The International Monetary Fund (IMF) has welcomed the decisive action by the government to discontinue the exceptional use of the central bank advances but urged the island nation to accelerate reform efforts to support inclusive and sustainable development.

In a press release published by the IMF after an IMF mission visited Maldives in February, they stated that the decision to hike the GST has been successful in increasing the revenue of the country.

"The successful implementation of goods and services tax (GST) rate hikes has borne fruit, bringing sizable revenue windfalls in 2023," they said.

They further noted that the overall fiscal deficit is estimated to reach 13.4 percent of GDP in 2023, with public debt to rise further to 118.7 percent of GDP in 2023.

"Reflecting surging capital goods imports, high import costs of food and fuel, and strong import demands associated with tourism activity, the current account deficit sharply widened to 22.8 percent of GDP in 2023. Gross international reserves declined to US$ 589 million at end-2023, covering about 1.4 months of prospective imports.", the IMF said.

The IMF forecasts real GDP growth by 5.2 percent this year with the Velana International Airport terminal expansion and the associated increase in hotel accommodation capacities projected to further boost growth potential.

However, elevated commodity prices coupled with continued strong import demands, the current account deficit is projected to remain large albeit gradually narrow over the medium term.

IMF further reiterated that the Maldives remains at high risk of external and overall debt distress.

The board underscored that strong and credible fiscal consolidation is urgently needed to restore debt sustainability and help rebuild international reserves.

"This should entail a combination of holistic expenditure rationalization and further domestic revenue mobilization. Strengthening public financial and debt management is also critical to enhance the effectiveness of fiscal policy."

The board also urged an acceleration of foreign exchange market reforms to enhance the credibility of the peg and to adopt macroprudential policies to help mitigate systemic risks stemming from the sovereign-bank nexus.

"They encouraged the authorities to swiftly introduce macroprudential institutional framework and instruments and further develop the systemic risk monitoring capacity."

In the statement, the board also urged the authorities to accelerate reform efforts to support inclusive and sustainable development.

"They emphasized that improving the business climate, strengthening governance and tackling corruption, and enhancing skill developments are crucial to boost growth potential and competitiveness."