Maldives faces high debt distress: World Bank warns

Male: Highlighting that the Maldives has been spending “beyond its means” for decades, the World Bank has warned that the archipelagic nation faces high debt distress risk and financing challenges, making it vulnerable to shocks.

World Bank Country Director for the Maldives, Nepal, and Sri Lanka Faris H Hadad-Zervos also said that the island nation’s annual debt servicing needs are likely to be USD 512 million for the current and following years, and another USD 1.07 billion in 2026.

Hadad-Zervos’s statement, posted on his official X account, comes days after the Ministry of Finance here said that the public and publicly guaranteed debt is almost 110 per cent of Maldives’ GDP. The heavily tourism-dependent nation had suffered badly due to the COVID-19 pandemic-induced lockdowns and started recovering only in 2023.

According to the Ministry of Finance’s Quarterly Debt Bulletin for Quarter 1, 2024 published on June 1, the public and publicly guaranteed (PPG) debt has risen to USD 8.2 billion – which is 110 per cent of the Maldives’ GDP.

The Ministry of Finance reports that the state’s debt rose by USD 90.8 million within the first three months of the year. The total debt had reached USD 8.09 billion by 2023 end.

“For decades #Maldives has been spending beyond its means. Sharp spending rise and subsidies have widened the deficit, leading to a vulnerable fiscal situation and unsustainable debt,” Hadad-Zervos’ post on X said on Monday.

Annual debt servicing needs are likely to be USD 512 million for 2024 and 2025, and USD 1.07 billion in 2026, he pointed out and warned: “Maldives faces high debt distress risk and financing challenges, making it vulnerable to shocks.” Suggesting urgent fiscal reforms, the top World Bank official said, phasing out blanket subsidies, addressing SOE weaknesses, improving healthcare spending efficiency and streamlining the public investment programme could be some of the measures.

He also posted a video along with his message on X. “Last year, the Maldives economy hit choppy waters,” Faris begins his video message posted on X, adding that the “nation’s economic engine,” the tourism industry, slowed down due to a decrease in tourism receipts.

“The decision to halt subsidy reforms, coupled with continued high spending, has strained the nation’s finances,” the World Bank Country Director warned further, news portal Sun.mv said on Wednesday.

Earlier, May 8 released the report ‘Scaling Back and Rebuilding Buffers,’ which is the latest Maldives Development Update from the World Bank, noted that the country’s tourism and other major industries are “seeing a slowdown.” Sun,mv further reported quoting the Update that the increment in tourist arrivals is offset by lower spending per tourist and shorter stays – tampering the positive impact on the overall GDP growth of the Maldives.

The Washington-based lender forecast also highlighted the need for “fiscal consolidation in the country, which is expected to impact real household incomes” owing to subsidy reforms, and a decrease in government’s spending and investment." “Furthermore, the country’s economy was projected to grow by 4.7 per cent this year, lower than previous estimates, reflecting a moderation in growth momentum,” the World Bank added.