Pres: Sukuk in April will be repaid while ensuring debt sustainability; interest rate cap at 9%

President Dr. Mohamed Muizzu, on Thursday, said the half a billion US dollar Sukuk which is due in April will be paid in half and refinanced, adding that, contrary to previous administrations, the Sukuk will be refinanced while ensuring the interest rate does not exceed nine percent.

In his presidential address at this year’s inaugural sitting of Parliament on Thursday, the President cited the biggest financial challenge faced by the current administration as the repayment of USD 250 million Sunny Side Bond withdrawn from the international market in 2017 during former president Abdulla Yameen Abdul Gayyoom and the repayment of USD 500,000 withdrawn by the last administration, led by former president Ibrahim Mohamed Solih.

He identified the second biggest financial challenged faced by the current administration as the report publicized by the International Monetary Fund (IMF) on November 23, 2022, regarding the Maldivian economy, which reported the Maldivian economy was too weak to service its debt.

President Muizzu added that his administration has been carefully preparing for the repayment of the Sukuk due in April since assuming office in November 2023. He noted that his administration has deposited over USD 275 million to the Sovereign Development Fund (SDF) as of present.

He detailed that USD 150 million out of the USD 500,000 billion which needs to paid for the Sukuk was deposited in foreign currency.

“I wish to provide my full assurance to the beloved citizens of the Maldives and the honorable members of this Parliament that the interest rate for any debt incurred by the government to refinance the remaining balance after the partial repayment of this Sukuk will not exceed nine percent. This stands in stark contrast to the irresponsible fiscal practices observed under previous administrations,” he said.

“This administration remains steadfast in its efforts to liberate the Maldivian people from the burdensome debt trap inherited from previous governments. Our objective is to provide much-needed relief and ensure a more stable, prosperous, and favorable financial future for the nation,” he stressed.

The President affirmed that the Sukuk repayment in April will be managed in a manner that ensures debt sustainability without subjecting the state to a fiscal burden.

He explained that the funds deposited into the SDF are strategically included in the medium-term budget to pay off external debts, adding that the structured approach to debt repayment is intended to minimize reliance on new borrowings, thereby steadily reducing the overall debt stock year after year.

The government has previously said it plans to refinance part of the USD 500 million bullet payment by issuing new bonds to delay repayment. Financial experts, however, say this may be difficult because Fitch and Moody’s have downgraded the Maldives to ‘junk’ status, making borrowing more costly.

With USD 1.1 billion in debt payments due this year, international financial institutions have been calling for fiscal reforms and spending cuts since 2021. Even though these reforms are not fully in place, the government insists it will repay all debts on time.