Maldives: Quarterly Economic Bulletin - March 2020

Transcription

1. Quarterly Economic Bulletin - March 2020 1
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 first quarter of 2020. 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 17 June 2020. 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 Outlook for 2020 2 Overview 3 International Economic Developments 4 Global Output 4 Global Inflation 5 Commodity Price 7 Global Trade 8 Global Financial Markets 8 Economic Developments in the Maldives 10 Real Economy 10 Inflation 13 Public Finance 14 Money and Banking 15 External Trade 19 Statistical Appendix
4. Abbreviations BPT business profit tax CPI consumer price index GDP gross domestic product GFC Global Financial Crisis G-GST general goods and services tax GIR gross international reserves GST goods and services tax IMF International Monetary Fund MMA Maldives Monetary Authority NDA net domestic assets NFA net foreign assets NPL non-performing loan OPEC Organization of the Petroleum Exporting Countries PCE personal consumption expenditure PMI purchasing managers ’ index QNA quarterly national accounts T-GST tourism goods and services tax UNWTO United Nations World Tourism Organization UK United Kingdom US United States
6. RECENT ECONOMIC DEVELOPMENTS
8. Outlook for 2020 The COVID-19 pandemic and the lockdown activity in 2020 from the 7 .7% growth projected for measures adopted by governments worldwide to the year in October 2019. The best case scenario contain its spread has led to a severe contraction in predicts a decline in GDP growth of 11.3% assuming economic activity both in the Maldives and abroad. the opening of borders in July 2020, and a rebound Tourism, which directly accounts for more than 25% in tourist arrivals from October 2020. However, a of the Maldivian and 81% of export earnings, has major downside risk under this scenario is a slower been one of the sectors hardest hit by the COVID-19 easing of travel restrictions leading to a delayed pandemic owing to travel restrictions and border recovery of tourist arrivals, due to more stringent closures imposed in response to the COVID-19 and protracted containment measures in countries outbreak, beginning as early as February 2020. 1 unable to control the COVID-19 outbreak, and The sharp decline in tourist arrivals to the Maldives, fear of a second wave of infection in countries with along with domestic movement restrictions and declining infection rates. Meanwhile, the alternative disruptions to global supply chain, has led to a sudden growth forecast scenarios project steeper declines downturn in economic activity in Q1-2020, with a in GDP of 17.8% (assuming the opening of borders much severe contraction in Gross Domestic Product in September 2020 and no rebound in arrivals this (GDP) anticipated for Q2-2020. year) and 26.4% (assuming the opening of borders 2 Looking ahead, global economy is projected to decline by 4.9%, according to forecasts made by the International Monetary Fund (IMF) in June 2020. This is a downward revision of 1.9 percentage points from the forecasts made in April 2020, indicating that the global recession is deeper than expected. As for the outlook for the Maldivian economy, growth projections for 2020 is subject to a high degree of uncertainty due to the unprecedented and rapidly evolving nature of the virus which makes it difficult to predict the depth and length of shock. As a result, three scenarios were constructed to forecast the GDP growth for 2020, based on the possible timings of tourism revival. Under these scenarios, real GDP growth for 2020 is projected between -11.3% in December 2020, with no rebound in arrivals this year)3. With regard to the external current account deficit, despite the sharp contraction in tourism receipts, the current account deficit is expected to narrow in 2020, mainly due to substantial decline in imports, driven by decreased import demand from tourism and construction. With regard to inflation outlook, external sources of inflation are expected to remain subdued in 2020 due to low global oil prices and the decline in global demand. On the upside, supply chain disruptions may cause a temporary spike in domestic prices, especially food prices while dollar shortages in the domestic foreign exchange market may exert inflationary pressure through higher import prices. and -26.4%. This is a sharp reversal of economic As a precautionary measure against the outbreak of COVID-19, the government of Maldives on 3 February 2020 imposed travel bans on arrivals from China. Later, border restrictions were expanded to Iran and in March to parts of South Korea, Italy, Bangladesh, parts of Germany, Spain, parts of France, Malaysia, the UK and Sri Lanka. On 27 March 2020 the Maldives closed its borders to all tourists’ arrivals and announced a temporary suspension of on-arrival visa. Cruise lines were banned from entering and docking; and guest houses and city hotels were restricted to allow checking in guests starting from 14 March. 1 2 The first positive case of COVID-19 was confirmed in the Maldives on 7 March 2020 and swift containment measures were taken by the government. A Public Health State of Emergency was declared on 12 March 2020 and spending on health was scaled up. To curb imported infections, Maldivians travelling from affected areas were subject to 14 days of quarantine. Other measures include closure of schools, universities and government offices, which was later extended to businesses such as restaurants and cinemas. With the detection of local transmission in Male’ city on 15 April 2020, the city was placed under full lockdown with stringent movement restrictions. According to the United Nations World Tourism Organization (UNWTO) international tourists arrivals could decline by 58%-78% depending on the speed of containment and duration of travel restrictions and border closures. 3 2 Quarterly Economic Bulletin - March 2020
