Maldives: Staff Report for the 2024 Article IV Consultation—Debt Sustainability Analysis
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International Monetary Fund. Asia and Pacific Dept
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Publication Date:
13 May 2024
eISBN:
9798400275920
Language:
English
Keywords:
PPG debt; debt indicator; debt carrying capacity; sustainability framework; debt stock; Public and publicly-guaranteed external debt; Debt sustainability; Global
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MALDIVES

Abstract

MALDIVES

Title Page

MALDIVES

STAFF REPORT FOR THE 2024 ARTICLE IV CONSULTATION—DEBT SUSTAINABILITY ANALYSIS

March 5, 2024

Approved By

Anne-Marie Gulde-Wolf and Boileau Yeyinou Loko(IMF) and Manuela Francisco and Mathew A. Verghis (IDA)

Prepared by the staffs of the International Monetary Fund and the International Development Association.1

Maldives: Joint Bank Fund Debt Sustainability Analysis

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The Maldives remains at a high risk of external and overall debt distress same as the previous Debt Sustainability Analysis (DSA).2,3 External gross financing needs have increased relative to the previous DSA due to (i) high commodity prices, (ii) a more expansionary fiscal stance amid increases in capital project related spending, subsidies, and recurrent expenditures, and (iii) repayments and rollovers of non-concessional debt, mainly global sukuk. External refinancing pressures are expected to peak in 2026. Increasingly higher amortizations and large interest payments would trigger protracted breaches in several debt indicators, leading to the assessment of debt not sustainable under the authorities' current policies. The debt dynamics will remain vulnerable to adverse shocks in growth, interest rates, and fiscal position in the near term. The key external debt indicators, the present value (PV) of external debt-to-GDP, will converge to the 30 percent threshold by the medium-term. Restoring debt sustainability requires sustained fiscal consolidation, continued strong growth, and prudent debt management.

Background and Developments On Debt

1. Supported by strong tourism rebound, total public and publicly guaranteed (PPG) debt-to-GDP ratio declined in 2022. Total PPG debt fell to about 110 percent of GDP in 2022, from 120 percent in 2021. Nevertheless, public debt-to-GDP ratio remains elevated and is estimated to rise further in 2023, compared to its pre-pandemic level of 78.8 percent in 2019, reflecting large fiscal deficits in response to spending pressures and heightened global commodity prices. Nominal PPG debt stock increased to US$6,885 million in 2022 from US$6,469 million in 2021, driven by a large annual increase in central government budgetary debt, to about US$5,939 million (an increase of about 7.4 percent), even as guaranteed debt remained broadly unchanged at about US$946 million. Overall, both external and domestic debt increased during 2022 with domestic debt slightly above half of the mix (55 percent of total).

Figure 1.
Figure 1.

Maldives: PPG Debt, 2022

(In percent of total)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Source: Maldives Ministry of Finance.

2. Domestic PPG debt increased. Domestic PPG debt rose to US$3,813 million (or around 61 percent of GDP) in 2022, up from US$3,452 million in 2021. To bridge the financing of the government, the parliament of the Maldives approved the temporary suspension of elements of Fiscal Responsibility Act (FRA) to allow for expansion of the cap on government advances with the Maldives Monetary Authority (MMA) to MVR 4.4 billion (US$286 million) until end-2023.4 Domestic PPG debt in 2022 also included US$256 million (MVR 3,946 million) in advances or around 7 percent of total domestic PPG debt, from the MMA to the central government. In 2022, the authorities securitized the outstanding MMA advances, in the amount of MVR 2.5 billion (US$160 million) by converting the advances into a 40-year bond at a 2.4 percent annual interest. Commercial banks had the largest claim on central government, around US$1,695 million (44 percent of domestic PPG debt). The State Bank of India (SBI) Male Branch purchased a US$100 million bond in 2022, in addition to a US$250 million bond purchased in 2020 as budget support to buffer the impact of COVID-19 pandemic. The bond issued in 2020 is expected to be paid back in 10 years and that in 2022 in 7 years as a bullet payment with bi-annual interest payment in dollars at the interest rates of 3.75 percent and 7.75 percent respectively.5

A003fig2

Maldives: Domestic PPG Debt, 2022

(In percent of total domestic PPG)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Sources: Maldives Ministry of Finance; and Maldives Monetary Authority.

