Foreign aid will not offer permanent fix unless there’s fiscal discipline

Foreign aid will not provide a permanent remedy to Maldives’ economic woes for as long as it does not cut costs, says Ibrahim Athif Shakoor, an economic analyst.

In an appearance on the first episode of Sun’s ‘Editaruge Suvaalu’, Athif said that transparency is the most urgent measure the government must implement in order to overcome the current economic crisis.

“The people will not want to hear about how difficult it is, how hard. I therefore believe there is an urgent need to explain the reality to the people in clear terms,” he said.

Athif said that the key concern highlighted by both Fitch and Moody’s is the lack of reforms to mitigate the situation.

He said that the fast roll out of reforms are necessary to overcome the crisis.

Athif said that it would certainly make it easier to clear the external debt if Maldives received foreign grants of USD 100 million or USD 200 million.

“But we have this persistent problem of spending beyond our means. This is like a cultural disease we are inflicted with. We are back to square one if we do not exorcise this disease, cut down our expenditure, and walk down the path of boosting over revenue streams,” he said.

Athif said that there is no relief for Maldives even if it gets foreign aid if there is no fiscal discipline.

He noted that investors and bind traders will remain hesitant until the country fixes its fiscal imbalance.

“We cannot secure confidence in our bonds until we are able to say with certainty that we have started fixing our fiscal imbalance,” he said.

Athif noted that securing foreign aid poses a huge challenge given the country’s current situation.

He does not believe the Maldives will get any support unless it involves geopolitics.

“I do not believe we can get any bilateral assistance unless there’s some sort of hidden agenda. Who would want to board a sinking ship, right?” he said.

Athif said the country will have a hard time securing huge investments and foreign aid unless the government can claim it is rolling out bold and decisive fiscal reforms.

Moody’s downgraded Maldives’ credit rating from ‘CAA1’ to ‘CAA2’ on September 11, citing an increased risk of default on its external debt obligations. It came after Fitch downgraded the country’s rating from ‘CCC+’ to ‘CC’ on August 29. The country has an external debt service obligation of about USD 600 million in 2025 and more than USD 1 billion in 2026.

However, the Maldives Monetary Authority (MMA) has expressed confidence in the capability of the government to meet its external debt obligations, citing improvements in its foreign exchange reserves.