9. Overview Latest available high frequency indicators This mirrored the sizeable portion of government point to a contraction in activity in the key sectors of expenditure towards subsidies and Aasandha , amid the Maldivian economy during Q1-2020, particularly the COVID-19 outbreak. Meanwhile, the increase in in the tourism sector and related sectors such as capital expenditure can be attributed to higher capital transport, communication and wholesale and retail expenditure on infrastructure related to the health trade. For the tourism sector, key indicators such crisis, such as isolation and quarantine facilities, and as tourist arrivals and bednights observed marked other ongoing public sector infrastructure projects. declines during the quarter. Meanwhile, activity in As for monetary developments, annual broad construction sector and wholesale and retail sector money growth decelerated to 1% at the end of March weakened in Q1-2020. As for the fisheries sector, 2020, after recording 10% at the end of December fish purchases decreased significantly although fish 2019. On the components side, this was driven exports recorded a sizeable increase for the most by declines in both currency outside depository part of Q1-2020. corporations and transferable deposits, which offset The rate of inflation eased slightly to 0.7% a sizeable increase in other deposits of the banking in Q1-2020, after recording 0.9% during Q4- system. On the sources side, the slowdown in broad 2019. The decline in inflation was contributed money growth was largely due to the fall in net primarily by decreases in prices of information and foreign assets of the banking system, despite the communication services and equipment, as well as surge in net domestic assets during the period. clothing and footwear. The deceleration was also On the external front, total exports declined contributed by declines in the cost of furnishing and during Q1-2019, owing to a drop in earnings from household equipment. During the quarter, inflation yellowfin tuna and canned or pouched tuna exports. was influenced mainly by increase in price of food Meanwhile, total merchandise imports observed items and housing rent. a fall during Q1-2020 reflecting the decline in With regard to fiscal developments, total economic activity. government revenue (excluding grants) observed a marked decrease during Q1-2020 owing to the pandemic-led slowdown in domestic economic activity. The severe decline in revenues stemmed largely from plunge in non-tax revenues, mainly reflecting the fall in resort lease rent as well other income generated from the tourism industry. Meanwhile, tax revenue also declined, contributed by fall in receipts across all major revenue sources, with the exception of business profit tax. As for total expenditure (excluding debt amortisation), growth was led by increases in both current and capital expenditure. Current expenditure rose owing to substantial growth in administrative and operational expenses, primarily reflecting expenses incurred as grants, contributions and subsidies. Quarterly Economic Bulletin - March 2020 3
10. International Economic Developments Global Output Global economy came to a standstill during the first quarter of 2020 , as economic growth in the majority of the economies entered negative territory owing to the pandemic-led catastrophic economic conditions. Against this backdrop, global growth is now estimated contract in 2020—much larger downturn than during the Global Financial Crisis (GFC) in 2008-2009, due to the massive economic costs of supply chain disruptions, plummeting economic activity and commodity prices. Looking at the advanced economies, the US economy witnessed a deceleration in growth to 0.3% in Q1-2020 from 2.3% in Q4-2019, on account of the COVID-19 outbreak and the associated containment measures. The deceleration in growth reflected in Germany stemmed from weakened domestic negative contributions from fixed non-residential demand as reflected by the plunge in retail sales, investment and non-farm inventories. However, while activity in France contracted due to fall in additional negative contributions from exports investments and exports. Meanwhile, economic and personal consumption expenditure (PCE) for activity in Italy was affected by the weakening of both services were partially curtailed by falling imports domestic demand and exports amid the shutdown coupled with positive contributions from PCE for of most businesses. Similarly, economic activity in goods (Figure 1). Spain slumped owing to the closedown of businesses Based on the Eurostat flash estimates for the euro area, the region recorded a decline of as well as the fall in revenues from the leisure and entertainment-related sectors. 3.2% in Q1-2020, down from 1.0% in the previous Meanwhile, the Japanese economy contracted quarter. The contraction primarily reflected a broad- by 2.0% and entered into a technical recession in Q1- based decline in the economic indicators amid the 2020, depicting the impact of COVID-19 pandemic on unprecedented spread of the coronavirus and the the already fragile economy. Growth in the economy stringent lockdowns placed to contain the spread was suppressed by the declines in household in the region. In addition, business sentiments and consumption and private investment, mirroring the labour markets deteriorated rapidly during the repressed domestic demand. In addition, slump in period. Subsequently, economic growth of the main external trade added to the economic downturn, economies in the region entered negative territory while imports contributed positively to growth during Q1-2020. As such, economic downturn during the period. 4 Quarterly Economic Bulletin - March 2020
11. In the United Kingdom (UK), growth in the economy shrank to -1.6% in Q1-2020, from 1.1% in the previous quarter. This was mainly on account of the negative contributions from the fall in services industries—which accounts for nearly 80% of GDP—and production industries. Further, the drop indicated plummeting investments, trade volumes and household consumption within the expenditure components, on the back of public health restrictions and voluntary social distancing. Looking at the emerging market and developing economies, economic growth in China contracted by 6.8% in Q1-2020, for the first time since 1992, down from 6.0% in Q4-2019. The COVID-19 induced downturn was largely underpinned by the plunge in the construction and manufacturing industry. Meanwhile, activity in services industry (excluding financial services) also deteriorated, particularly in hospitality and transportation industry, due to the stringent epidemic control efforts (Figure 2). Incoming data indicate a deceleration in the Indian economy, after registering a growth rate of 4.7% in Q4-2019, amid the nation-wide lockdown and supply chain disruptions across the global economy. As such, the general index of industrial production contracted by 4.0% due to the fall in manufacturing output arising from the strict lockdown in major industrial cities. In addition, use of both capital and consumer goods declined sharply, reflecting the slump in demand and investment during the period. The growth rate in the Russian economy decelerated and stood at 1.6%, down from 2.1% in Q4-2019, suppressed by fall in external demand along with the sharp decline in price of exports (primarily oil). The deceleration mostly stemmed from the decline in services sector, followed by the plunge in manufacturing output induced by demand and supply-side shocks amid the