© 2016 Maldives Monetary Authority Published in 2016 ISBN 978-99915-63-08-4 Cover design and infographics by Ahmed Naushad Maldives Monetary Authority Boduthakurufaanu Magu Male’ 20182 Republic of Maldives Email: [email protected] ANNUAL REPORT 2015 PREFACE In accordance with Article 35 (b) (2) of the Maldives Monetary Act 1981, this Annual Report covers polices adopted by the MMA during the year 2015 to achieve its main objectives, and the activities and developments of the MMA for the year 2015. It also covers developments in the domestic economy during 2015 and presents an overview of events in the global economy during the year. An outlook for 2016 is also included in the report. All analyses are based on information relating to the year 2015, received from relevant government authorities, financial sector agencies, public enterprises and other private sector sources. All data is as of March 2016. The views expressed in this report, however, are those of the MMA and do not necessarily represent those of the source of data. This report also includes a copy of the Financial Statements for the year ended 31 December 2015 that have been examined and certified by the external auditors. We thank all those who have contributed to the publication of this report including the provision of the information contained herein. Maldives Monetary Authority Annual Report 2015 i GOVERNOR’S STATEMENT The Maldives marked the Golden Jubilee of the country’s Independence in 2015. To mark this historical occasion, the MMA introduced a commemorative note, which is available to the gen- eral public, as a symbolic memento. The MMA also inaugurated, for the first time in the history of the Maldives, polymer banknotes on 1st November 2015, in its Ran Dhihafaheh note series. These historic events, however, coincided with less than ideal economic conditions. Slowdown in economic activity in China, the downturn in the Russian economy and persistent uncertainty in euro area economies, did not help stimulate growth. With the Maldives being a small open economy very much influenced by global economic conditions, the domestic economy per- formed below what was initially expected in the year 2015. The main reason for the less than expected performance of the Maldivian economy in 2015 was a slowdown in tourism sector activity. Even with a slight increase in tourist arrivals into the country, bed-nights actually fell, owing to a reduction in the average duration of stay by tourists during the year. Meanwhile, fiscal conditions deteriorated further, with the fiscal deficit for the year much higher than what was initially projected. The upshot, however, is that the financial sector performance picked up during 2015 with improvements in the banking sector’s asset quality and a pick-up in lending to the private sector with higher investments in the country. The annual rate of inflation remained low at an average of 1.4% during 2015. The slowdown in inflation was mostly influenced by the steep decline in international oil prices and global commodity prices in general. This pass-through effect to domestic prices is to a large degree inevitable in a small open economy like the Maldives. Despite record low oil prices, the current account deficit widened owing to a decline in tourism receipts and an increase in outward re- mittances. As part of its mandate for shaping and implementing monetary policy, the MMA took some stra- tegic decisions to stimulate growth in the Maldivian economy. One such measure was to halve the minimum reserve requirement (MRR) from 20% to 10% for both local currency and foreign currency deposits effective from 20th August 2015. Effective regulation and supervision of the financial sector remains a key priority of the MMA. In this regard, the Third Amendment to the Maldives Monetary Authority Act of 1981 was passed and ratified, which strengthened the Authority’s mandate to act as the regulator of financial institutions. The First Amendment to the Maldives Banking Act, also passed and ratified during the year, further enhanced the efficiency of the regulatory and supervisory arm of the MMA. Furthermore, the MMA issued regulations under the Prevention of Money Laundering and Fi- Maldives Monetary Authority Annual Report, 2015 iii nancing of Terrorism Act to stipulate due diligence requirements and due procedures in order to prevent and detect money laundering and terrorism financing activities. An important step taken to increase trust in the financial system and promote financial stability was the introduction of a deposit insurance scheme in 2015. This scheme was the first of its kind in the Maldives, and was established to provide an extra layer of protection, especially for small depositors, on top of the existing prudential rules