The International Monetary Fund (IMF) has warned that despite robust post-pandemic growth, Maldives remains at high risk of debt distress.
In their “preliminary findings” released last Wednesday following a mission to the Maldives, the IMF staff stated that the island nation’s economy is expected to grow at a rate of 5.2% in 2024, fueled by anticipated increases in tourist arrivals.
Indicating that “without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated, and the Maldives remains at high risk of external and overall debt distress,” calling for an immediate policy adjustment. This evaluation aligns with the World Bank’s previous analysis of the fiscal challenges confronting the Indian Ocean archipelago.
Further, elaborating that achieving fiscal consolidation sustainability requires the implementation of stringent monetary and macroprudential policies to mitigate vulnerabilities in public finance and debt. In response, the authorities are commendably initiating a comprehensive and domestically crafted fiscal reform agenda, with a dedicated commitment to prompt implementation.
Further, elaborating that achieving fiscal consolidation sustainability requires the implementation of stringent monetary and macroprudential policies to mitigate vulnerabilities in public finance and debt. In response, the authorities are commendably initiating a comprehensive and domestically crafted fiscal reform agenda, with a dedicated commitment to prompt implementation.
Considering the climate vulnerabilities of the Maldives, enhancing institutions to bolster support for climate adaptation and mitigation efforts will facilitate access to additional climate financing and the fulfillment of climate commitments. Moving forward, fostering an improved business environment, reinforcing governance, and advancing skill development will also contribute to robust, inclusive, and sustainable growth.
Additionally, the anticipated expansion of the Velana Airport terminal and the potential increase in hotel accommodation capacities are expected to enhance growth prospects, according to the suggestion.
Amid mounting challenges, President Mohamed Muizzu informed parliament that his administration intends to implement a reform policy aimed at enhancing the country’s financial situation and establishing sustainable fiscal conditions.
Assistance
In January of this year, during his trip to China, Mr. Muizzu requested Beijing’s support for the second phase of the airport’s expansion. Upon his return, he announced that China has expressed a willingness to engage in discussions regarding a potential deferment of the debt owed by the Maldives to the Asian nation.
China stands as the largest bilateral creditor for the Maldives, with the island owing approximately $1.4 billion to Beijing. According to the World Bank’s projections, the Maldives is expected to maintain a debt-to-GDP ratio exceeding 115% this year.
As per the report, the Maldivian economy experienced a robust recovery of 13.9% in 2022 after the contraction induced by the pandemic and is anticipated to register a growth of 4.4% in 2023. Despite this positive trend, lingering concerns arise as the projected current account deficit for 2024 is expected to persist at a significant level, exacerbated by high fuel prices and strong import demands.
Sodsriwiboon, the economist delivering the official statement for the IMF, emphasized: “Without significant policy changes, the overall fiscal deficits and public debt are projected to stay elevated, and the Maldives remains at high risk of external and overall debt distress.”.
Moreover, the Maldives faces substantial risks linked to climate change, such as floods and the escalating threat of rising sea levels, which could incur significant economic consequences. The IMF underscored the crucial need to fortify institutions to bolster climate adaptation and mitigation endeavors, facilitating access to additional climate financing and the fulfillment of commitments related to climate action.
“With limited policy space and growing balance of payments pressures, swift implementation of a strong and credible form of fiscal consolidation, comprising holistic expenditure rationalisation and domestic revenue mobilisation, is needed.”
The IMF commended the country’s discontinuation if the Maldives Monetary Authority (MMA) advances, stating that macroprudential policies needed to be tightened to ensure “compatibility with the exchange rate peg.”
Additionally, it emphasized the necessity to strengthen oversight and crisis management in the financial sector, coupled with efforts to enhance the business climate, reinforce governance, and promote skill development, all aimed at fostering inclusive and sustainable growth.