restrictions imposed to contain the spread of the coronavirus pandemic. Global Inflation Global inflation dynamics were mixed in Q12020, owing to falling commodity prices and countryspecific factors amid the COVID-19 pandemic. Against this backdrop, headline inflation accelerated modestly in most of the advanced economies, while headline inflation declined in some of the emerging market and developing economies. Meanwhile, core inflation remained muted across both the country group due to weaker demand during the period. Looking at the price developments in the advanced economies, inflation in the US accelerated moderately to 2.1% during Q1-2020. The marginal acceleration in inflation mostly stemmed from higher prices of medical care-related items, followed by services and housing. Meanwhile, decline in price of durables and apparels partly contained the upward inflationary pressure on prices during the period (Figure 3). In the euro area, the rate of inflation, as measured by the annual change in the Harmonised Quarterly Economic Bulletin - March 2020 5
12. Index of Consumer Prices (HICP) accelerated slightly to 1.1% in Q1-2020. Inflation in the region was mainly contributed by the cost of services, food (especially meat) as well as tobacco prices. Meanwhile, downward pressure from falling energy prices partially curbed inflationary pressures during the quarter. In Japan, the rate of inflation remained unchanged at 0.5% in Q1-2020. The rate of inflation was supported by increase in prices of food (excluding fresh food), housing; private transportation as well as culture and recreation. Meanwhile, decline in the cost of education; fuel and utilities as well as communication weighed on the price level of the economy. The annual rate of inflation in the UK stood at 1.7%, up from 1.4% in the previous quarter, reflecting the rise in prices in the all services category. As such, major upward pressure stemmed from housing and utilities-related items, followed by restaurant and hotel rates, while the major downward contribution was from the clothing and footwear category, indicating the COVID-19 pandemic’s influence on sales pattern. Turning to the emerging market and developing economies, the rate of inflation in China rose to 5.0% in the review quarter from 4.3% in Q42019, reflecting the rise in food prices due to market supply disruptions coupled with higher demand arising from the stockpiling behavior of residents amid the stringent epidemic containment measures. Meanwhile, prices of other major categories fell during the period (Figure 4). In India, the rate of inflation edged down to 7.0% in Q1-2020, owing to sluggish domestic demand which pushed prices down towards the end of the quarter. However, the rate of inflation in the region continued to be supported by the price of food and beverages—which accounts for nearly half of India’s Consumer Price Index (CPI) basket—owing to significant upward contributions from prices of vegetables. Meanwhile, upward contributions at a muted rate were witnessed in all other categories. 6 Quarterly Economic Bulletin - March 2020 Meanwhile, the rate of inflation in Russia further declined to 2.4% during the quarter, registering well below the Bank of Russia’s target rate of 4.0%. The decline in the rate of inflation was mainly driven by fading of the temporary base effect of the value-added tax introduced in early 2019 as well as the foreign exchange pass-through effects weighing down on prices. In addition, disinflationary pressures also stemmed from falling global oil prices during Q1-2020.
13. Commodity Prices The IMF price index for all commodities plunged in Q1-2020 , by 9% and 7% in annual terms and quarterly terms, respectively. The steep drop in commodity prices reflected the overall decline in demand for commodities arising from the sharp downturn in economic activity as the COVID-19 pandemic worsened. Consequently, energy prices registered a sizeable drop when compared with the previous quarter and the corresponding quarter of 2019, reflecting the collapse of crude oil prices, while non-energy prices increased mainly due to growth in prices of metals, beverages and food during the period (Figure 5). Price of crude oil recorded an average of US$49.1 per barrel4 during Q1-2020, representing a decline of 19% in both annual terms and quarterly terms. In Q1-2020, oil prices fell drastically aided by a combination of negative and positive shocks from both the supply and demand-side, respectively. On the supply front, the easing of tensions in the Middle East, weakening refinery margins and significant cuts in refinery runs owing to the unprecedented global spread of COVID-19 weighed on the crude oil prices. Consequently, the large oversupply of oil and accumulation of unsold cargoes, coupled with the breakdown of the production agreement of the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers, resulted in the collapse of oil prices in March—the largest monthly drop since the GFC. On the demand-side, amid the extension of the Lunar New Year holidays in China (world’s second largest oil consumer) and the implementation of travel restrictions by several countries to limit the spread of COVID-19, global Turning to major commodities in the nonenergy index, the metal price index rose by 8% in annual terms, mainly due to rise in the prices of precious metals, triggered by market expectations. However, base metal prices declined owing to fall in global manufacturing, due to the world-wide shutdown of certain industrial activities. With regard to global food prices, the IMF food price index rose moderately by 2%, while the Food and Agriculture Organization (FAO) food price index registered a 7% increase in annual terms which reflected an overall rise in prices of major food items, mainly due to both the export restrictions by food producing countries and accelerated pace of purchase in countries stockpiling imported food items. Similarly, the IMF beverages price index recorded a significant annual increase of 7%, reflecting the rise in Arabica coffee prices due to the weather-led supply disruptions and pandemic-related labor restrictions in Brazil. demand for oil slumped, especially for transportation fuels such as gasoline and jet fuel. Further, the weakening of economic activity reduced the global oil consumption given the high-income elasticity of oil demand. 4 Quarterly average of Brent, West Texas Intermediate and Dubai Fateh. Quarterly Economic Bulletin - March 2020 7