3. External PPG debt was broadly unchanged, amid high costs and limited access to external financing. External PPG debt stood at US$3,072 million (or around 49 percent of GDP) in 2022, up from US$3,046 million in 2021 in nominal terms. External PPG debt is predominantly owed to bilateral and commercial creditors. Direct budgetary debt constituted 71 percent of external PPG debt, and the remaining 29 percent contracted by State-Owned Enterprises (SOEs) with sovereign guarantees. Guaranteed external loans for housing development projects carried out by SOEs, including the Housing Development Corporation (HDC) and the Fahi Dhiriulhun Corporation (FDC), accounted for about 60 percent of total guaranteed external loans. Guaranteed external SOE debt is owed mainly to commercial creditors (around 8 percent of total) with the rest (4 percent) to bilateral creditors and a small amount (1 percent) to a multilateral creditor. China is the largest creditor with about 19 (42) percent of total (external) PPG debt. The Maldives used a swap arrangement with Reserve Bank of India (RBI) in the amount of US$100 million in 2022, which was paid back in full in 2023. This swap with RBI was excluded from external PPG. 6

Maldives: Composition of External Debt, 2022

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Sources: Maldives Ministry of Finance.
A003fig3

Maldives: External PPG Debt, 2022

(In percent of total)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Source: Maldives Ministry of Finance.
A003fig4

Maldives: External PPG Debt by Creditor Type, 2022

(In percent of total)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Source: Maldives Ministry of Finance

4. The DSA includes PPG external and domestic debt. Public debt includes the debt of central government as well as guarantees to SOEs (Text Table 1). The stock of externally guaranteed SOE debt stood at around US$789 million (around 13 percent of GDP) with large exposures to the HDC and mainly from Chinese creditors (see 113). External debt is defined by residency criteria. The calibration of the contingent liability shock is based on the default values for SOE debt (2 percent of GDP) and financial market component (5 percent of GDP) since they are sufficient to represent fiscal risks.

Text Table 1.

Maldives: Debt Coverage

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1/ The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country's public debt definition (1.). If it is already included in the government debt (1.) and risks associated with SoE's debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%.

Macroeconomic and Financing Assumptions

5. The macroeconomic assumptions underlying this DSA are as the following (Text Table 2):

  • Growth. Economic activity continued to rebound in 2022, despite headwinds from Russia's invasion of Ukraine. Real GDP grew by 13.9 percent in 2022, benefiting from broad-based inflows of tourist arrivals. The resilience in the tourism sector and associated spillovers to other sectors are expected to support real GDP growth to 4.4 percent in 2023 and 5.2 percent in 2024. Medium-term growth outlook is expected to remain positive, with growth converging to around 4.5 percent. The expansions of the Velana International Airport terminal and hotel accommodation capacities are expected to boost potential growth, due to larger capacity to support tourism activity. Nevertheless, medium-term growth is expected to be weighed down by China's structural deceleration, which may materialize as smaller share of Chinese tourist arrivals in the medium term. Complementary structural reforms, including plans for financial market deepening and to enhance skills in the tourism and hospitality sector, are expected to improve labor productivity.

  • Inflation. Despite the tourism and domestic goods and services tax (TGST and GST respectively) rate increases, headline inflation is expected to remain subdued in 2023, helped by the government's price subsidies. Nevertheless, inflation is projected to rise to 3.8 percent in 2024, as the authorities' subsidy reforms are expected to be implemented in July 2024. In the medium term, inflation is expected to stabilize at around 2 percent in line with an inflation target in the United States, given a currency peg to U.S. dollar.

