In the twilight of President Maumoon’s reign in 2008, the Maldives’ debt was nearing MVR 10 billion. Fast forward to the era of President Nasheed, and this figure ballooned to MVR 26 billion, a staggering increase of MVR 16 billion. By the end of 2018, the national debt stood at MVR 60 billion, marking an additional MVR 34 billion. The trend continued under President Ibrahim Mohamed Solih, with the government debt escalating to MVR 124 billion—an MVR 64 billion surge. Now, under President Dr Mohamed Muizzu, the nation faces the haunting question: not if, but when will the Maldives face bankruptcy?
The Debt Conundrum
Despite an uptick in economic activity, the debt narrative remains bleak. Analysts had predicted that a pandemic-induced halt in tourism would plunge the economy into despair. As the primary revenue driver, tourism was crippled when the country’s main gateway shut down. Yet, defying odds, the Maldives emerged as one of the swiftest and most successful nations to bounce back from the pandemic’s clutches. While neighbouring countries teetered on the brink of economic collapse, the Maldivian economy slowly regained its momentum.
However, this recovery masked deeper fiscal fissures. The debt situation has been dire since the tenure of former President Abdulla Yameen, during which the country embarked on massive borrowing sprees to finance large-scale infrastructure projects. Successive administrations continued this trajectory, financing ambitious ventures predominantly through foreign loans, with little regard for long-term fiscal sustainability.
A Vicious Cycle
The burgeoning debt burden is evident in the nation’s annual budgets. From MVR 30 billion to MVR 40 billion, the budgetary needs surged towards the end of President Solih’s term. Economists repeatedly sounded alarms, warning of an impending fiscal crisis due to unbridled borrowing and unchecked spending. Yet, political imperatives overshadowed fiscal prudence, leading governments to prioritise short-term gains over sustainable economic policies.
Upon taking office, President Muizzu found an economy burdened with overwhelming debt. Instead of managing it his administration’s initial efforts, however, seemed more politically driven than economically judicious. In a bid to consolidate power, numerous political positions were created, swelling the ranks of state ministers and deputy ministers to unprecedented levels. Public enterprises, too, saw a surge in employment, further straining the national exchequer.
The Debt Trap
Today, the Maldives grapples with an alarming debt load—both external and internal. The total debt has now eclipsed MVR 127 billion, comprising various loans accumulated since the 1970s. Each successive leader has vowed to bolster the state budget, yet records indicate that the Parliament has approved debt-laden budgets since 1982. President Muizzu’s administration, despite its promises, finds itself ensnared in this vicious cycle.
Economists argue that borrowing per se isn’t detrimental. The crux of the problem lies in procuring unproductive loans with no viable repayment strategy or economic vigour to support debt servicing. The greatest peril to the Maldivian economy is the persistent expenditure exceeding revenue, compounded by the costs associated with running the state and financing development projects through substantial loans.
A Bitter Pill to Swallow
The Maldives cannot stave off bankruptcy without stringent fiscal reforms. The upcoming years promise further indebtedness, exacerbating the economic strain. The country’s reserves have dwindled, while looming debt repayments exceed MVR 30 billion over the next two years. Despite tourism performing at expected levels, the state’s revenue continues to lag behind its exorbitant expenses.
The most formidable threat remains the unsustainable debt—both external and domestic. To navigate this financial quagmire, the Maldives must adopt radical cost-cutting measures. These include scaling back on special ceremonies, reducing political appointments, and curbing operational government expenditures. Experts advocate for cuts at the highest levels, including the President’s, judiciary’s, and Parliament’s expenditures. Additionally, reducing lavish allowances for former presidents and judges, abolishing double pensions, and reigning in other forms of state largesse are essential steps.
A Call for Pragmatism
The economic crisis necessitates sacrifices from all quarters, starting at the top. Reducing the salaries and allowances of MPs, ceasing extraneous services, and cutting perks such as CIP terminal access for MPs and their families are vital measures. Subsidies on wheat, flour, and sugar, which disproportionately benefit foreigners and businesses rather than ordinary citizens, should be reconsidered. Furthermore, restructuring or eliminating unprofitable state-owned enterprises could save billions.
Significant cuts in overseas spending are also imperative. The Maldives maintains an unusually large number of embassies and consulates, a legacy of its ambitious foreign policy. These, along with the extravagant lifestyles of diplomats, represent an avoidable drain on national resources. Embracing digital diplomacy could significantly reduce costs.
Towards a Sustainable Future
The Maldivian government must pivot towards fiscal responsibility, prioritising efficiency and sustainability. This entails liquidating non-essential companies, enforcing stricter regulation on unregistered shops that evade taxes, and curtailing black-market dollar transactions. Such reforms could alleviate some of the economic pressures.
Ultimately, the path to recovery demands a collective resolve to endure the bitter medicine of austerity. The burden of this economic rectification must be equitably distributed, with the upper echelons of society leading by example. The government must secure public support for these necessary measures, fostering a sense of shared sacrifice and commitment to national stability.
The road ahead is fraught with challenges, and the spectre of economic ruin looms large. Yet, with decisive action and unwavering resolve, the Maldives can navigate this crisis, securing a sustainable future for generations to come. The question remains: will the new government muster the courage to administer the necessary remedies and steer the nation away from the brink of bankruptcy? Only time will tell.