14. Global Trade Following the Global Financial Markets trade tensions and the The global financial market conditions disruptions in supply chains in 2019 , COVID-19 has witnessed a sharp tightening as the COVID-19 added a new dimension to the global trade situation. health crisis spread globally, reversing the sense In this regard, the World Trade Organisation (WTO) of optimism in the financial market at the onset of has forecasted merchandise trade to hurtle down by the year. In this regard, the financial markets were 13-23% in 2020, with both merchandise exports and marked by falling share prices at an unprecedented imports expected to report double digit reductions pace, coupled with significant hike in implied volatility in almost all regions. Accordingly, the export index of the US stock market (measured by VIX), reflecting fell in both advanced; and emerging market and a market correction (Figure 6). Looking at the yield- developing economies in Q1-2020 when compared to-maturity on sovereign bonds in the advanced with the corresponding period of 2019. However, economies, the yield on US, UK and the negative yield the magnitude of the annual reduction is significantly on Euro sovereign bonds declined, while the negative wider in the emerging market and developing yield on Japanese sovereign bonds increased in Q1- economies as seen in the case of Russia and India. 2020 when compared with Q4-2019. Meanwhile, It is worth noting that the restrictions imposed on the yield on Chinese and Indian sovereign bonds movement and lockdown measures have taken a declined further, while the Russian sovereign bonds major toll on global trade during the period. witnessed a slight increase when compared with Turning to the Purchasing Manager’s Index (PMI), most of the advanced economies; and emerging market and developing economies recorded a considerable decline in Q1-2020, reflecting the numerous containment measures taken to abate the spread of the pandemic as well as the shutdown of the economies. Consequently, in the advanced economies PMI fell significantly in annual terms for the Euro Area, followed by US, Japan and UK, signalling contractions in the economy. Looking at the emerging market and developing economies, China registered a notable decline in annual terms, followed by Russia. However, the PMI for India remained resilient and in the expansionary territory during the quarter as the country implemented lockdown measures towards the end of March. Similarly, the services sector weakened due to reduced global demand arising from transport and travel restrictions amid the COVID-19 pandemic. 8 Quarterly Economic Bulletin - March 2020 Q4-2019. Amid these developments, the monetary policy stance in both the advanced; and the emerging market and developing economies became more
15. accommodative to offset the headwinds arising from the economic disruption experienced globally . In this regard, most of the central banks opted for further policy rate cuts and other supportive monetary policy actions during the quarter. However, it is worth noting that the European Central Bank, the Bank of Japan and the People’s bank of China kept the policy rates unchanged during the period. In the foreign exchange market, the overall performance of the US dollar against the currencies of the Maldives’ major trading partners strengthened in Q1-2020 in both annual and quarterly terms (Figure 7). The US dollar appreciated in annual terms against all major currencies except for Japanese yen reflecting the strengthening of Japanese yen during the period. In quarterly terms, the US dollar appreciated against all the currencies except for Japanese yen and Chinese yuan, reflecting the US dollar weakening against these currencies. Quarterly Economic Bulletin - March 2020 9
16. Economic Developments in the Maldives Real Economy Gross Domestic Product The onset of COVID-19 outbreak , first detected in China in late 2019 and later became a full blown global pandemic, led to a sudden reversal of economic activity Q1-2020, following a robust expansion in Q4-2020, due to strict containment measures such as travel restrictions and border closures. While Quarterly National Accounts (QNA) estimates for Q1-2020 has not yet been released, latest high frequency indicators for all key sectors such as tourism; construction; wholesale and retail trade point to a contraction in GDP in Q1-2020 compared to same period of 2019. Meanwhile, according to the latest QNA5 estimates that was released by the National Bureau of Statistics on 7 May 2020, the annual real GDP growth increased to 8.0% in Q4-2019 from 2.9% in This was following its revival in Q3-2019 after Q4-2018 (Figure 8). However, given that the real contracting for three consecutive quarters since Q4- GDP data for Q4-2019 used in this analysis is based 2018. Conversely, wholesale and retail trade sector on advance estimates, this data is subject to change continued to decline since Q3-2018, with an annual in upcoming revisions. decline of 4.1% during Q4-2019 as well. In Q4-2019, real GDP growth was mainly contributed by the tourism sector (2.6%), followed Tourism by transportation and communication (1.7%); and The tourism sector weakened significantly construction (0.9%). Tourism sector recorded a strong during Q1-2020 due to the COVID-19 pandemic, as growth of 9.8% in Q4-2019, while transportation indicated by declines posted by the key indicators and communication; and education sector continued of sector performance. As such, tourist arrivals their robust growth momentum with annual observed a 21% fall in annual terms, and totalled growth rates of 13.2% and 15.7%, respectively. The 382,760 tourists (Figure 9). Bednights also declined construction sector continued to expand in Q4-2019 by 11%, while the average duration of stay increased as well, registering an annual growth rate of 14.6%. to 7.6 days in Q1-2020 when compared with 6.3 days QNA data was available up until Q4-2019 at the time of this publication. Advance estimates data are released with a four-month lag. 5 10 Quarterly Economic Bulletin - March 2020