  • Risks to the outlook are tilted to the downside. Delayed fiscal consolidation and failure to reduce debt, including from potential social and political resistance, will add pressures on exchange rate and foreign exchange (FX) reserves, thus amplifying near-term liquidity and solvency risks. Any potential failure to reduce capital spending would result in larger-than-expected external financing gap and current account deficits, leading to further drains in FX reserves. Slow implementation of macro critical structural reforms to boost productivity, revenue and exports, or a large depreciation with rising debt servicing costs without matching increases in domestic revenues, diverting resources from growth friendly investment spending are other plausible risks. External downside risks are related to an economic slowdown in key source countries for tourists, volatile commodity prices, and tightening global financial conditions. Nevertheless, upside risks include the early completion of airport terminal expansion that would prepone a boost to growth. In addition, swift and decisive implementation of fiscal consolidation needed to bring debt back to a sustainable path will help restore macroeconomic stability, supporting sustained and stable economic growth over the medium term.

Text Table 2.

Maldives: Macroeconomic Assumptions

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Source: IMF Staff Projections

  • Fiscal policy. Amid increased fiscal spending, the primary fiscal deficit is projected to be higher than that of last DSA. The primary fiscal deficit is estimated to peak in 2023 and the authorities anticipate the deficit to remain high in 2024, due to sustained high infrastructure spending, subsidies and wage bills. While the primary fiscal deficit is expected to improve over the medium term, public debt is projected to remain elevated, with public debt-to-GDP ratio rising to 121.2 percent in 2024 and declining marginally over the medium term. The government's ambitious public infrastructure investment agenda, executed mainly by SOEs, has been a key driver of debt vulnerabilities. Fiscal risks could also arise from materialization of contingent liabilities and capital contributions to SOEs, mainly to repay their debt contracted with sovereign guarantees, and inadequate targeting of social assistance, including in social housing programs. Meanwhile, the authorities made efforts to mobilize domestic revenues by increasing GST and TGST rates from 6 to 8 percent and from 12 to 16 percent, respectively in 2023. The mediumterm fiscal strategy for 2024-2026 established four medium-term fiscal anchors, including (i) reducing public debt to less than 95 percent of GDP by 2026, (ii) reducing primary budget deficit to less than 5 percent of GDP by 2024, (iii) maintaining public and publicly guaranteed debt relative to GDP on a downward trend, and (iv) reducing recurrent expenditure to levels that do not exceed government revenue by 2024.

  • Current account dynamics. The non-interest current account deficit (CAD) is expected to be persistently large, amid high import demands for food, fuel, and construction materials related to infrastructure development projects. Profit and workers' remittance outflows associated with FDI on tourism sectors would continue to put pressures on the current account balance. The CAD is expected to be gradually decreasing especially from 2025, due to the expected completion of larger infrastructure projects (e.g., the expansion of Velana International Airport terminals). Foreign exchange reserves are expected to remain low, while dropping to about 1.1 months of prospective imports in 2026 at the peak of external debt servicing.

  • Financing assumptions (Text Table 3). The authorities in 2021 raised US$500 million Sukuk maturing in 2026 and rolled over US$100 million Eurobond maturing in 20267. The authorities plan to access to concessional financing to mitigate roll-over of risk, with limiting expensive external financing in the near term. Around US$27 million of IDA disbursements in small economy terms is in the baseline between 2023 and 2029. The baseline assumes that around US$20 million, on average, of IDA financing per year until 2043 will generate marginal interest savings, subject to implementation of all annual Performance and Policy Actions (PPAs) under the IDA's Sustainable Development Finance Policy (SDFP)8. The SDR allocation equivalent to US$29 million were added to reserves in 2021 and later used for budget support in 20229. Going forward, the authorities do not plan for significant issuances from international financial markets prior to 2025. A budget financing gap (unidentified financing) of around 2.9 percent of GDP could open in 2024, and the DSA assumes that domestic financing is a mechanical gap filler. Nonetheless, risks to domestic financing remain high, given the discontinued exceptional use of MMA advances and the banking sector's sizeable sovereign exposures. The Sukuk issuance program was established for three-years with total value of US$1 billion. Moving ahead, the authorities plan to issue additional tranches/series when required and when market conditions become favorable10. The framework assumes: (i) a bond issuance of around US$250 million in 2026 maturing in 2031; (ii) repayment of around US$220 million with funds from projected airport development fees for 2024-2026 deposited in FX-nominated assets through Sovereign Development Fund (SDF) in 2026; and (iii) the remainder is set aside as unidentified financing. Nevertheless, the utilization of SDF involves risks such as the adequacy of SDF's FX accumulation and the availability of convertible foreign currencies to exchange Rufiyaa funds from SDF for external debt repayments; therefore, it is important to urgently strengthen the governance of SDF and ensure SDF's FX accumulation in liquid and redeemable FX assets. Meanwhile, a large share of domestic financing in the Maldives was short term (maturity of less than one year). Interest rates on short-term debt have ranged between 3.5 and 4.6 percent since December 2016. Over the medium term, the DSA assumes around 60 percent of domestic financing is short term with an interest rate of 4 percent and that the share of long-term debt gradually increases over time.

