exports during the period, was attributed to a surge in canned or pouched tuna exports, followed by an increase in fresh or chilled yellowfin tuna exports. Meanwhile, increase in export of processed tuna and frozen yellowfin tuna contributed to the growth of export to the French market. In addition, exports to the United States also registered a significant increase due to a sizable increase in export of fresh or chilled yellowfin tuna and canned or pouched tuna. As for the direction of imports during the period Oct-Nov 2017, Asia continued to dominate as the Quarterly Economic Bulletin - December 2017 15
  21. main import market (82% of the total imports), followed by Europe (11%). Within the Asia region, the United Arab Emirates (UAE) remained as the main source of imports to the Maldives (24% of imports from the region), followed by Singapore (17%), India (16%) and China (12%). Petroleum products continued to be the major import item from UAE, while imports of food items; wood, metal, cement and aggregates; and electrical and electronic machinery from the country also registered an annual growth during the period. The marked increase in imports from Singapore during the period was mainly due to the hike in import of petroleum products; construction related items; and machinery and mechanical appliances. As for India, imports of food items; electrical machinery and equipment; and pharmaceuticals accounted for the largest share. In addition, construction related items were the major source of imports from China during the period, followed by machinery and mechanical appliances. Figure 11: Gross International Reserves, 2014-2017 (millions of US dollars) 800 700 600 500 400 300 200 100 0 2014 2015 Usable reserves Gross international reserves Gross International Reserves The Gross International Reserve (GIR6) stood at US$586.1 million at the end of Q4-2017, an annual growth of 25% when compared with the corresponding quarter of 2016 (Figure 11). Meanwhile, the GIR grew by 13% when compared with Q3-2017. As the GIR mainly includes the commercial banks’ foreign currency deposits held at the MMA (minimum reserve requirement [MRR] 6  GIR comprises foreign currency deposits of the MMA and the government, commercial bank’s US dollar reserve accounts and Maldives’ reserve position in the IMF. 16 Quarterly Economic Bulletin - December 2017 Source: Maldives Monetary Authority 2016 2017 Short term foreign liabilities
  22. and excess reserves ), the growth in GIR reflected a rise in such deposits at the MMA. Meanwhile, the usable reserves7 component of the GIR amounted to US$206.4 million at the end of December 2017, registering a growth of 3% and 8% in annual and quarterly terms, respectively. Both the annual and quarterly increase in usable reserves was due to an increase in foreign currency receipts during the quarter. Exchange Rates At the end of Q4-2017, the MMA reference rate of the rufiyaa per US dollar stood at MVR15.41, representing a marginal depreciation in annual terms. Mirroring the movements of the US dollar against the major trading partners of the Maldives at the end of December 2017, the bilateral exchange rates of the rufiyaa depreciated in annual terms against the euro by 13%; the Singapore dollar and the pound sterling by 9%; and the Chinese yuan and the Indian rupee by 6%. Meanwhile, the rufiyaa remained relatively unchanged against the Sri Lankan rupee during this period. When compared with September 2017, the rufiyaa depreciated against the Chinese yuan, the euro, the Indian rupee and the Singapore dollar by 2%, while it remained largely unchanged against the pound sterling and Sri Lanka rupee. 7  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. Quarterly Economic Bulletin - December 2017 17
  23. Statistical Appendix