17. in Q1-2019 (Figure 10). According to the UNWTO, international tourist arrivals declined by 22% in Q12020 on annual terms, with Asia and the Pacific being the worst hit, with a 35% decline during the period. It should be noted that during the period January-February 2020, tourist arrivals and bednights were higher when compared with the corresponding period of 2019. Additionally, the average stay during the first two months of the quarter was 6.6 days, while for the last month of the quarter, average stay spiked to 9.4 days, likely due to travel restrictions and closing of international borders across the globe. Meanwhile, travel receipts for the period January-February 2020, declined by 15% when compared with the corresponding period of 2019, and totalled US$584.7 million. Reflecting the COVID-19 pandemic and measures adopted by governments worldwide to contain its spread, demand for sectors such as tourism plunged significantly, exacerbated further by sharp decline in flight movements. As such, following the strong growth in the international flight movements to the Maldives during 2019, a sizeable decline of 15% was observed during Q1-2020 when compared with Q1-2019—a decrease of 505 flights. Similar to other indicators, flight movements were marginally higher during the period of January-February 2020 when compared with the corresponding period of 2019. The decline in tourist arrivals was predominantly driven by fall in arrivals from the main source markets in Asia and the Pacific region and Europe, which accounted for 28% and 62% of the total tourist arrivals during the review quarter, sizeable fall in arrivals from China, which registered respectively (Figure 11). Tourist arrivals from Europe an annual decrease of 56%. Additionally, tourist recorded an annual decline of 11%, with decreases arrivals from India observed a moderate decline of in arrivals from Germany (-24%), Italy (-16%), France 3%. Conversely, tourist arrivals from Saudi Arabia (-18%) and United Kingdom (-9%). However, an contributed positively to total tourist arrivals during important source market, Russia registered an annual Q1-2020. growth of 10% for the quarter. It is noteworthy that Italy had overtaken China as the single largest source market for Q1-2020. Meanwhile, tourist arrivals from Asia and the Pacific region registered an annual decline of 37%, driven almost entirely by the On the supply side, prior to the closure of the country’s international border at the end of quarter, the total number of resorts in operation increased to 155 during Q1-2020, up from 139 Quarterly Economic Bulletin - March 2020 11
18. resorts recorded during Q1-2019 . Concurrently, guesthouses in operation rose by 91 year-on-year, totalling 624 during Q1-2020. In line with these developments, the average operational bed capacity of the tourism industry in Q1-2020 expanded by 6,148 beds, to 50,869 beds, which represented a 14% increase in annual terms. Looking at the share of total operational bed capacity, resorts dominated with 71%, while guesthouses accounted for 20%. Despite the increased operational bed capacity, due to the decrease in bednights within the industry the average occupancy rate fell to 59% in Q1-2020 from 75% during the corresponding quarter of 2019. Similarly, the average occupancy rate of resorts declined to 67% in Q1-2020 from 88% in Q1-2019. Construction owing to the rise in loans for residential housing and An assessment of the available short-term new resort development. It was observed that in indicators for the construction sector, such as import addition to the decline in loans for other real estate expenditure on construction-related imports and projects and guesthouses, bank credit for renovation commercial bank credit to construction sector of resorts continued to decline in Q1-2020. suggests that the performance of the construction weakened in Q1-2020 following a rebound in activity in Q4-2019. The weakening of construction Fisheries activity in Q1-2020 partly reflects disruptions to Activity in the fisheries sector showed mixed raw materials and import of construction workers developments during Q1-2020, as indicated by the resulting in project delays.6 decline in fish purchases by fish processing companies Imports of construction-related items declined by 16% during Q1-2020, when compared with the corresponding period of the previous year. It should be noted that this was after following a declining trend since Q4-2018, except for an improvement in Q4-2019. and the increase in the volume of fish exports. Following the decline in Q4-2019, fish purchases by fish processing companies decreased by 19% in annual terms during Q1-2020, and totalled 20,725.5 metric tons. The substantial decline was largely driven by a fall in purchases of both skipjack tuna and yellowfin tuna. Conversely, following the decline Although a substantial portion of the in Q4-2019, the volume of fish exports observed an financing for public infrastructure projects, resort annual growth of 4% during Q1-2020, and totalled development and social housing development is 17,483.5 metric tons. The substantial improvement sourced externally, commercial bank credit to the was largely driven by a significant increase in the construction sector remains an important indicator volume of skipjack tuna exports, followed by canned to gauge the performance of the sector. As such, or pouched tuna exports. This was partially offset by bank credit to the construction activities recorded a a decrease in the volume of yellowfin tuna exports 4% annual growth during Q1-2020, predominantly during the period. Construction-related loans include loans to the construction sector, real estate sector and tourism sector (for new resort development, resort renovation and construction of guesthouses). Hence, this figure will differ from the loans to the construction sector reported under Money and Banking (Credit to Private Sector). 6 12 Quarterly Economic Bulletin - March 2020
19. Wholesale and Retail Trade The gross value added by the wholesale and retail trade sector has been on a declining trend since Q3-2018 , and deteriorated further in Q1-2020 as pointed by available high frequency indicators such as private sector imports (excluding tourism), although bank credit to the sector registered a marginal growth during this period. In this regard, private sector imports (excluding tourism) posted a decline of 2% when compared with the corresponding quarter of 2019. Meanwhile, commercial bank credit to the sector depicted a modest annual increase of 1%—the third consecutive quarter of growth. Inflation The rate of inflation (as measured by the vegetables category which include carrots, garlic and annual percentage change in the CPI at the national onions. Meanwhile, fish prices—generally, the most level) decelerated slightly to 0.7% in Q1-2020, from volatile component of the CPI basket—recorded 0.9% in Q4-2019. When compared with Q4-2019, the a growth of 3.1%, reflecting the rise in prices of rate of inflation declined to -0.2% during the review fresh, chilled or frozen fish as well as fish products. quarter. The deceleration in CPI inflation during the Likewise, fruit prices also observed an increase of quarter mainly reflected decrease in prices in the 5.9%, largely due to the rise in prices of citrus fruits. information and communication category as well Similarly, upward pressure on inflation was as clothing and footwear. Additionally, the decline exerted by other major categories such as housing, in cost of furnishing and household equipment utilities, gas and other fuels, owing primarily to the contributed to the downward