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Outlook for 2017 After a weaker than expected ou urn in 2016, the real GDP1 growth is estimated to increase to 4.7% in 2017, from an estimated 3.9% in 2016. This is to be driven by the expansion of the construction sector, stemming from large infrastructure projects planned for 2017. Tourism sector is also expected to pick up pace in 2017, which will boost overall economic growth. The fiscal deficit2 is projected to decrease to MVR303.7 million (0.5% of GDP) in 2017 from an estimated MVR4.3 billion (7.4% of GDP) in 2016. Meanwhile, according to the balance of payments forecasts of March 2017, the current account deficit is projected to contract to US$650.5 million (16% of GDP) in 2017 from an estimated US$840.0 million (22% of GDP) in 2016. Tourism During May 2017, total tourist arrivals increased marginally in annual terms and totalled 93,491. This reflected an increase in arrivals from the Asia and Pacific region, which offset a slight decline in Key Tourism Indicators thousands arrivals from the European market. The decline in the European market was due to a significant fall in arrivals from some of the key markets from the region, especially from the Germany, France, and the UK. This was however offset by a growth in arrivals from other major European markets such as Russia and Italy. Increase in the arrivals from the Asia Pacific region was partly offset by a significant fall in arrivals from China. During the month, the total bednights increased by 6% in annual terms and the average duration of stay also increased from 6.2 days in May 2016 to 6.5 days. Reflecting the annual increase in 1 GDP growth rates are based on market prices. 2 According to the national budget for 2017 submi ed to the Majlis. Source: Ministry of Tourism annual percentage change Monthly Economic Review June 2017 operational bed capacity of resorts, the occupancy rate of the resorts dropped to 61% in May 2017 from 67% in May 2016. Fisheries Fish Exports annual percentage change In May 2017, fish purchases made by fish processing companies totalled 2,921.0 metric tons. This represented a monthly and an annual decline of 47% and 35%, respectively. During May 2017, the volume of fish exports registered a considerable growth of 78% while earnings from fish exports also increased by 28%, in annual terms. The growth in both the volume and earnings of fish exports was almost entirely due to the significant increase in frozen yellowfin tuna and frozen skipjack tuna exports. Meanwhile, the volume of fish export and earnings from fresh or chilled yellowfin tuna Source: Maldives Customs Service IMF Commodity Price Index annual percentage change exports decreased during the review period. Global Prices During May 2017, the International Monetary Fund commodity price index registered an annual increase of 8%, while it registered a decline of 2% in monthly terms. The annual increase largely stemmed from a hike in metal and oil prices as well as a slight increase in food prices. In monthly terms, prices of food increased. However, this was entirely offset by a decrease in oil and metal prices. The price of crude oil3 stood at US$49.9 per barrel at the end of May 2017, recording a growth of 9% in Source: International Monetary Fund 2 annual terms, but a decline of 4% in monthly terms. 3 Monthly average of Brent, Dubai Fateh and West Texas Intermediate. Monthly Economic Review June 2017 In ation The rate of inflation (measured by the annual percentage change in the Consumer Price Index Consumer Price Index annual percentage change [CPI]4) accelerated further to 4.6% at the end of May 2017 after registering 4.5% at the end of April 2017. This was mainly due to an increase in prices of staple food items; fish; cigare es; and an increase in housing rentals and electricity price. As for the monthly percentage change in the CPI, it registered 0.2% in the review month. While prices of vegetables, fruits, fish, and housing increased during the month, this was partly offset by decreases in prices of staple food items, furniture and household equipments. Source: National Bureau of Statistics Public Finance According to monthly Government Revenue and Expenditure government revenue millions of ru yaa and expenditure data5, total revenue (excluding grants) during October 2016 amounted to MVR1.2 billion, which was an annual increase of MVR143.9 million. Meanwhile, total expenditure (excluding amortisation) rose by MVR399.2 million in annual terms and amounted to MVR1.9 billion in October 2016. The increase in total revenue during October 2016 was entirely driven by strong tax revenues. This was largely owing to revenue from the newly introduced green tax6 as well as the increase in revenue from general goods and services tax. Meanwhile, non-tax Source: Ministry of Finance and Treasury revenue registered a decline which was mainly due to a decrease in resort lease period extension fees. As for the increase in expenditure, this was due to a rise in both current and capital expenditure during the review period. The annual increase in capital 4 Inflation analysis is based on CPI data at the national level. 5 Data relating to public finance was available only upto October 2016 at the time of compilation of this report. Monthly income and expenditure data are subject to change and may vary from month-to-month as public accounting system data are updated regularly. Data for October 2016 was revised on 15 December 2016. 6 The green tax on tourists visiting Maldives was introduced during November 2015. 