The Ministry of Finance has announced that the current administration is preparing to implement crucial measures to reduce expenses, addressing the fiscal deficits identified in the aftermath of the Covid-19 pandemic. These deficits were not mitigated by the end of former President Ibrahim Mohamed Solih’s term.
This announcement came in response to a press conference held by former Minister of Finance Ibrahim Ameer on Saturday night. During the conference, Ameer criticised the current government’s economic policies, asserting that the economy was still better than pre-pandemic levels and attributing the present fiscal challenges to the current administration’s lack of expertise in economic management.
In its response, the Ministry of Finance highlighted that the Maldives is one of the fastest growing economies post-pandemic and anticipates further growth both this year and in the medium term. The Ministry pointed out that financial sector obstacles were identified in 2022 and 2023, with steps outlined in fiscal strategy statements and budget books to mitigate the fiscal deficit.
One positive change noted by the Ministry was the adjustment in Goods and Services Tax (GST) rates, which was proposed by the previous administration. However, the Ministry emphasised that critical policies aimed at reducing state expenditures, essential for addressing the fiscal deficits highlighted during the Covid-19 pandemic, remained unimplemented until 17 November 2023.
“Failure to implement cost-cutting measures has led to government expenditures surpassing revenue, increasing the debt required to cover the deficit each year,” the Ministry stated.
The International Monetary Fund (IMF) warned in 2022 that the Maldives was at “high risk of overall debt distress” in the medium term, suggesting that the country might struggle to meet its debt obligations due to high debt levels and other internal and external factors. The Ministry of Finance also noted that the prolonged delay in taking necessary actions was a primary reason why Fitch Ratings downgraded the Maldives’ credit rating on 26 June 2024.
The Ministry acknowledged that while the previous government had prepared a conceptual framework to implement fiscal reforms and cut expenditures from mid-2024, it did not formulate a detailed action plan. In contrast, the current administration has now completed the detailed technical work on these reforms and is preparing to implement measures to reduce expenses.
“The ongoing reforms undertaken by the Ministry of Finance are in the interest of all Maldivian people and concern the future. We request all parties to extend their full cooperation in these efforts,” the Ministry stated.
The Ministry also expressed regret over former Minister Ameer’s statements, claiming that they distorted facts and undermined the Ministry’s efforts during a time of significant attempts to manage debt and the fiscal situation sustainably.
This development marks a pivotal moment in the Maldives’ economic policy, as the government seeks to balance expenditure and revenue, ensuring sustainable growth and stability in the face of ongoing fiscal challenges.