pressure on inflation. continued rise in housing rent. However, the growth However, these declines were offset by upward in housing rent decelerated to 2.1% during Q1- pressure from increase in prices of food items; 2020, from an average of 4.5% over the previous particularly vegetables, fish and fruits; followed four quarters. As for other categories, prices in the by the persistent growth in housing rent. Further, restaurants and cafés category rose by 4.6% during prices in restaurants and cafés, as well as growth in the quarter, while the cost of motorcycles observed cost of motorcycles also contributed to the positive a growth of 6.9% during the review period. inflationary pressure (Figure 12). In contrast, the decline in prices in the Delving into the major categories of the CPI, information and communication category was the food prices exerted the most amount of upward main downward contributor to inflation during Q1- pressure on inflation, registering an annual increase 2020. The cost of information and communication of 4.1% during the quarter. This was largely driven services observed a fall of 4.5%, primarily reflecting by the growth in prices of vegetables, stemming the decrease in price of per unit of charge of mobile primarily from the 101.5% surge in prices in the other phone services by consumers. This largely mirrors Quarterly Economic Bulletin - March 2020 13
20. the free data provided during the month of March by BPT revenue increased by MVR50 .6 million over service providers, due to the COVID-19 health crisis the period. This can be attributed to a remarkable in the country. Additionally, prices of information economic performance in the previous year as BPT and communication equipment registered a decline revenues are collected based on the performance of of 7.6% during the quarter. the preceding year (Figure 14). As for the clothing and footwear category, a Non-tax revenues, which comprised 15% 2.5% decline was recorded largely due to decreases of the total revenue, observed a decline in annual in prices of garments for men and boys. Meanwhile, terms and totalled MVR791.3 million at the end of prices in the furnishing and household equipment Q1-2020. The most noticeable decline was observed category fell 1.4% during Q1-2020. This was mainly due to decrease in cost of household appliances and household furniture during the quarter. Public Finance7 Total government revenue (excluding grants) decreased by MVR705.7 million during Q1-2020 when compared with Q1-2019 and totalled MVR5.2 billion at the end of the period (Figure 13). This drastic decrease was against the backdrop of a domestic economic slowdown as a result of the COVID-19 pandemic. However, the downturn was more prominent for non-tax revenues, which observed a decline of MVR471.8 million. Meanwhile, tax revenues which accounted for 85% of the total revenue over the period, also registered an annual decline of MVR258.5 million. The decline in tax revenue during the quarter was largely concentrated across all major revenue sources except for business profit tax (BPT). Particularly, both tourism goods and services tax (T-GST) and general goods and service tax (G-GST) observed sizeable declines as domestic economic activity remained hindered due to the containment and mitigation measures taken by the government to limit the spread of COVID-19. As such, T-GST posted an annual decline of MVR121.8 million, while revenue from G-GST fell by MVR116.0 million during the quarter. Further, import duties also observed a substantial decline as imports of major categories plummeted temporarily as activity remained muted in some of the major economic sectors. In contrast, 7 Government revenue and expenditure data as at 7 June 2020. These figures might vary due to ongoing data reconciliation. 14 Quarterly Economic Bulletin - March 2020
21. in lease rent from resorts as the tourism industry pandemic . In this regard, spending on wharves, ports ground to a halt with the temporary closure of the and harbours observed a growth in annual terms country’s international border on 27 March. To (Figure 15). alleviate the resulting adverse economic impact on the tourism industry, the government suspended the collection of some revenues which generate income from the industry. In addition, significant declines were observed in interest and profits; as well as other fees and charges, which fell by MVR65.5 million and MVR52.8 million, respectively. Total expenditure (excluding debt amortisation) recorded a growth of MVR474.5 million in annual terms and totalled MVR6.2 billion during Q1-2020. This was largely driven by a significant increase in current expenditure, while capital expenditure also posted a sizeable growth. The growth in current expenditure stemmed from a substantial rise in administrative and operational expenses. Within this category, the most significant increase was observed in grants, contributions, and subsidies. This primarily reflected increased government expenditure on subsidies and Aasandha, which posted growths of MVR214.9 million and MVR195.8 million, respectively, as a large portion of government spending during the quarter was focused towards welfare expenditure due to the outbreak of COVID-19. Similarly, salaries and wages recorded an increase of MVR103.8 million during the quarter, mirroring increases in both expenditure on allowances to employees; and salaries and wages. This partly reflected increased costs on government employees as majority of health sector-related employees have been working additional hours due to the ongoing health crisis. Meanwhile, an increase of MVR154.2 million was observed for capital expenditure. This was largely on the back of higher capital spending on land and buildings which grew by MVR691.5 million, although spending on roads, bridges and airports fell by MVR491.1 million. This increase can be attributed to higher capital expenditure on development of infrastructure related to COVID-19, such as isolation and quarantine facilities, while the government also pledged to complete the ongoing budgeted infrastructure projects despite the global Money and Banking Broad Money The annual growth rate of broad money (M2 or money supply) decelerated to 1% at the end of March 2020, after recording 10% at the end of December 2019 (Figure 16). On the components side, this was due to declines in both currency outside depository corporations and transferable deposits (demand deposits), which largely offset a significant increase in other deposits (savings and time deposits) of the banking system. As such, demand deposits—which accounted for 73% of money supply during the period—fell by 1%, after recording an 8% annual growth at the end of December 2019. The decline in demand deposits during the period stemmed from a decrease in such deposits denominated in foreign currency despite local currency denominated demand deposits observing a growth over the period. Particularly, the decrease in foreign currency denominated demand deposits stemmed mainly Quarterly Economic Bulletin - March 2020 15
