IMF Warns Maldives of High Risk of Debt Distress

IMF Warns Maldives of High Risk of Debt Distress

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Male [Maldives], February 7: The International Monetary Fund (IMF) has issued a cautionary statement, declaring the Maldives to be at a “high risk” of external and overall debt distress. This assessment follows a visit by an IMF mission led by Piyaporn Sodsriwiboon to Male from January 23 to February 6, aimed at discussing recent economic developments and policy priorities of the country.

The IMF report underscores that despite the Maldivian economy’s notable expansion by 13.9 per cent in 2022, and an estimated growth of 4.4 per cent in 2023, significant challenges persist. With anticipated growth in tourist arrivals, the economy is projected to expand by 5.2 per cent in 2024. However, amidst elevated fuel prices and robust import demands, the current account deficit for 2024 is anticipated to remain substantial.

The report emphasizes that without substantial policy changes, fiscal deficits and public debt will continue to be elevated, maintaining the Maldives at a high risk of debt distress. Additionally, the country’s vulnerability to climate change, particularly incurring economic costs due to floods and rising sea levels, is highlighted.

To mitigate these risks, the IMF advocates for sustained fiscal consolidation, coupled with tighter monetary and macro-prudential policies. Furthermore, it suggests strengthening institutions to support climate adaptation and mitigation efforts, which could facilitate access to additional climate financing and fulfill climate pledges.

In a separate development, Maldives President Mohamed Muizzu addressed the parliament, focusing on the necessity to enhance military capabilities across terrestrial, aerial, and maritime domains. The President also announced the government’s decision not to renew the agreement allowing foreign nations to measure and map Maldivian oceans and coastlines.

Diplomatic negotiations are underway for the withdrawal of Indian troops from the Maldives, as per the President’s statement. Notably, this move aligns with Muizzu’s party’s campaign promise. Currently, around 70 Indian troops, alongside Dornier 228 maritime patrol aircraft and two HAL Dhruv helicopters, are stationed in the Maldives.

The recent high-level core group meeting between the Maldives and India in New Delhi signifies ongoing discussions on strategic matters, with the next meeting anticipated later this month.

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