The Maldives is at a high risk of external and overall debt distress, the International Monetary Fund (IMF) warned on Wednesday but did not provide any details about the debt. It said the country’s fiscal and external vulnerabilities have increased, calling for urgent policy adjustment. “Maldives remains at high risk of external and overall debt distress,” said IMF staff teams in a report prepared after a visit to the country.
The global financial institution said that without significant policy changes, the archipelago nation’s overall fiscal deficits and public debt are projected to stay elevated. “Amid elevated fuel prices coupled with continued strong import demands, the current account deficit in 2024 is projected to remain large, albeit gradually narrowing over the medium term.”
The IMF also said that the Maldives is highly vulnerable to climate change risks, with potentially severe economic costs due to floods and rising sea levels. “With limited policy space and growing balance of payments pressures, swift implementation of a strong and credible form of fiscal consolidation, comprising holistic expenditure rationalization and domestic revenue mobilization, is needed,” the global lender said.
The lender further asked the Maldivian government to reform the state-owned enterprises (SOEs) to reduce additional fiscal burdens and said strengthening fiscal institutions and public financial and debt management frameworks was critical to enhance the credibility and effectiveness of fiscal policy.
AFP reported that former president Abdulla Yameen, who ruled for five years until 2018, borrowed heavily from China for construction projects. As per the data, Male owed 42 percent of its more than $3 billion foreign debt to China in 2021.
Just on Tuesday, Maldives President Mohamed Muizzu said he cannot launch any new development projects due to high debt. “The economy we inherited is in a bad state. We need to take measures because of the level of debt,” he was quoted as saying by Adhadhu.
The Observer Research Foundation, a New Delhi-based think tank, in a report published last year, said the China Development Bank, the Industrial and Commercial Bank of China, and the Export-Import Bank of China held over 60 per cent of Maldives’ sovereign debt.
Asia Nikkei reported last October that the World Bank’s assessment said Male had an obligation to spend an average of $300 million a year to service foreign debt from 2022 to 2024. “Despite expectations of reduced deficits, Maldives’ total debt is set to remain high at over 115% of GDP,” it had said.