22. from a decrease in such deposits by the private sector as well as public non-financial corporations . In contrast, other deposits—which accounted for 19% of money supply—maintained its high growth trajectory, recording 11% at the end of March 2020, after registering a growth of 20% at the end of December 2019. This growth reflected the rise in both foreign and local currency savings and time deposits during the period. However, currency outside depository corporations, which accounted for 8% of money supply, recorded an annual decrease of 6%, after registering a 2% decline at the end of December 2019. On the sources side, the deceleration in broad money growth reflected an 11% decrease in net foreign assets (NFA), despite an upsurge in net domestic assets (NDA) of the banking system which recorded an annual growth of 9% at the end of March 2020. Looking at the developments in NFA, the decrease in NFA stemmed from the fall in NFA of both commercial banks and the MMA. The decline in NFA of commercial banks was mainly due to the decrease in foreign currency deposits held abroad, while the decrease in NFA of the MMA can be attributed primarily to a reduction in foreign assets owing to a decline in demand deposits held abroad. On the other hand, the growth in NDA was mainly on account of an increase in NDA of commercial banks together with increase in NDA of the MMA during the period. The increase in NDA of commercial banks stemmed from the increase in both net claims on central government (NCG) by commercial banks—largely reflecting the annual expansion in government securities—and commercial banks’ credit to the private sector, which grew by MVR2.4 Credit to the Private Sector billion and MVR1.8 billion, respectively. Meanwhile, Credit to the private sector continued to the growth in NDA of the MMA stemmed mainly expand and stood at MVR24.9 billion at the end of from a decline in ODF investments by commercial March 2020. This marked an annual growth rate of banks combined with the decrease in deposits of the 8% (MVR1.8 billion), which was broadly unchanged central government. when compared with the end of December 2019. 16 Quarterly Economic Bulletin - March 2020
23. During the quarter , credit extended to tourism, construction, commerce and as personal loans accounted for the highest shares of credit over the period. Credit extended to the tourism sector (which accounted for 37% of total private sector credit) registered a 6% annual growth, largely due to the significant rise in credit extended as working capital combined with credit extended for new resort development. Meanwhile, credit extended to the construction sector rose by 8% primarily driven by the growth in credit lent for the construction of residential housing. However, a marginal growth was observed in credit extended to the commerce sector, as an increase in credit for wholesale and retail businesses was largely offset by a decrease in credit extended to restaurant and cafés. In contrast, credit extended as personal loans—which was the largest contributor to growth in credit over the quarter— continued to a show remarkable growth, recording 38% at the end of the period, reflecting the rise in credit for credit cards and consumer durables. Interest Rates As for interest rates, the rates on both local and foreign currency demand deposits registered an annual increase at the end of March 2020. Meanwhile, rates on local currency time deposits (maturity of six months to one year) also increased, although rates on foreign currency time deposits decreased during the period. As for savings deposits, interest rates on local currency denominated savings deposits remained largely unchanged, while rates on foreign currency savings deposits decreased over the period (Figure 17 and 18). With regard to interest rates of loans to private sector, interest rates on local currency denominated private sector loans increased during the period, while the rates on foreign currency denominated private sector loans declined (Figure 19). Quarterly Economic Bulletin - March 2020 17
24. Banking Sector Performance The banking sector remained robust at the Net loans constituted 45 % of the asset end of quarter, with key prudential indicators being portfolio, and amounted to MVR24.8 billion at the well above the regulatory minimum requirements. end of the quarter. In terms of gross loans, an annual The capital adequacy ratios remained strong, with total capital to risk-weighted assets at 47% against the minimum requirement of 12%, on growth of 9% (equivalent to MVR2.1 billion) was seen, with the majority of the new loans having been granted to the tourism sector. account of the significant portion of low risk assets in At the end of the review period, investments the portfolio. The leverage capital ratio measured by in debt securities amounted to MVR12.7 billion and equity (Tier 1 Capital) to assets stood at 23% (against accounted for 23% of the banks’ asset portfolio. On the minimum requirement of 5%). quarterly terms, the investment in debt securities The first quarter ended with pre-tax profit of MVR606.8 million, which is a decline of 13% grew by 5% and on annual terms it recorded a growth of 21%. compared to a year ago. The impact of the global Liquidity of the sector remained strong, with COVID-19 pandemic on the banking sector and a high proportion of banking sector’s assets being in overall financial sector is expected, with many liquid form. The ratio of liquid assets to total deposits borrowers across all sectors facing reductions in and borrowings was 62%. Total deposits recorded income and difficulty in meeting their obligatory an annual growth of 2% or MVR0.9 billion to reach dues. The decline in profitability during this quarter MVR37.3 billion; driven by local currency deposits however is mainly on account of an increase in which off-set the slight decline in foreign currency provision expenses, which rose by MVR101.4 million deposits. The growth in deposits was mainly and is close to three folds of the allowance made a contributed by the increase in term deposits, which year ago. The profitability ratios; return on assets grew by MVR0.6 billion, while demand deposits and return on equity, have also decreased slightly remained almost at the same level at MVR29.4 from 4% and 17% to 3% and 13% respectively, when billion compared to year ago. compared with the first quarter of 2019. At the end of the quarter, the absolute value of non-performing loans (NPLs) showed an increase of 6% (MVR149.9 million) compared to a year ago, mainly due to few large loans becoming nonperforming over the period. When compared with the end of the previous quarter, the figure decreased by 1% (MVR23.9 million). The percentage of NPLs in the total loan portfolio remained at 9%, with loan loss provisions covering 101% of the NPLs, thus mitigating the credit risk exposure significantly. The non-performing assets as a proportion of total assets was significantly lower at 4.3%, due to the majority of the asset portfolio consisting of assets other than loans. 18 Quarterly Economic Bulletin - March 2020
