IMF Report Sheds Light on the Maldives’ External Public Debt: A Detailed Analysis

An International Monetary Fund (IMF) report has highlighted the significant external public and publicly guaranteed (PPG) debt challenges facing the Maldives. This article delves into the details of the country’s debt structure, key creditors, and the financial obligations that impact its economic stability.

The Scope of Maldives’ External Debt

As of 2022, the Maldives’ external PPG debt stood at $3,072 million, representing approximately 49% of the nation’s Gross Domestic Product (GDP). This is a slight increase from the $3,046 million recorded in 2021. The external PPG debt is a combination of direct government borrowings and debts guaranteed by the government but incurred by state-owned enterprises (SOEs).

Breakdown of External Debt Components

Direct Budgetary Debt

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The most significant portion of the Maldives’ external debt is direct budgetary debt, which accounts for 71% of the total external PPG debt. This debt is directly owed by the Maldivian government and is crucial for financing various governmental activities and projects.

State-Owned Enterprises (SOEs) Debt

The remaining 29% of the external PPG debt is contracted by SOEs with government guarantees. These debts are primarily used for housing development projects managed by entities such as the Housing Development Corporation (HDC) and the Fahi Dhiriulhun Corporation (FDC). Notably, about 60% of the total guaranteed external loans are attributed to these housing projects.

Major Creditors and Debt Distribution

The Maldives’ external debt is predominantly owed to bilateral and commercial creditors, with some contributions from multilateral institutions. Here’s a closer look at the distribution:

Bilateral Creditors

Bilateral creditors, which are individual countries providing loans, hold the largest portion of the Maldives’ external debt. Among these, China stands out as the most significant creditor, holding about 19% (or 42%) of the total external PPG debt. The loans from China are crucial for various development projects but also pose a significant financial obligation for the Maldives.

Multilateral Creditors

Multilateral creditors, including international organizations like the International Monetary Fund (IMF), constitute a smaller portion of the debt. These loans often come with specific conditions aimed at promoting economic stability and development.

Commercial Creditors

Commercial creditors, representing private sector lenders, also hold a significant share of the Maldives’ external debt. These loans typically come with higher interest rates compared to multilateral and bilateral loans.

China’s Role as a Major Creditor

China is the largest individual creditor to the Maldives, holding about 19% of the total external PPG debt. This significant financial involvement underscores the close economic ties between the two countries. The loans provided by China are essential for numerous development projects across the Maldives, but they also come with considerable financial obligations. The large share of debt owed to China highlights the importance of bilateral relations and the need for careful financial management to ensure sustainable development.

Financial Obligations and Debt Servicing

One critical aspect of the Maldives’ debt is the financial obligations arising from these loans. The agreement with the company handling the Gulhifalhu reclamation project, for instance, stipulates an idle fee of 15,300 Euros per hour if the project is halted. This clause underscores the significant financial stakes involved in these projects.

Swap Arrangements with Reserve Bank of India

In addition to its external debt, the Maldives has engaged in swap arrangements to manage its financial reserves. In 2020, the Maldives entered into a swap arrangement with the Reserve Bank of India (RBI) for $400 million. This arrangement was fully repaid by 2023. Notably, this swap was used for reserve management purposes and is excluded from the external public debt calculations.

The IMF report highlights the Maldives’ external debt as a complex mix of direct government borrowings and guaranteed loans for state-owned enterprises. With China as the largest creditor, the country faces significant financial obligations that impact its economic stability. Understanding the structure and distribution of this debt is crucial for formulating strategies to manage and mitigate financial risks. The government’s efforts to manage reserves through swap arrangements and its ongoing commitments to international creditors highlight the multifaceted nature of the Maldives’ economic landscape.

By addressing these financial challenges through prudent management and strategic planning, the Maldives can work towards ensuring economic stability and sustainable development for its future.

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