3 Monthly Economic Review June 2017 expenditure mainly reflected the higher expenditure on the public sector investment program while the increase in current expenditure was mainly due to the rise in interest payments on government debt. Government Securities Treasury Bills and Treasury Bonds millions of ru yaa The total outstanding stock of government securities, which includes treasury bills and treasury bonds, remained largely unchanged in monthly terms and totalled MVR23.4 billion at the end of May 2017. The investment in treasury bills increased marginally by 1% (MVR157.5 million), while investment in treasury bonds largely remained unchanged during the review month. The monthly increase in treasury bills investment was due to an increase in commercial banks investment in treasury bills, which offset the decrease in such investment by other financial Source: Maldives Monetary Authority corporations. Treasury Bills by Holder In annual terms, the outstanding stock of government millions of ru yaa securities registered a growth of 10%, owing to a significant increase in the outstanding amount of treasury bonds and a notable increase in the outstanding treasury bills. The outstanding treasury bonds and treasury bills rose by 19% (MVR1.5 billion) and 5% (MVR612.2 million), respectively. The growth in treasury bills was due to the increase in treasury bills holdings by the MMA and commercial banks which offset the decrease in such investment by other financial corporations. Meanwhile, the growth Source: Maldives Monetary Authority 4 in treasury bonds largely reflected the conversion of part of the treasury bills to treasury bonds. Monthly Economic Review June 2017 Interest Rates of Treasury Bills Interest Rates of Treasury bills percent Treasury bills of all maturities continue to be issued under a tap system since they were reverted back in the year 2014. Since the rates on 28-, 91-, 182- and 364-day treasury bills were lowered to 3.50%, 3.87%, 4.23% and 4.60%, respectively in October 2015, it has remained unchanged up until the review month. Broad Money The annual growth rate of broad money (M2) further declined to 4%, after recording an annual decline of Source: Maldives Monetary Authority Determinants of Broad Money annual percentage change 3% at the end of April 2017, and stood at MVR31.2 billion at the end of May 2017. This was mainly contributed by an annual decrease in the net foreign assets (NFA) of the banking system, largely owing to a fall in the NFA of the MMA. However, the decrease in NFA of the banking system was partly offset by the increase in net domestic assets (NDA), owing to investments in a corporate bond issued by a public non-financial corporation. Source: Maldives Monetary Authority Monetary Base The annual growth rate of the monetary base (M0) Determinants of Monetary Base annual percentage change decreased by 3% at the end of May 2017, after recording an annual decline of 22% at the end of April 2017, and amounted to MVR10.9 billion at the end of the month. The fall in M0 was driven by a significant annual decline in the NFA of the MMA which offset the annual growth in the NDA of the MMA. Source: Maldives Monetary Authority 5 Monthly Economic Review June 2017 Monetary Operations millions of ru yaa Monetary Operations The two main instruments available to the MMA to absorb excess liquidity in the banking system are the Overnight Deposit Facility (ODF) and the open market operations (OMO). However, the OMO continue to remain suspended since May 2014 because the excess liquidity in the system is absorbed by the commercial banks’ continuous and persistent placement of these funds in the ODF. In May 2017, the total liquidity absorbed averaged MVR2.6 billion, which was a decline of MV803.2 million and MVR820.5 million in Source: Maldives Monetary Authority both monthly and annual terms, respectively. Imports and Exports Imports and Exports millions of US dollars During May 2017, total merchandise exports rose by 56% (US$11.6 million) in annual terms and the expenditure on imports increased by 4% (US$8.3 million). The growth in exports was due to a significant increase in re-exports and a 29% increase in domestic exports. The increase in domestic exports was mainly due to a growth in earnings from frozen skipjack tuna and frozen yellowfin tuna despite a decrease in earnings from fresh or chilled yellowfin tuna exports. The annual growth of import expenditure resulted from an increase in import of petroleum products, mainly Source: Maldives Customs Service, Maldives Airports Company Limited, Gan International Airport diesel. The increase in import of construction related items; machinery and mechanical appliances; and food items also contributed to the annual growth in total imports. In contrast, import of transport equipment declined during the period. 6 Monthly Economic Review June 2017 Gross International Reserves Gross international reserves (GIR) stood at US$603.5 million at the end of June 2017, which is a decline of 3% in annual terms although it reflected a 13% increase in monthly terms. Usable reserves amounted 7 Gross International Reserves millions of US dollars to US$248.8 million at the end of June 2017, registering a monthly and an annual increase of 66% and 15%, respectively. This largely reflected the proceeds from a sovereign bond issued by the government in the international market. However, this was partly offset by the repayment of the foreign currency swap agreement between the Reserve Bank of India and the MMA. Exchange Rate With effect from 11 April 2011, the Maldivian rufiyaa was allowed to fluctuate within a horizontal band of 20% on either side of a central parity of MVR12.85 Source: Maldives Monetary Authority Bilateral Exchange Rates of the Ru yaa annual percentage change per US dollar. However, immediately after the introduction of the exchange rate band, the exchange rate of the rufiyaa per US dollar moved towards the upper limit of the band and since then it has remained virtually fixed at MVR15.42 per US dollar. Mirroring the movements of the US dollar against the currencies of major trading partners of the Maldives during May 2017, the rufiyaa appreciated in annual terms against the pound sterling, the Chinese yuan, and the Sri Lankan rupee, while it depreciated against the Indian rupee. Meanwhile, it remained unchanged against the Singapore dollar and the euro. As for the Source: Bank of Maldives Plc monthly changes, the rufiyaa depreciated against the euro, the Singapore dollar and the Chinese yuan, while it appreciated against the Indian rupee. Meanwhile, it remained unchanged against the pound sterling and the Sri Lankan 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. This report is prepared by the Economic Research and Analysis Section of the MMA. For further enquiries please contact us at 3328028 or e-mail us at [email protected] 7 MALDIVES MONETARY AUTHORITY Boduthakurufaanu Magu Male’ - 20182 Republic of Maldives Tel: (960) 330 8679 Fax: (960) 332 3862 Email: [email protected] Website: www.mma.gov.mv