International reserves expected to fall to 1.3 months of imports by the end of 2013: MMA

The Maldives Monetary Authority (MMA) has said that the international reserves are expected to fall to 1.3 percent of imports by the end of 2013.

MMA said this in its Annual Economic Review for 2012 released last week.

MMA said in the report that the high current account deficit (CAD) has put pressure on gross international reserves, which is expected to fall to 1.3 months of imports or US$291.4 million at the end of 2013.

MMA said that the CAD is expected to be ?nanced from Foreign Direct Investment (FDI) in?ows and external borrowings this year.

MMA said that the CAD is expected to remain high in 2013, at 28 percent of Gross Domestic Product (GDP). This is due to the strong import demand and increase in government expenditure.

At the end of March 2012, the international gross reserve was at $338.2 million, which is 2.5 months of imports.

MMA said that fiscal consolidation and reducing external imbalances continues to be the biggest macroeconomic challenge faced by the Maldivian economy.

“The 2013 budget passed by the Majlis envisages an ambitious reduction in the ?scal de?cit to 3.6% of GDP in 2013 from 12.6% in 2012, to be achieved through both revenue increases and expenditure reductions,” says the report.

MMA said that a number of savings are also planned from the expenditure side through improved targeting of subsidies and welfare contributions, which if implemented early in the year, is expected to generate savings amounting to 4% of GDP.

MMA said that public debt has already reached over 70% of GDP, and is expected to remain high in 2013, which increases concerns regarding the sustainability of debt.