Expenditure cuts necessary: World Bank Resident Coordinator

Maldives requires immediate expenditure cuts to overcome its current economic vulnerabilities, said Erdem Atas the World Bank Country Economist and Resident Coordinator for Maldives.

In a statement on X, Atas said that the economic vulnerabilities Maldives is now facing is a combination of debt stock accumulation in the last 10 years.

Besides this, he said that the continuous high fiscal and current account deficits over the same period also negatively impacted the country's economy.

He stressed that economic growth or additional financing cannot resolve the issue, but an expenditure cut would, which he said was necessary to address the vulnerabilities. 

The World Bank Resident Coordinator also said this was necessary to reduce fiscal and current account deficits, which will primarily support the Maldives Monetary Authority (MMA) reserves and help improve the country's debt situation in the medium-term.

Atas further said that he appreciated the government's efforts on fiscal reforms.

While Atas has made the statements about Maldives' fiscal conditions, the Minister of Finance Dr. Mohamed Shafeeq on Wednesday said that the planned medium-term fiscal reforms will improve the country's fiscal sustainability and self-sufficiency.

He also added that the domestic revenue mobilization will be greatly improved with the plan, and will reflect positively on the future rating reviews as well.

For years, the country's public finances end up in deficits for each fiscal year. A deficit occurs when the spending exceeds earnings.

In May this year, the Ministry of Finance reported that the state's public and publicly guaranteed (PPG) debt had risen to MVR 126 billion by the end of the 2024 first quarter; which is 110 percent of the Maldives GDP.

Meanwhile, on Wednesday, Fitch Ratings - a global credit rating agency - had downgraded the Maldives' long-term foreign-currency Issuer Default Rating (IDR) from 'B-' to 'CCC+'.

In its review, Fitch had highlighted key reasons for this downgrade - which include;

• The decline of Maldives foreign reserves from USD 748 million in May last year to USD 492 million in May 2024
• Sovereign external debt-servicing obligations for 2024 is USD 233 million and USD 176 million in publicly guaranteed external debt-servicing obligations

Fitch, one out of the three largest credit rating agencies globally, last gave a rating to the Maldives in 2016.

With reform plans announced, Minister of Finance Dr. Shafeeq while responding to queries at the Public Accounts Committee of the Parliament, sad the state has saved MVR 2.5 billion through rigorous austerity measures placed since the current administration took charge.

Moreover, the cabinet last Sunday had endorsed a fiscal reform agenda, which Minister Shafeeq said is being discussed towards implementation.

While the state promised to maintain its cost-cutting measures to reduce state expenditure, it later announced to reduce the number of political appointees towards this end.