Wednesday 24th Jul 2024
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State Debt

Maldives Drowns in Debt: Unprecedented Levels Reached under Solih's Tenure

MALÉ, Maldives — The financial landscape in the Maldives has grown increasingly precarious, with the national debt tallying to MVR 107.77 billion by the close of 2022, according to statistics recently released by the Finance Ministry. This sharp increase, translating to a debt burden of MVR 281,587 per person, has placed the nation's economy under significant stress.
The structure of the debt is bifurcated into MVR 48 billion external debt and MVR 58 billion internal or domestic debt. Most concerning is that the debt-to-GDP ratio, a crucial indicator of economic health, has ballooned to an unsettling 113%. This rising ratio is a clear sign that the country's debt is growing at a faster rate than the economy. High debt-to-GDP ratios can harm a nation's credit rating, increase borrowing costs, and potentially lead to economic instability if not addressed.
Upon closer inspection of the external debt, approximately 72% is constituted by loans, while the remainder is held in securities form. Within the next decade, the Maldives will face the significant task of repaying MVR 15 billion in loan obligations. On a longer timeline, an additional MVR 17 billion will come due after ten years.
Securities, in the form of sukuk and bonds, also present looming fiscal challenges. In just six years, securities worth MVR 26 billion are set to mature, adding to the imminent financial pressures.
The rising tide of debt has become a prominent issue under the administration of President Solih. Since he assumed office, national debt has surged by MVR 46 billion. By the end of the current year, government estimates suggest that the total debt could climb to MVR 113 billion. This means that the debt attributed solely to Solih's administration would exceed MVR 50 billion, a figure unprecedented in the nation's history.
In an attempt to counterbalance the budget deficit, the government has raised the Goods and Services Tax (GST) and imposed a plastic bag tax. Yet these measures have failed to make a dent in the growing deficit.
Internationally, financial institutions including the World Bank and the International Monetary Fund (IMF) have voiced their apprehensions regarding the state of the Maldivian economy. However, instead of taking these warnings on board, government officials have responded with criticism toward these organizations. Meanwhile, the government continues to assert that the Maldivian economy is robust.
The nation now finds itself at a critical crossroads. A collaborative and honest approach to address these economic challenges is imperative for the future prosperity of the Maldives.