“Maldives Public Expenditure Review” published by the World Bank expressed its concerns about a possible debt crisis in the country’s future.
The World Bank stated should the multiple fiscal and external disparities within the economy persist and remain unaddressed, a crisis is imminent.
Debt larger than revenue
The World Bank said that the Maldives had run extreme budget deficits than sustainable and borrowed heavily, leading to a debt of USD 6.1 billion by the end of 2021. This was close to MVR 100 billion, an estimated 125 percent of GDP.
The debt mostly consisted of funds acquired within internal markets, taking up to 65 percent of GDP. Debt acquired from international markets constituted 60 percent of the GDP.
Furthermore, even excluding the guaranteed debt, the government’s direct debt stood at USD 5.2 billion, 107 percent of 2021 GDP, which did not include advances from the central bank, MMA.
The World Bank asserted that fiscal risks, estimated at USD 2.5 billion or 45 percent GDP, stemmed from guaranteed and on-lent loans, as well as trade payables, subsidies and capital injections granted to SOEs.
The review acknowledged the fact that the Maldivian government was spending beyond its limits even prior to the pandemic.
Not all debts acquired during pandemic directed towards short-term needs
The World Bank stated that a sharp increase in borrowing occurred in 2020-2021 as the government contracted new loans and guarantees to cope with the revenue shortfall that occurred due to the COVID-19 pandemic. However, the bulk of new debt contracted during this period was directed towards infrastructure projects.
The world bank noted a five year US$500 million sukuk accompanied by a liability management operation, and US$250 million from the Government of India which was channeled as domestic debt.
Additionally, the government signed several lines of credit with the Export-Import Bank of India (EXIM India) for the Greater Malé Connectivity Project (US$400 million), defense projects (US$50 million) and sports infrastructure (US$40 million), and obtained guarantees worth US$246 million for the development of social housing and roads in Hulhumalé.
Due to expenditure, high risk of external and overall debt in Maldives
In the Joint World Bank-IMF Debt Sustainability Analysis published in April 2020, debt was assessed to be sustainable on the strong assumption that capital spending would be reduced.
However, the World Bank maintains that has not occurred. The World Bank said that the Maldivian government has maintained a high level of capital spending. Albeit, the sukuk issuance reduced short- term rollover risks from the US$250 million Eurobond due in 2022, it had contributed to a huge bunching of repayments in 2026.
The World Bank assumes that the US$100 million sovereign bond placed in Abu Dhabi, in addition to the US$500 million sukuk, will come due in 2026. Therefore, records show that the total debt service costs on existing debt will jump to USD 900 million or MVR 13.8 billion in 2026, possibly equivalent to 60 percent of 2019 revenues.
Although the Sovereign Development Fund could partially finance some of these repayments, the World Bank does not believe these revenues will be sufficient to repay external debt service costs.
Despite the World Bank’s statements, the current administration has repeatedly said that repayments will not go into default. The government has taken MVR 2 billion in the month of June alone.
Moreover, Minister of Finance, Ibrahim Ameer has also on multiple occasions denied any risk to the economy.