Darks clouds gather; can Maldives weather this storm?

The Maldives has USD 688 million in debt repayments due in the last quarter of this year. That is equivalent to MVR 10.6 billion. It has another USD 1.1 billion in debt repayments due next year. A total of USD 1.78 billion. Equivalent to MVR a staggering MVR 27.57 billion.

The Maldives has approved a budget of MVR 56.6 billion for this year.

Global credit rating agencies all warn of the same thing; the Maldives remains at high risk of defaulting on its debts. While government officials bravely assure international partners that the country will honor its debt obligations, credit ratings continue to maintain their ‘junk’ ratings for the Maldives.

Government official may ignore the bulk of their warnings and highlight the single positive sentence of the agencies’ assessments, but the stark reality that faces the island nation remains undeniable.

The reality is that the Maldives remains at high risk of default. This is clear from the numbers.

Costs continue to rise; projects on hold

Nearly all developmental projects are on hold. This is clear from the numbers. While the government has contracted dozens of projects to state-owned enterprises, there is no actual work. The budget books do not show any such spending being made.

The latest weekly fiscal report released by the Finance Ministry shows that spending on Public Sector Investment Program (PSIP) projects stand at just MVR 1.4 billion, down from MVR 5.2 billion last year – meaning a gap of MVR 3.7 billion.

The government announced a string of fiscal reforms to change the country’s financial situation.

But none of these reforms have been implemented. President Dr. Mohamed Muizzu himself recently admitted this. He said that the administration would hereafter make changes to how projects are run in order to cut costs. The administration then went on to contract multiple projects to state-owned enterprises – companies that lack the capacity to conduct the projects. This decision alone has major repercussions for the Maldivian economy.

The 2025 budget was passed with MVR 7.7 billion in fiscal reforms. The government promised to save MVR 7.7 billion in costs by implementing fiscal reforms and boosting revenues. But this has yet to reflect in the actual numbers. The government has abandoned its plan to implement fiscal reforms.

Another promise the government made was to save MVR 14 million by reducing salaries. But the numbers show an increase in the government’s payroll compared to last year, with the spending on salaries and allowances rising from MVR 5.6 billion last year to MVR 6 billion this year. This is an increase of around MVR 400 million. The initial promise to reduce the payroll appears to have been forgotten. It has not been mentioned again.

What the people need to know is that the reason why the construction of harbors and the establishment of sanitation services in your island is getting delayed is because of the government is hesitant to cut costs. It remains top-heavy.

How real is the risk of default?

The central bank, Maldives Monetary Authority (MMA) had USD 866 million in its reserves as of the end of April. But this is just a drop in the ocean. The reserves will have just USD 28 million remaining after deducting the debt repayments due in the next 12 months. The reserves do not have any money to tide the Maldives over for even one-and-a-half months.

The Maldives generates an annual revenue of around MVR 23 billion to MVR 25 billion, which is equivalent to around USD 1.5 billion.

But this money cannot be used to honor its debt obligations. It has to be spent on the high government payroll and other necessities. This is all the money that the country has to spend on education, on healthcare, and other administrative costs.

The government projects it will collect around MVR 40 billion in revenues and grants this year, including grants and loans that the numbers do not show the country has received. If 25 percent of this revenue is saved over the course of two years, it will amount to USD 1.3 billion. MMA’s usable reserves hold USD 217 million.

These are calculations based on the best-case scenario. Even this is not enough.

These are what the numbers show. The Maldives has a dark storm of debt hovering over it. There are serious questions as to whether the Maldives can repay its debts with no external help. Global credit rating agency Fitch recently maintained Maldives’ rating at ‘CC’. It assessed that “a default event of some sort remains probable”.

This is the undeniable reality that the numbers show.

This is the reason why the government is rushing to secure foreign aid; because the Maldives cannot weather this storm without continued external financial support.

The numbers show the seriousness of the threat that the dark storms overhead pose to the Maldives. The government needs to start speaking realistically regarding the country’s predicament. They need to explain the reality to the people. They need to be honest. They need to explain the precautionary measures they will take against this storm. Choosing to engage in false bravado while failing to take any concrete measures offers no assurance, and nor is it believable.