Finance Minister Ibrahim Ameer told the Parliament on Monday that while the national debt has increased with the efforts for economic recovery amid the COVID-19 pandemic, the government has a strong debt repayment plan and will not default on loans.
Ameer presented the proposed state budget of MVR 34.79 billion for 2021 to the Parliament on Monday morning. The budget has a deficit of MVR 15.50 billion – which is 23 percent of the GDP.
In his statement while presenting the budget, Ameer said he has full confidence in the ability to manage debt.
Noting the heightened concern over the possibility of defaulting on loans, Ameer asked that people have faith in the government.
“People will question debt and the ability to repay debt under these circumstances. We provide assurance that we will address these concerns with careful consideration so as not to exacerbate the situation,” he said.
Ameer said that Maldives’ debt will rise to MVR 82.8 billion by the end of 2021. He said that while the debt may rise in the short run, it can be lessened in the medium run.
He said that Maldives will need to increase its GDP to make the medium term debt sustainable, by bringing an end to the drop in GDP and putting it on a growth path in 2021.
“This is the focus of the 2021 budget. The government’s goal is to have the growth rate of nominal GDP above the debt rate,” he said.
Ameer said that with the COVID-19 pandemic, GDP has dropped by 29.3 percent, contradicting previous projections. He said that the drop in revenue, resulting in the government having to take on more debt, has resulted in a high debt-to-GDP ratio.
He said that the government is engaged in a lot of work to manage the debt, will have to engage in a lot of work to manage the debt in the many years to come.
“The government is using the counsel and instructions of many experts in this. And we will use the counsel of this honorable Parliament in this as well. We need to put the debt ratio in a sustainable path. It is unwise for fiscal consolidation or to tighten our belt as a way to put it in a sustainable path at this time. We should tighten our belt our belt after the economy recovers,” he said.
Ameer said that economic experts believe the economic downfall of the COVID-19 pandemic is a short-term problem, and that it therefore must not be dragged on for years.
“Our goal is to opt for concessional loans when taking loans. We are working on holding a creditors’ conference with this in focus. We have joined the G-20 Debt Suspension Initiative. This suspension will be extended in 2021. We have a lot planned with the assistance of experts in addition to this,” he said.
Ameer said that it is undisputable that Maldives faces mounting debt and other economic obstacles, but that the challenges aren’t unique to Maldives, and isn’t resulting from an issue with the government’s policies.