set by the MMA. Well-functioning payment systems are vital for financial stability and economic prosperity. The MMA promotes the use of electronic money in the economy, which is more efficient and pro- motes financial inclusion. In this respect, an important development that took place in 2015 was the commencement of the project “Enabling a Non-bank Mobile Money Solution”, which will enable mobile operator-led mobile money and payment solutions. MMA has been working to establish the appropriate regulatory framework and has allowed two mobile operators to proceed with the setting up of mobile payment services in the country. Maintaining confidence in the currency is essential for the smooth functioning of an economy, regardless of how cashless it is. On 1st November 2015, the MMA introduced the new banknote series, Ran Dhihafaheh. With that, the Maldives will be shifting from a cotton-base to a polymer substrate for all its banknotes and embraced a design showcasing tradition and modernity. The new note series features a substantial improvement in security compared with the 1983 banknote series. As the best defense for the security and the authenticity of currency notes are an aware public, an extensive public awareness campaign was conducted by the MMA in the last two months of the year. During this time, staff teams from the MMA visited all inhabited islands, resorts and industrial islands and conducted information sessions, road shows and door-to-door campaigns, in addition to media advertisements and announcements. This effort was to ensure that the public is fully aware of the features of the new banknote series, which is essential before such a major change takes place. I wish to express my gratitude to the Board of Directors for their continued support and advice. Above all, I am extremely proud of the staff of the MMA for their contribution, and commend them for their professionalism and dedicated service throughout the year. Azeema Adam Governor Maldives Monetary Authority iv Annual Report 2015 FUNCTIONS OF THE MALDIVES MONETARY AUTHORITY The Maldives Monetary Authority is the central bank of the Maldives. It was established on 1st July 1981, under the MMA Act, with the following key objectives: To issue currency and regulate the availability, and international value of the Maldivian Rufiyaa; To provide advisory services to the Government on banking and monetary matters; To supervise and regulate banking so as to promote a sound financial structure; and To promote in the country and outside the country the stability of Maldivian currency and foster financial conditions conducive to the orderly and balanced economic development of Maldives. Maldives Monetary Authority Annual Report 2015 v BOARD OF DIRECTORS (AS AT THE END OF 2015) Dr. Azeema Adam Governor and Chairperson Ms. Aishath Zahira Deputy Governor Ms. Neeza Imad Assistant Governor Mr. Mohamed Saeed* Minister of Economic Development Mr. Ahmed Munawar Minister of State for Finance and Treasury Mr. Hussain Hilmy Private Sector Mr. Abdulla Ghiyas Riyaz Private Sector *Mr. Mohamed Saeed was appointed as a member of the Board on 24 May 2015. Maldives Monetary Authority vi Annual Report, 2015 SENIOR OFFICIALS (AS AT THE END OF 2015) Governor Dr. Azeema Adam Deputy Governor Ms. Aishath Zahira Assistant Governors Ms. Neeza Imad Ms. Mariyam Hussain Didi Executive Directors Ms. Idham Hussain - Statistics Division/ Governor’s Office Mr. Abdul Hameed Mohamed - General Service Division Ms. Mariyam Najeela - Banking Supervision Division Ms. Aishath Nadhiya - Reserve Management and Market Operations Division Mr. Shawn Rasheed - Technology Service Division Ms. Fathimath Jawza - Financial Controls Division Counsel General Uza. Sheeza Ahmed - Legal Unit Assistant Executive Director Ms. Lubna Abdul Gadir - Human Resource Division Maldives Monetary Authority Annual Report 2015 vii Abbreviations and Acronyms ACH Automated Clearing House ADB Asian Development Bank BOP balance of payments bps basis points BPT business profit tax CIC currency in circulation c.i.f. cost, insurance, freight CPI consumer price index ECB European Central Bank EU European Union FDI foreign direct investment FIU Financial Intelligence Unit f.o.b. free on board FRA Fiscal Responsibility Act GDP gross domestic product GIR gross international reserve GST goods and services tax GWP gross written premium IMF International Monetary Fund IAU Internal Audit Unit IIP international investment position M0 reserve money M2 broad money MIRA Maldives Inland Revenue Authority MMA Maldives Monetary Authority MPAO Maldives Pension Administration Office MRTGS Maldives Real Time Gross Settlement MRR minimum reserve requirement NCG net claims on central government NDA net domestic assets Maldives Monetary Authority