Maldives must expedite fiscal reforms: WB Country Director

For decades, the Maldives has been spending beyond its means, said Faris H. Hadad-Zervos, the World Bank Country Director the Maldives, Nepal, and Sri Lanka.

In a post on X, Hadad-Zervos said that the island nation’s sharp spending rise and subsidies have widened the country’s state deficit, leading to vulnerable fiscal conditions and unsustainable debt.

He adds that the annual debt servicing needs of the Maldives are likely to be USD 512 million for the current and next years, and USD 1.07 billion in 2026.

The World Bank Country Director also stressed Maldives faces high debt distress and financing challenges, making the island nation vulnerable to shocks. He had stressed on the urgent need for fiscal reforms.

“Last year the Maldives economy hit choppy waters, tourism, the nation’s economic engine slowed down due to the decrease in tourism receipts. The decision to halt subsidy reforms, coupled with continued high spending, has strained the nation’s finances. Deficits are mounting, and there’s pressure on the public financing,” Hadad-Zervos comments.

However, the situation appears to become less intense with the growth in tourist arrivals to the Maldives that promises a steady growth rate of around 5% in the medium term, he also added. Despite the positive outlook, Hadad-Zervos adds that the Maldives “must navigate these waters carefully.”

He emphasized on the requirement for a comprehensive, long-term economic reform plan is vital for economic stability.

“In this regard, the government’s announcement of a homegrown fiscal reform agenda was a positive start,” he added.

Hadad-Zervos further affirmed World Bank’s readiness to support the announced reforms for the protection of the vulnerable, reformation of inefficient subsidies, streamlining state-owned enterprises, making healthcare spending more effective, and developing better investment strategies. He further highlighted the requirement to streamline the public investment program as well.

In May 2024, it was reported that the country’s public and publicly guaranteed (PPG) debt has risen to MVR 126 billion by the end of this year’s first quarter, which is 110% of the Maldives GDP.

The World Bank along with the International Monetary Fund (IMF) have given multiple warnings to the Maldives previously for immediate counter measures ensuring cost efficiency in public finances, which if not heeded soon could lead to disastrous consequences.

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