Male, May 1 (AVAS): Maldives Central Bank Governor Ahmed Naseer on Monday expressed grave concern over mounting national debt in the Indian Ocean archipelago ,sharing the IMF’s grim view.
Speaking during the inauguration of ‘Maldives Finance Forum’ organized by the pension office, the central bank chief insisted that the country must manage its external debt taken on to finance expansive infrastructure development projects.
The Governor’s concerns are in line with the International Monetary Fund’s (IMF) warning of constraints on the country’s reserve.
In a highly detailed report compiled by the delegate of researchers who visited Maldives earlier this year, the increasing external debt poses many fiscal threats to Maldivian economy, as the report read “the external debt ratio is on a rising path over the medium term reflecting the large ongoing infrastructure scale up and the recent US$200 million sovereign bond issuance.”
However IMF had argued that although the external debt path has improved in comparison with previous Debt Sustainability Analyses (DSAs) because of re-basing of GDP “as opposed to improvement in economic and policy fundamentals” the country’s widening CA deficit, low international reserves as well as rapid debt buildup (due to multiple foreign aids for infrastructural development) has left Maldives at a vulnerable point for external or foreign shocks.
The report had also criticized over the increase of debt on GDP per capita with hike of 11.5% for the past two years – mainly contributed to lower productivity compared to higher debt.
Researchers had advised the Maldivian state to balance the infrastructural development with the foreign aid receipts.
Furthermore the report cited that the CA deficit has deteriorated significantly last year (19.6% of GDP) compared to the projections of 2015. This was mainly due to the “increased infrastructure-related imports, moderate tourism receipts and higher remittance outflows and reclassification of a large one-off court mandated payment.”
The local economy stands at a vulnerable point as the “level of reserves has persistently hovered around the minimum requirement as suggested by adequacy metrics reflecting a dollarized economy and a parallel market supplying dollars at a premium,” read the report. Adding that the reserves are expected to remain low due to the large CA deficit expectations and the external debt obligations that are falling due.
IMF claims the Maldivian economy will boost by 3.9% throughout 2017 and will remain at this constant.
Maldives Monetary Authority (MMA) had also chimed similar chants over increase of external debt resulting in the possibility to place restraints on the reserve.
The 2018 state budget confirms the country’s overall debt to topple at MVR 43 billion by the end of 2017 with MVR 27.3 billion registered as external and the remainder 21.7 billion as internal debt.