President Solih’s Thoughts on Debt Management: A Fact-Check

During a press conference held by President Ibrahim Mohamed Solih yesterday, Dhiyares; the sister-newspaper of The Maldives Journal; asked the President to explain his debt management strategy. The question, asked by Dhiyares journalist Ahmed Azaan, was as follows:

“When you were part of the opposition, you had criticized the government for taking on debt. And while on the campaign trail in 2018, you had vowed that you would not place the burden of debt on the citizens. However, you have taken on $1.8 billion USD in foreign debt in the first two years of your presidency. In Maldivian currency, this is MVR 27 billion. You have also issued $584 million USD in sovereign guarantees. This is MVR 9 billion. With loans and sovereign guarantees, you have accumulated MVR 36 billion in debt in the first two years of your presidency. The national debt is at 140% of GDP. This is the first time that the Maldives has incurred such a large debt in such a short period of time. Moody’s Investors Service also has warned that the Maldives is at risk of going into sovereign default. My question is, what is the government’s debt management strategy? What are the government’s policies or your own thoughts on how to servicing these debts in the short-term and the long-term?”

The President’s response opened with the statement: “you would know, Azaan, that the country’s economic state was dire when we took office”.

President Solih assumed office in 2018. Reports published by the Maldives Monetary Authority state that the nation had achieved a real GDP growth rate of 7.6% as of October of that year. This had been a higher number than the 6% growth rate that had been projected for 2018.

The MMA’s report stated that this growth was likely due to the infrastructural projects being undertaken by the government at the time, the high number of tourist arrivals, and the booming construction industry.

Based on this, the President’s statement that the country’s economic state had been dire in 2018 was untrue.

The President then said that the government had to take on more debt to run the government’s projects. He then claimed that he would have mentioned this earlier.

However, President Solih, then a candidate in the presidential race, had said something entirely different while addressing a rally at the Malé City Carnival Area on 8 September 2018. He had said: “I will not burden the citizens with debt without their consent and approval.

He had never mentioned taking on debts to fund government projects. The approval of Peoples’ Majlis had not been sought prior to taking on any of the debts that currently burden the country’s economy. There have also been no noteworthy government projects as the Solih administration draws closer to the middle of its third year.

President Solih then claimed that the nation has expended its financial resources to deal with COVID-19, and in a veiled attack on the previous administration, had remarked that “it would have been good had the money from leasing out the islands through the MMPRC entered the government’s account”.

He claimed that this loss amounted to “MVR 3 billion”, and the government did not have any of it.

He said that this was why more debts had to be taken on.

In reality, the State lost MVR 1 billion as a result of the MMPRC’s illicit activities. However, even if the government had indeed lost MVR 3 billion, the President’s answer does not explain the remaining MVR 33 billion in total debt taken on by the Solih administration in its first two years.

The President mentioned that the economy was going through big changes. He mentioned that Azaan had criticized him for his March 2020 claim that the latter part of 2020 and the first part of 2021 would see the economy thrive. He said that his prediction had indeed come true.
In June March, he had also claimed that the country’s resorts “would be filled”, and the Maldives would enjoy an “economic boom”.

Sadly, the President’s optimism is not informed by reality. Current tourist arrivals are 40% lower than they were last year.

An economic “boom” is defined as a huge spike in national productivity, accompanied by steep economic growth; when the economy performs far beyond what had been predicted. The Maldives is not facing an economic boom.

While there has been a growing trickling in of tourists since pandemic lockdown measures had been lifted, and the borders opened: the Maldives is in what is termed an economic recovery period. The economy has indeed done better in February 2021 than it did in June 2020, but this growth is no boom.

It was entirely unclear as to how what the President had been saying until this point was related to the question asked.

The President then shifted his focus to the previous administration.

“The Yameen administration had taken out some $200 million USD at high-interest rates. 9 percent. It has to be repaid next year”, he said.

He then pointed out that Azaan often mentions the sovereign development fund. He mentioned that the sovereign development fund was there to help pay off the loans.
The President refrained from saying any more. He may have mentioned how the Yameen administration had planned to repay the $200 million USD in bonds that they had sold.

According to a report by the IMF, the sovereign development fund had $200 million USD by the end of 2019. The Solih administration had used up $120 million USD by the beginning of 2020.

The remaining amount has also since been heavily depleted. Perhaps the President stopped mentioning the fund after being reminded of this fact. The President mentioned that the interest rates on the bonds sold by the Yameen administration was 9%. However, according to the statistics of the Ministry of Finance, the interest rate (or coupon rate) had been 7 per annum.

After abruptly stopping himself, the President began on a new tangent: that the government took money from MMA to pay GMR.

“In addition, the government had taken money from the MMA. Some $200 million USD”, he said.

There was no reason for the President to mention this. In 2016, an arbitration process in Singapore had ruled that GMR be paid $271 million USD. The Maldives Airports Company Limited (MACL) sold a $140 million USD bond to MMA. The bond had been sold at a 4.93 coupon rate, to be repaid in 3 years.
The bond had matured by 2019, and the bond had been paid off by the MACL, without burdening the government’s own budget. MACL had earned MVR 1.16 billion profit in 2019. It is clear that the government would not have had to take responsibility for the GMR pay-off as a result.

The President then said that a sukook was being sold to the market to extend the repayment date of the $200 million USD. However, his statement contradicts the statements of Ibrahim Ameer, Minister of Finance, who had said that sukook was sold to raise finances for this year’s budget.

It had been previously reported that the Solih administration had attempted to sell sukook bonds, with a lien on the Dharumavantha Hospital building.

The relation between that sukook and the $200 million USD bonds issued by the Yameen administration is unclear. Although, the $200 million USD had been issued to finance the construction of the Dharumavantha Hospital building.

In addition, the President had said that the $150 million USD loan the government had received from India would certainly be converted to a grant.

This amount of $150 million USD had been a bond issued by the government of Maldives to the State Bank of India's Maldivian branch in 2019. Even then, Finance Minister Ameer had claimed that the bond would be converted to a grant.

The President said that once the bond was converted to a grant, the government would be able to take on more loans in future. He said that therefore, the coming year would see a lot of prosperity.

The President had been asked about government policy regarding national debt. However, he responded that India would forgive the $150 million USD debt. He never mentioned anything further about any plans the government had to deal with the accumulating MVR 36 billion in debt.

A charitable perspective would have it that the President was unable to properly prepare himself for the short-notice press conference.