Inflation unlikely with less demand for imports

It is not expected the inflation rate of Maldives will increase due to the lesser demand on imported goods, Finance Minister Ibrahim Ameer says.

Restrictions have tightened the export and import of goods across the world due to the COVID-19. The economy is in shambles and the government has moved to make an overdraft of MVR 4.4 billion to keep running. The overdraft has been approved by the parliament as the country battles to overcome the virus.

In a press conference today. Finance Minister Ibrahim Ameer responded to a question by Sun, and stated that the inflation rate would not increase despite the overdraft. He stated that the reason for this was the reduction of demand for imported goods in the country.

“The economy would be overheated with a lot of economic activities. We say that the economy is in overheat in times when the economy is performing very well when the GDP is at 10 percent or 15 percent. Right now, it cannot overheat actually.” Says Minister Ameer.

The focus should be on increasing the aggregate demand of the country at a time when the demand was at a low, says Minister Ameer.

The Minister said, “The aggregate demand of the country is really low. With all the closed resorts, the demand for imported goods is low. Inflationary pressure will not occur. We are overdrawing by managing. We are not saying that we are going to withdraw MVR 4.2 billion in a single payment as the overdraw.”

The government could previously project its income, but due to the current situation, this was not possible, says Minister Ameer. It was a necessity to overdraw at a time when the cash flow of the country was at a low, Minister Ameer pointed out.

“A nil effect will be observed for the amount overdrawn once the external funders are received. So I do not believe that inflationary pressure will arise in this situation.” Says Minister Ameer.

The overdraw was approved by the parliament upon a letter by the Minister. These funds will be utilized to keep the government running and continue its operations against the virus. Easements were provided to the government liability for these funds as well. Finance Minister Ameer has previously stated that the funds will be used to continue current PSIP projects and for the wages of civil servants.