25. External Trade Total merchandise exports declined annually by 43 % in Q1-2020 and totalled US$71.2 million reflecting declines in both re-exports (largely jet fuel re-exports amid the sharp contraction in tourist arrivals) and domestic exports. Domestic exports, which mainly consists of fish and fish products, declined by 21% (US$11.0 million) when compared with Q1-2019 and totalled US$41.8 million. This decline was largely due to the drop in earnings from yellowfin tuna exports and canned or pouched tuna. Export earnings from yellowfin tuna decreased by 38% (US$8.2 million), reflecting the fall in the volume of yellowfin tuna exports. Meanwhile, export earnings from canned or pouched tuna declined by 28% (US$3.5 million), despite an increase in the volume of such exports during the review period. This was partially offset by a substantial growth of 19% (US$2.6 million) in export earnings from skipjack tuna, which was largely reflected by the growth in the volume of such exports (Figure 20). Meanwhile, total merchandise imports (c.i.f) recorded an annual decline of 6% (US$46.3 million) during Q1-2020 (Figure 21). During the quarter the majority of import categories recorded declines with the exception of food items, electronic and electrical appliances; and machinery and mechanical appliances. The main contributors to the decline in imports were expenditure on imports of wood, metal, cement and aggregates which recorded a significant decline of 21% (US$22.8 million), followed by a decrease in transport equipment and parts 31% (US$17.6 million); and furniture, fixtures and fittings of 38% (US$16.7 million). Conversely, food items recorded an annual growth of 6% (US$8.5 million), while electronic and electrical appliances observed a 21% (US$4.2 million) increase during the review period. Quarterly Economic Bulletin - March 2020 19
26. Gross International Reserves Gross International Reserves8 (GIR) decreased to US$741.4 million at the end of Q1-2020, recording a decline of 4% when compared with the corresponding quarter of 2019 (Figure 22). When compared with Q4-2019, GIR registered a decline of 2%. The decline in GIR in annual terms reflected a decrease in foreign currency reserve balances of commercial banks. GIR comprises foreign currency deposits of the MMA and the government, commercial banks’ US dollar reserve accounts and Maldives’ reserve position at the IMF. 8 20 Quarterly Economic Bulletin - March 2020
28. STATISTICAL APPENDIX
29. Table of Selected Economic Indicators , 2017 - 2020 (annual percentage change over the corresponding period, unless stated otherwise) 2017 2018 2019 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 8 7 15 15 24 10 12 -21 Bednights of resorts 11 9 12 8 21 9 13 -10 Operational capacity of resorts 13 6 14 6 14 17 18 16 Occupancy rate of resorts (%) 73 75 74 88 69 66 74 67 Average stay (days) 6.2 6.4 6.3 6.3 6.4 6.1 6.3 7.6 Fish purchases 42 3 3 18 1 15 -15 -40 Total (Republic) 2.8 -0.1 0.2 -1.2 1.3 0.0 0.9 0.7 Total excluding fish 2.8 -0.3 0.5 -1.3 1.7 0.3 1.1 0.6 Food and non-alcoholic beverages excluding fish 6.6 -2.2 0.7 -5.4 2.4 -0.9 3.7 4.0 23,414.2 24,262.0 28,591.2 25,405.6 26,218.8 26,445.5 28,591.2 NA 9320.9 9248.4 9,626.4 9227.2 9,210.4 9,190.4 9,626.4 NA 14093.4 15013.6 18,964.7 16178.4 17,008.4 17,225.2 18,964.7 20,634.3 82.4 90.3 103.6 91.5 91.4 103.9 103.6 102.8 Commercial banks 8694.4 9605.5 11,954.4 10357.4 10,755.0 10,815.1 11,954.4 12,245.1 Others 5316.5 5317.8 6,906.8 5729.6 6,161.9 6,336.2 6,906.8 8,286.5 Real Sector Tourist arrivals Prices 1 Government Securities (millions of rufiyaa) Government securities outstanding Treasury bonds Treasury bills MMA Source: Ministry of Tourism, Ministry of Fisheries, Marine Resources and Agriculture, Ministry of Finance, National Bureau of Statistics, Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport, Maldives Monetary Authority. 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 threemonth-average. 23 Quarterly Economic Bulletin - March 2020
30. 2017 2018 2019 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 5 3 10 11 7 7 10 1 32 -5 32 23 10 11 32 -11 -4 7 0 3 6 6 0 9 -12 10 2 7 19 19 2 18 9 6 4 5 3 3 4 5 12 11 8 10 8 8 8 8 19 8 -4 10 -4 -4 -4 -1 Open market operations2 0 0 0 0 0 0 0 0 Overnight Deposit Facility -4 2 -26 -34 -39 -25 6 -19 24 7 6 41 13 -17 -11 -28 43 -9 -13 10 -9 -2 -41 -21 43 -10 -14 9 -9 -3 -42 -20 2 32 29 78 52 -27 24 -32 11 25 -2 -5 1 -10 5 -6 8 7 10 9 13 12 7 6 o /w Petroleum 27 44 3 4 16 -11 4 -3 o/w Construction-related imports 24 34 -17 -21 -16 -35 14 -16 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 Monetary operations1 External Trade Merchandise exports (f.o.b.) Domestic exports o/w Fish exports Re-exports Merchandise imports (c.i.f.) o/w Food Source: Ministry of Tourism, Ministry of Fisheries, Marine Resources and Agriculture, Ministry of Finance, National Bureau of Statistics, Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport, Maldives Monetary Authority. 1 Monetary operations figures represent the average investment. 2 Open market operations were suspended from May 2014 onwards. Quarterly Economic Bulletin - March 2020 24
31. 2017 2018 2019 2019 Q1 2019 Q2 2019 Q3 2019 Q4 2020 Q1 Direction of Trade of Imports of Goods (as a percentage of total) o/w Singapore 13 12 12 14 12 12 10 10 o/w India 12 10 10 10 9 10 10 12 7 6 6 6 5 6 6 6 18 18 19 18 21 18 18 15 5 4 4 4 5 5 3 4 o/w Sri Lanka o/w UAE o/w Thailand Direction of Trade of Exports of Goods (as a percentage of domestic) o/w Thailand 49 36 36 36 40 32 36 45 o/w Sri Lanka 4 3 3 4 2 3 4 2 o/w France 7 7 9 9 9 11 11 9 o/w Germany 7 13 12 12 16 9 9 10 587.3 712.0 753.0 776.2 677.4 530.8 753.0 741.4 External Reserves Gross international reserves (millions of US dollars) Source: Ministry of Tourism, Ministry of Fisheries, Marine Resources and Agriculture, Ministry of Finance, National Bureau of Statistics, Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport, Maldives Monetary Authority. 25 Quarterly Economic Bulletin - March 2020
32. 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