The World Bank quite recently warned the Maldives of risks of rising public debt, and its alarming consequences for the island nation if course correction is not put to effect.
According to the global financial institution, the rising debts pointed out to the immediate need for comprehensive fiscal reforms in part of the Maldives government. World Bank said Maldives economy is expected to grow by 4.7% in 2024 – a lower percentile from previous estimates.
In its report, World Bank said the Maldives was facing potential risks due to external and fiscal vulnerabilities, and increased debt risks could arise if fiscal reforms are not implemented quickly.
The Implication of This…
World Bank’s warning has come at a time when the major Maldivian economic sectors have entered into a rather adhesive state; meaning these sectors that churn the highest chunk of the country’s receipts are in need of a few grease changes. The implication of this is simple, with less revenue to look forward to, the country’s government will have to rely possibly on external sources of funding – thereby, once again driving up the borrowings.
Maldives public debt stood at USD 8 billion, which equates to 122.9% of the country’s GDP in 2023. World Bank warned that a lack of comprehensive fiscal adjustment program could push up the debt in the medium term, which in turn posed debt sustainability risks.
For the island nation, the debt servicing needs are projected at USD 512 million for the current and next years, while the country is required to pay USD 1.07 billion in 2026.
The Vortex
The Maldives government’s state budgets over the past years, have always concluded in deficits. This meant that the country’s government was spending more per annum than what they were earning.
