The World Bank Country Director for the Maldives, Nepal, and Sri Lanka, Faris H. Hadad-Zervos, has raised concerns about the Maldives’ increasing spending, highlighting that the country has been spending beyond its means for decades. According to his assessment, the Maldives will require USD 512 million for debt servicing in 2024 and 2025, with USD 1.07 billion anticipated for 2026.
According to Hadad-Zervos, the Maldives’ fiscal health is under strain due to a sharp increase in state spending, mounting deficits, and a slowdown in tourism receipts.
“The decision to halt subsidy reforms, coupled with continued high spending, has strained the nation’s finances,” he said in a recent video statement on X. ” Deficits are mounting, and there’s pressure on the public finances.”
For decades #Maldives has been spending beyond its means. Sharp spending rise & subsidies have widened deficit, leading to a vulnerable fiscal situation & unsustainable debt. Annual debt servicing needs are likely to be $512 million for 2024 & 2025, & $1.07 billion in 2026 (1/3) pic.twitter.com/3DGDbyFwgk
— Faris H. Hadad-Zervos (@WorldBankNepal) June 10, 2024
Despite these challenges, increasing tourist arrivals can help overcome these issues, said Hadad-Zervos. “Yet, a glimmer of hope remains as the tourist numbers increase, promising a steady growth rate of around 5% in the medium term.”
However, the Maldives must navigate these waters carefully, he added, urgently calling for the Maldives to implement fiscal reforms amidst escalating debt burdens.
He stressed the crucial need for a comprehensive, long-term economic reform plan to ensure financial stability and acknowledged the government’s initial steps towards fiscal reform. The World Bank expressed readiness to support these reforms, advocating for a multifaceted approach to improving the nation’s fiscal health.
In its latest report titled “Scaling Back & Rebuilding Buffers,” the World Bank highlighted a slowdown in the Maldives’ tourism and other major industries. Despite increasing tourist arrivals, lower spending per tourist and shorter stays have tempered the positive impact on overall GDP growth, underscoring the necessity for fiscal consolidation.
The Maldives’ public and publicly guaranteed debt rose to USD 8.2 billion by the end of the first quarter of 2024, equivalent to 110% of the country’s GDP. The Ministry of Finance reported a USD 90.8 million increase in debt within the first three months of the year, mainly attributed to a rise in domestic debt.
Looking ahead, the Maldives’ annual budget report for 2024 projects state debt to reach USD 8.5 billion by year-end, further highlighting the urgency for fiscal reforms to address mounting debt sustainability and budgetary risks.
