IMF: Positive impact of development projects will be seen over time

The current infrastructure development projects run in the Maldives has the potential to transform the economy over time, but the rapid buildup of debt leaves the country vulnerable, says International Monetary Fund (IMF).

IMF made the observation in its report on the Maldivian economy, based on its visit to the country this year.

IMF said the airport development project, the bridge project and the water and sanitation projects in the Maldives will increase the influx of tourists into the country, boosting Maldivian tourism industry. And boosting the housing and construction industry.

The organization also forecasts the infrastructure development projects will improve the quality of life of Maldivians.

Meanwhile, IMF also noted the rise in national debt due to the loans taken to undertake the development projects, which will have a negative impact on the country’s foreign reserve. It said the public debt as a share of GDP rose nearly 11.5 percentage points from 2014 to 2016.

IMF noted in its report that the GDP of the country increased between the years 2015 to 2016. The real GDP of the country stood at 3.3 percent in 2015 and rose to 3.9 percent in 2016, while the inflation rate remained constant.

Overall, the IMF observed the economic growth of Maldives has been highly volatile – driven mainly by the tourism industry of the country. But continues to face large and growing fiscal and external imbalances.

“Going forward, Maldives’ main challenge is to manage a surge in infrastructure investment which has the potential of transforming the economy but also creating risks from high and rising public debt. The rapid debt buildup, a widening current account deficit, and low international reserves leave the Maldives inherently vulnerable under this constellation of risks and reduced policy space,” wrote IMF.

The organization noted that the infrastructure development projects had the potential to transform the economy, but that the positive impact of the projects can only be seen in the long run. It said Maldives needed to focus on reducing the debt.