According to the latest World Bank Maldives Development Update (October 2024), state-owned enterprises (SOEs) in the Maldives continue to be a significant fiscal concern, contributing to the country’s rising public debt and placing increasing pressure on government finances. With public debt now exceeding 115% of GDP, the report highlights the urgent need for reforms to address inefficiencies in SOEs and reduce their financial burden on the state.
SOEs play a vital role in the Maldivian economy, particularly in sectors such as utilities, transport, and infrastructure. However, many of these enterprises have long relied on government support to cover operational inefficiencies, resulting in an unsustainable fiscal path. The World Bank report emphasises that addressing the structural weaknesses of SOEs is crucial for achieving fiscal stability and improving the overall economic outlook of the country.
Strengthening Corporate Governance in SOEs
One of the key recommendations in the report is the implementation of stronger governance frameworks within SOEs. Poor financial management and a lack of oversight have allowed inefficiencies to persist in many enterprises. The World Bank suggests that enhancing corporate governance and introducing greater accountability measures will be essential in improving the performance of SOEs. This would not only reduce the financial risks associated with these entities but also strengthen investor confidence.
Reducing Government Support and Encouraging Independence
The World Bank also stresses the importance of reducing direct financial support to SOEs. The continued provision of subsidies and loans to unprofitable enterprises is exacerbating the country’s fiscal challenges. Phasing out these subsidies and encouraging SOEs to operate on a more commercial basis is seen as a necessary step in reducing the fiscal strain on the government. In line with this, the report urges the government to accelerate its efforts to make SOEs more financially self-sufficient and less dependent on public funds.
Exploring Privatisation as a Solution
Privatisation, or partial privatisation, is another solution suggested by the World Bank. Allowing private sector participation in certain SOEs could bring much-needed investment, expertise, and innovation to improve the efficiency of these entities. The report notes that while privatisation can be an effective tool, it must be carefully managed to avoid potential negative social impacts, particularly in sectors that provide essential public services.
Improving Transparency and Financial Reporting
Furthermore, the World Bank Maldives Development Update underlines the need for greater transparency in the financial reporting of SOEs. The report indicates that improving financial disclosure and regularly assessing the performance of SOEs will be key to monitoring the success of any reforms. Transparent reporting will also help build confidence among stakeholders and allow for early interventions if financial problems arise.
The Fiscal Impact of SOEs and the Need for Reform
The fiscal impact of SOE inefficiencies is substantial, according to the World Bank. The report warns that unless reforms are implemented, the government will struggle to manage its growing debt and the associated risks. The Maldives is already facing significant external vulnerabilities, including a decline in foreign exchange reserves and increasing debt repayments, which further complicates the fiscal landscape. Reforming SOEs would enable the government to redirect resources to other critical areas, such as healthcare, education, and infrastructure development, which are vital for long-term economic growth.
Challenges to Reforming SOEs
However, the report acknowledges that the road to reform will not be easy. Political resistance and concerns over the impact on employment in SOEs could delay the process. The World Bank recommends that the government engage in broad consultations with stakeholders to ensure that reforms are implemented smoothly and with minimal disruption to public services.
The Path to Fiscal Stability
The World Bank Maldives Development Update highlights the importance of SOE reform in restoring the country’s fiscal health. By improving governance, reducing subsidies, and increasing transparency, the government can mitigate the fiscal risks posed by SOEs and create a more sustainable economic future. As the Maldives navigates its current economic challenges, addressing the inefficiencies in SOEs will be a crucial step towards achieving long-term fiscal stability.
