Despite global lenders and rating agencies flagging a “high risk” of debt distress in the Maldives, the government said it is well prepared to stave off a financial meltdown.
Addressing Colombo-based journalists on Friday evening (September 13, 2024), Minister of Foreign Affairs Moosa Zameer and Minister of Finance Mohamed Shafeeq ruled out a possible default and pointed to “crucial steps” taken by the government towards fiscal consolidation and reform.
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The top officials’ assurance comes days after rating agency Moody’s downgraded the island country’s credit rating and warned of a full-blown debt crisis and possible default, amid looming deadlines for foreign debt servicing.
President Mohamed Muizzu assumed office in November 2023 after a big election win — he has a comfortable majority in Parliament or People’s Majlis as well — but currently faces a daunting challenge as the Indian Ocean archipelago grapples with high external debt. The Muizzu administration is taking advice from the International Monetary Fund, but there is no immediate plan to sign up for its programme, the Ministers said, expressing confidence that its bilateral partners would step in.
China is the Maldives’s largest creditor and India is another key lender. The two countries are financing a host of infrastructure projects that the government hopes will aid better connectivity and economic development. “Both India and China are very sensitive to our challenge and are willing to help,” Mr. Zameer said, pointing to “many options” on the table, including a possible debt freeze, currency swaps, and local currency settlements. “We will discuss these as and when there is a need.”
On Friday (September 13, 2024), the Maldives’s Ministry of Economic Development & Trade signed an agreement with the People’s Bank of China to establish a local currency settlement framework. Authorities are in talks with India for a similar arrangement.
“We are already taking all the necessary steps including reform of State-Owned Enterprises and our health sector. We are switching from blanket to targeted subsidies and rationalising our public expenditure,” Mr. Shafeeq said. Following the downgrade by Moody’s, the Finance Ministry said it was engaging with all its bilateral and multilateral partners to meet the financing requirements, and that a “strong performance” in the vital tourism sector was expected to boost growth.
Tourist arrivals have seen an uptick in 2024. Chinese arrivals lead the list, contributing 12% of visitors, while arrivals from India declined sharply from 11% of visitors to 6%, the World Bank said in its May 2024 update. The period coincides with strained bilateral ties between India and the Maldives, on the heels of the “India Out” campaign around Mr. Muizzu’s election last year, and amid controversial statements made by two junior ministers in his government that triggered a call to “boycott Maldives” within India.
Emphasising that relations have since seen a marked improvement, Mr. Zameer said Indian tourist arrivals are “picking up very well” and the neighbours are keen to strengthen ties. “We have had high-level engagement”, including External Affairs Minister Jaishankar’s visit to the Maldives in August, and the countries’ “very pragmatic” leaders have addressed the “initial mistrust”, he said. President Muizzu is expected to travel to New Delhi soon on his first bilateral visit, although he has Mr. Modi on the sidelines of other global meets and at Mr. Modi’s swearing in ceremony this year.
“I think India-Maldives ties now are as good as they were during President Maumoon Abdul Gayoom’s time, which is considered the best time in our relationship,” Mr. Zameer added.
Published – September 14, 2024 12:18 pm IST
