The European Investment Bank (EIB) has is lending €20 million ($22.7 million, MVR 351.12 million) to the Maldives to help sustain the Indian Ocean island nation’s economy in the wake of the coronavirus pandemic.

The EIB funds will be available to local small and medium enterprises through the Bank of Maldives.

“We have been working closely with the government in implementing measures to support businesses affected by the Covid-19 pandemic. The funding from EIB will give us the opportunity to extend this support further as the country progresses in its economic recovery efforts,” Bank of Maldives CEO and Managing Director Tim Sawyer was quoted in a statement, as saying.

“We are delighted EIB was able to respond so swiftly to the challenges facing the Maldives in this unprecedented global situation. We look forward to continuing our work with the government to support sectors most affected by this crisis, build resilience and promote sustainable development.”

With tourism and related sectors contributing as much as 40 per cent to national GDP, the loan will be crucial for the stabilisation of the local economy. It will also enable the Maldives to recover faster from the economic effects of the pandemic.

“The EIB is happy for the opportunity to support robust economic growth in the Maldives and help the country improve its macroeconomic outlooks in the wake of the Covid-19 pandemic,” EIB Vice President Andrew McDowell said.

“This loan will support local SMEs, sustain jobs, and have a positive impact on the stability of the local financial market. As such, it will help the Maldives recover faster and I am very glad the EU bank reacted with unprecedented speed to make sure the Maldives can continue to grow and develop.”

In addition to addressing the major social and economic issues, the loan improves access to finance for local SMEs and reinforces the Maldives banking sector – all key prerequisites for effective economic recovery.

“The people and the government of Maldives fully appreciate the swift support provided by the EIB during this time of crisis. This underscores the close relationship between the EU and the people of the Maldives, as was also demonstrated by the support from the EIB after the devastating Indian Ocean tsunami in 2004,” Maldivian finance minister Ibrahim Ameer said.

“The facility approved will contribute immensely to our efforts to support local businesses and protect livelihoods during the Covid-19 pandemic and the ensuing economic downturn. We extend our sincere gratitude to the EIB and all of our development partners who have extended their support to contribute to a recovery focused on building a more resilient Maldives.”

The loan to the Maldives is the first Covid-19-related operation of the EU bank in Asia, and a part of its €5.2 billion support package for countries outside the EU, announced on 8 April.

This is the third operation for the EIB in the Maldives since the beginning of operations there in 2005.

It is helping the country reach its United Nations Sustainable Development Goals (SDG), and in particular SDG 3 (Good health and well-being), SDG 8 (Decent work and economic growth) and SDG 11 (Sustainable cities and communities).

It also supports the European Union priorities in the region and the outcomes and commitments of the 2019 EU-Maldives dialogue, which paves way to a more sustainable and democratic Maldives.

“I am pleased to see that the EIB is providing quick relief to the SME sector in the Maldives which has been hit hard by the Covid-19 pandemic. Despite an efficient response by the Government, there are many economic challenges because of Covid-19 and the support by the EIB as part of a Team Europe response will help meet these challenges,” Denis Chaibi, the EU Ambassador to the Maldives, said.

The coronavirus outbreak has hit the Maldivian economy hard, as travel restrictions and other preventive measures affect the country’s lucrative tourism industry, which contributes the bulk of the island nation’s state revenue and foreign reserves.

Before the pandemic, the government had been bullish about tourism prospects, targeting two million, high-spending holidaymakers this year after last year’s record 1.7 million.

However, tourist arrivals saw a year-over-year decline of 22.8 per cent in the first 10 days of March. Officials say the number of tourist arrivals to the Maldives could drop by half in 2020.

All international airlines have suspended scheduled operations to the Maldives, as the island nation enforced a blanket suspension of on-arrival visa in late March in a bid to combat the spread of the novel coronavirus.

With arrival numbers falling and the visa suspension in effect, several resorts across the Maldives had been closed.

Tourism has been the bedrock of the Maldives’ economic success. The $5 billion-dollar economy grew by 6.7 per cent in 2018 with tourism generating 60 per cent of foreign income.

However, the government is at present projecting a possible 13 per cent economic contraction this year — an estimated $778 million hit.

The government is in talks with bilateral lenders and international financial institutions to procure some $290 million in loans and financial aid.

In the meantime, the government will borrow MVR 4.2 billion ($272 million) under an overdraft facility at the central bank to cover state expenses and maintain public services amidst the coronavirus pandemic.

The government had also announced plans to shave MVR 5 billion ($324 million) off state expenditure and reduce the total state expenditure for the year to MVR 30 billion ($1.944 billion) from the approved MVR 38.7 billion ($2.5 billion).

Austerity measures include a 20 per cent cut on salaries and allowances of all political appointees, 25-35 per cent cuts on salaries and allowances of public sector employees, and 30-70 per cent cuts across travel, training, renovations and capital equipment budgets.

On March 8, Maldives reported its first cases of the novel coronavirus, as two hotel employees tested positive for Covid-19 at a luxury resort in the archipelago.

Eighteen more cases — all foreigners working or staying resorts and liveaboard vessels except five Maldivians who had returned from abroad — were later identified.

A six-case cluster of locals, detected in capital Male on April 15, confirmed community transmission of the coronavirus. Several more clusters have since been identified, bringing the total number of confirmed case in the Maldives to 2,065.

Eight deaths have been reported and 1,540 have made full recoveries.

The Maldives announced a state of public health emergency on March 12, the first such declaration under a recent public health protection law.

The public health emergency declaration allowed the government to introduce a series of unprecedented restrictive and social distancing measures, including stay-at-home orders in capital Male and its suburbs, a ban on inter-island transport and public gatherings across the country, and a nationwide closing of government offices, schools, colleges and universities.

Non-essential services and public places in the capital such as gyms, cinemas and parks were also shut.

Restaurants and cafes in the capital were asked to stop dine-in service and switch to takeaway and delivery.

A nationwide shutdown of all guesthouses, city hotels and spa facilities located on inhabited islands was also ordered.

These measures allowed authorities to contain the outbreak.

More than half of the people who contracted the virus have recovered and daily recoveries have over taken the number of new infections detected per day.

The restrictions are now being eased in phases, with the second phase lasting at least until June end.

Photo: A file photo shows Maldivian finance minister Ibrahim Ameer (R) and EIB Vice President Andrew McDowell exchange letters for an EIB-funded project in Maldives, during the annual general meeting of the Asian Infrastructure Investment Bank (AIIB) in July 2019. FILE PHOTO/ FINANCE MINISTRY