Living beyond means: The Maldives may follow the Sri Lankan financial woes
Virendra Pandit
New Delhi: Being politically anti-Indian and pro-Chinese ruins a whole country. Sri Lanka’s ruling Rajapaksa clan realized it in 2022; the Maldives’ pro-China President Mohamed Muizzu may soon realize that his Indian Ocean archipelago nation is slipping into the same pit.
When the then Sri Lankan President Gotabaya Rajapaksa fled the anti-government uprising in July 2022, he landed in the Maldives! Now, the Maldives is also facing a high debt distress risk and financing challenges, the World Bank has warned.
Male’s state debt rose by USD 90.8 million within the first three months of 2024. Its total debt at the end of 2023 was USD 8.09 billion, the media reported on Wednesday.
Underling that the Maldives has been spending beyond its means for decades, the World Bank has warned that it now faces high debt distress risk and financing challenges, making it vulnerable to shocks.
World Bank Country Director for the Maldives, Nepal, and Sri Lanka Faris H Hadad-Zervos said the island nation’s annual debt servicing needs are likely to be USD 512 million for the current and following years, and another USD 1.07 billion in 2026.
The statement, posted on his official X account, comes days after the Maldivian Ministry of Finance said the public and publicly guaranteed (PPG) debt is almost 110 percent of Maldives’ GDP.
Like Sri Lanka, the heavily tourism-dependent nation had suffered severely because of the COVID-19 pandemic-induced lockdowns and started recovering only in 2023.
According to the Ministry of Finance’s Quarterly Debt Bulletin for Quarter 1, 2024, published on June 1, the PPG debt has risen to USD 8.2 billion which is 110 percent of the Maldives’ GDP.
It said the state’s debt rose by USD 90.8 million between January and March 2024. The total debt had reached USD 8.09 billion by 2023 end.
For decades the Maldives has been spending beyond its means. Sharp spending rise and subsidies have widened the deficit, leading to a vulnerable fiscal situation and unsustainable debt, Hadad-Zervos said on Monday.
Annual debt servicing needs are likely to be USD 512 million for 2024 and 2025, and USD 1.07 billion in 2026, he pointed out.
Suggesting urgent fiscal reforms, the top World Bank official said, phasing out blanket subsidies, addressing SOE weaknesses, improving healthcare spending efficiency, and streamlining the public investment program could be some of the measures.
He also posted a video along with his message on X. Last year, the Maldives economy hit choppy waters, Faris begins his video message posted on X, adding that the nation’s economic engine, the tourism industry, slowed down because of a fall in tourism receipts.
The decision to halt subsidy reforms, coupled with continued high spending, has strained the nation’s finances, he warned, according to the news portal Sun. mv.
Earlier, the May 8 report, Scaling Back and Rebuilding Buffers, the latest Maldives Development Update from the World Bank, noted that the country’s tourism and other major industries are seeing a slowdown.
Sun, mv reported the increment in tourist arrivals is offset by lower spending per tourist and shorter stays tampering the positive impact on the overall GDP growth of the Maldives.
The Washington-based lender forecast also highlighted the need for fiscal consolidation in the country, which is expected to impact real household incomes owing to subsidy reforms, and a decrease in the government’s spending and investment.
The nation’s economy was projected to grow by 4.7 percent this year, lower than previous estimates, reflecting a moderation in growth momentum, the World Bank added.