  24. Table of Selected Economic Indicators , 2014 - 2017 (annual percentage change over the corresponding period, unless stated otherwise) 2014 Real Sector Tourist arrivals Bednights of resorts Operational capacity of resorts Occupancy rate of resorts (%) Average stay (days) Fish purchases 2015 2016 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 7 3 2 82 6.0 (20) 2 (5) 2 76 5.7 (10) 4 2 5 74 6.0 19 4 1 2 84 6.3 (15) (1) (3) 4 66 6.0 18 5 4 5 73 5.8 14 8 7 10 73 6.0 55 4 6 11 81 6.5 83 8 8 14 63 6.1 53 5 6 15 68 6.0 74 15 21 11 79 6.2 4 2.1 2.2 0.4 1.0 1.1 0.9 0.5 0.7 1.5 0.9 0.9 1.1 (0.4) (0.2) (1.0) (0.4) (0.2) (1.4) 1.8 2.3 7.3 3.4 3.6 9.6 4.2 7.5 9.6 2.9 2.6 7.2 0.9 1.0 0.5 17,586.9 6,440.5 11,146.4 5,908.5 5,237.9 20,001.6 7,419.6 12,582.0 7,875.9 4,706.1 23,230.3 8,774.6 14,455.7 74.4 10,154.9 4,226.4 20,599.0 7,414.4 13,184.7 8,451.8 4,732.9 23,230.3 8,774.6 14,455.7 74.4 10,154.9 4,226.4 23,231.7 9,429.2 13,802.5 74.4 9,955.6 3,772.5 22,930.6 9,413.2 13,517.4 77.2 9,825.7 3,614.5 21,785.6 9,336.3 12,449.3 93.8 8,138.7 4,216.8 23,414.2 9,320.9 14,093.4 93.8 8,694.4 5,305.1 1/ Prices Total (Republic) Total excluding fish Food and non-alcoholic beverages excluding fish Government Securities (millions of rufiyaa) Government securities outstanding Treasury bonds Treasury bills MMA Commercial banks Others Money and Banking Broad money Net foreign assets Net domestic assets Net claims on central government Claims on other sectors o/w Private sector Reserve money 2/ Market operations 3/ Open market operations Overnight Deposit Facility 21,398.5 7,903.2 13,495.3 9,047.6 4,447.7 21,843.5 8,284.9 13,558.6 9,542.9 4,015.7 15 42 (1) 6 2 3 30 12 (2) 24 24 12 12 (18) 0 (36) 24 18 21 11 (13) 15 2 28 29 16 16 (11) 9 (16) 34 27 20 20 (14) 6 (12) 20 28 12 15 (5) 0 (36) 24 18 21 11 (13) (5) (41) 22 11 22 12 (16) (0) (11) 7 (8) 21 12 (9) (6) (26) 6 (15) 21 13 (1) (50) 227 121 29 70 46 16 - - (21) - 0 (4) (2) 5 31 (4) (13) 10 15 19 13 1/ The inflation rate for the year refers to the period average values, whereas inflation for the quarter represents the annual percentage change in the three-month-average. 2/ Monetary operations figures represent the average investment. 3/ Open market operations were suspended from May 2014 onwards. Source: Ministry of Tourism, Ministry of Fisheries and Agriculture, Ministry of Finance and Treasury, National Bureau of Statistics, Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport, Maldives Monetary Authority. Quarterly Economic Bulletin - December 2017 20
  25. Table of Selected Economic Indicators , 2014 - 2017 (annual percentage change over the corresponding period, unless stated otherwise) 2014 External Trade Merchandise exports (f.o.b.) Domestic exports o/w Fish exports Re-exports Merchandise imports (c.i.f.) o/w Food Petroleum Construction-related imports 2015 2016 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q44/ (9) (13) (14) (5) 15 8 14 26 (20) (0) (1) (39) (5) (0) (50) 48 7 (3) (2) 22 12 6 (13) 20 (23) (12) (11) (37) (2) 7 (41) 30 (16) 1 3 (41) 28 7 (13) 25 (29) (29) (29) (30) 6 2 (13) 9 115 27 29 289 18 7 29 18 59 50 51 76 18 7 45 19 60 34 34 126 6 3 42 20 61 58 60 65 15 11 14 33 16 13 13 20 9 13 33 21 o/w Singapore 18 17 14 15 15 15 13 12 13 11 14 India 9 12 13 13 13 13 12 12 13 12 13 Sri Lanka 7 7 6 7 6 6 6 8 6 6 7 24 17 16 15 14 15 19 18 19 18 20 4 5 5 5 5 5 4 4 5 5 5 32 25 34 27 33 32 43 53 57 39 34 6 12 10 12 10 9 9 4 3 5 5 14 10 9 9 10 9 8 6 7 7 9 7 7 9 10 9 6 8 6 7 10 7 614.7 564.0 467.1 661.4 623.9 541.4 467.1 501.2 603.4 519.4 586.1 Direction of Trade of Imports of Goods (as a percentage of total) UAE Thailand Direction of Trade of Exports of Goods (as a percentage of domestic) o/w Thailand Sri Lanka France Germany External Reserves Gross international reserves (millions of US dollars) 4/ Data relating to trade was only available upto November 2017 at the time of compilation of report Source: Ministry of Tourism, Ministry of Fisheries and Agriculture, National Bureau of Statistics, Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport, Maldives Monetary Authority. 21 Quarterly Economic Bulletin - December 2017
  26. MALDIVES MONETARY AUTHORITY Boduthakurufaanu Magu Male ’ - 20182 Republic of Maldives Tel: (960) 330 8679 Fax: (960) 332 3862 Email: Website: