By Fatimath Afnaan

Maldives Insight

10:13 am

The Maldivian government has commenced the process of refinancing USD 300 million of its external debt, a move that has drawn strong criticism from the opposition Maldivian Democratic Party (MDP). The government states that this initiative is crucial for navigating a period of historically high national debt, with USD 600 million becoming due from April this year.

Currently, the Maldives’ total state debt stands at over 110 per cent of its Gross Domestic Product (GDP), a situation described by the government as an inherited challenge. A finance official, speaking on condition of anonymity, expressed confidence in the success of the refinancing efforts, citing current investor trust.

However, the MDP, led by its Chairperson Fayyaz Faisaal, has launched what the government claims is a “systematic campaign” to impede the refinancing. Mr Faisaal articulated his concerns in a lengthy statement posted on X, describing the current debt crisis as “worsening” and a cause for alarm.

Opposition’s Stance

Mr Faisaal argued that when the current administration assumed office, the economy was in a state of recovery, with increasing revenue and a thriving tourism sector, presenting an opportune moment to reduce national debt. He recalled that the previous MDP government, under former President Ibrahim Mohamed Solih, faced an unprecedented global crisis during the COVID-19 pandemic, which halted tourism and depleted state revenue. The MDP government, he stated, was compelled to borrow to offset a revenue loss exceeding MVR 25 billion during that period.

According to Mr Faisaal, the MDP administration implemented “credible fiscal consolidation strategies” and revitalised the economy, fostering investor confidence. He highlighted that a USD 500 million sovereign sukuk is due in April, a payment that, he asserted, any serious government would prepare for well in advance. Mr Faisaal noted that debt refinancing is a standard practice used by governments to manage large payments and safeguard foreign reserves. He cited the MDP government’s successful refinancing of a previous administration’s dollar bond in 2021 through the Maldives’ inaugural international Islamic sukuk, which he claimed brought stability, protected reserves, and maintained investor trust post-global crisis.

Criticising the current government, Mr Faisaal stated that despite having been in power for over two years and having previously criticised COVID-era borrowing, they have yet to present a “fiscal reform” plan or a “credible plan” for the sukuk due in April. He questioned the government’s preparedness, concern, or perceived overconfidence regarding the matter.

Mr Faisaal further warned that extensively depleting international reserves and the Sovereign Development Fund (SDF) to meet the April payment could leave the country vulnerable to economic shocks due to a lack of foreign currency. He also expressed grave concern over discussions about potentially “selling land to foreign countries,” which he suggested could jeopardise national sovereignty.

Government’s Counter-Arguments and Past Actions

Responding to the opposition’s narrative, government proponents have pointed to the MDP’s own track record regarding fiscal management. It is highlighted that the Sovereign Development Fund, which held USD 200 million when the MDP assumed power, had dwindled to USD 2 million by the end of their five-year term. Critics argue that if the fund had been conserved, it could have amounted to USD 500 million today, potentially alleviating the current financial pressures. Instead, it is noted that the MDP continued to print money even two years after the COVID-19 pandemic.

Furthermore, it is contended that the MDP government, despite being aware of impending debt repayments, did not prioritise debt repayment when the economy recovered post-COVID-19. Instead, they opted to roll over debt, a practice that typically incurs additional interest or percentages in subsequent years, even with close creditor nations. Despite the Maldives being one of the first countries to reopen to tourism globally after the pandemic, the precise allocation of the subsequent revenue remains unclear, with critics stating that no significant efforts were observed to address fundamental financial issues.

In contrast to the previous period, the government asserts that the financial situation has seen improvements, with funds now being deposited into the Sovereign Fund and foreign reserves approaching USD 1 billion. This shift, the government implies, represents a distinct difference in fiscal approach, contrasting with the opposition’s current criticisms regarding debt management.