US-based investment bank JP Morgan has listed Maldives as facing critical risk, anticipating that the country could exhaust foreign reserves and could default by the end of 2023.
A report issued by the investment bank looked at the global impact from the Russia-Ukraine conflict and ever-rising borrowing costs, globally. It had estimated that 10 percent of countries, labelled as risky and had taken exorbitant loans, could suffer from this.
The report looked at 52 nations who would have trouble settling their debts. Eight of the countries, the report said, were looking at depleted reserves by the end of 2023 and, in turn, at high risk for default.
"Nearly half of the (52) country sample is classified as carrying high repayment risk in our assessment. Of these, eight are at risk of reserve depletion by the end of 2023, signalling high default risks. These are Sri Lanka, Maldives, Bahamas, Belize, Senegal, Rwanda, Grenada, and Ethiopia,"
JP Morgan report
Sri Lanka had already defaulted, as announced by the country’s Central Bank earlier this month.
Unchecked state expenditure, loss of foreign revenue, and rising borrowing costs were noted as the key factors driving this economic spiral. These factors are currently observed in the Maldives, as well.
As per Maldivian Monetary Authority (MMA) statistics, at the end of 2021, state debt was at MVR 91.4 billion (US$ 5.9 billion). Out of this MVR 50 billion (US$ 3.2 billion) is internal debt, while MVR 41 billion is external debt (US$ 2.7 billion). This does not include debt taken under sovereign guarantees.
When President Ibrahim Mohamed Solih assumed office in 2018, total debt was at MVR 47.9 billion (US$ 3.1 billion). By the time the administration rang three years in office, the amount had jacked up by MVR 43 billion (US$ 2.8 billion) to MVR 91.4 billion (US$ 5.9 billion). Debt has increased, with minimal infrastructure projects to show for.
Finance Ministry estimates that by the end of President Solih’s five years in office, the debt figure would circle around MVR 98 billion (US$ 6.4 billion).
This is the first time in the nation’s history that debt had increased massively in one Presidential term. This was in spite of the Presidential pledge to rein in debt and debt per head.
This administration has been marked by high reliance on loans to settle recurrent expenses. India has become the largest loan provider. The government had attempted to paint these loans as grant aids.
JP Morgan’s report rings true, as the last check of reserves in April show that usable reserves are now at US$ 386 million.