Text Table 3.

Key Financing Assumptions in the Medium Term

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Source: IMF Staff.

6. Drivers of debt dynamics is expected to remain broadly unchanged from the previous DSA (Figure 3). Debt dynamics in the Maldives will be driven mainly by real GDP growth, primary fiscal deficits, and nominal interest rates. In the past, the current account deficits and the primary fiscal deficits have been the main contributors to the accumulation of external11 and domestic debt, respectively. Over the next five years, real GDP growth will be the dominating driver, countering the expansion of nominal external interest costs. Domestic debt dynamics over the next five years are balanced by growth and primary fiscal deficits, leading to a moderate decline in projected debt-to-GDP ratios. Gross financing needs continue to breach their indicative benchmark, reflecting higher borrowing needs arising from both exogeneous shocks and domestic spending push (Figure 5).

7. Realism tools suggest that macroeconomic projections are broadly consistent with historical patterns. The gradual improvement in the primary balance-to-GDP ratio is driven by a return to more moderate levels of capital spending and a recovery in GDP but at a more gradual and realistic pace of adjustment than in the previous DSA. Given large volatility in growth rates, driven by changes in tourism, the multiplier approach would not be suitable for calculating alternative growth paths. The baseline fiscal adjustment is at the 73rd percentile of LIC programs. The contribution of government capital expenditure to growth is expected to remain close to that in the previous DSA. While the government plans to continue with several large infrastructure projects12, the disbursement is expected to be slow to avoid sudden stops and disruptions.

Country Classification and Determination of Scenario Stress Test

8. The debt carrying capacity of the Maldives remains weak (Text Table 4). The composite indicator (CI) score is 2.40 (less than the 2.69 threshold) using the Oct 2023 WEO and the 2023 World Bank Country Policy and Institutional Assessment (CPIA). The CI is based on a weighted average of several factors such as the country's real GDP growth, remittances, international reserves, world growth, and the CPIA score. The calculation of the CI is based on 10-year averages of the variables, across five years of historical data and five years of projections, and the corresponding CPIA.

9. Tailored stress tests for natural disasters, contingent liabilities, and market financing are relevant for the Maldives. Given that the Maldives is susceptible to rising sea levels, flood, and natural disasters, the natural disaster stress test and relevant default parameters are applied, as in the last DSA. Rising global interest rates are expected to have material impacts on budgetary external debt, where almost all outstanding external guaranteed SOE debt (around US$720 million) are loans with adjustable interest rates linked to the Secured Overnight Financing Rate (SOFR)13. Risks from the non-guaranteed SOE debt are covered by the contingent liability shock. The tailored stress tests were kept to their default calibrations as these are appropriate for the Maldives. The tailored stress tests are not the most extreme shocks for any of the debt indicators. The most extreme shocks are the shock to exports for the PPG external debt indicators, and the shock to growth for the public debt indicators and external debt service to revenue indicator.

Text Table 4.

Maldives: Country Classification

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External and Public Debt Sustainability

10. Three external debt indicators breach their respective thresholds under the baseline scenario (Figure 1). Maldives remains at a high risk of external debt distress, even though strong growth in recent years helped improve external debt indicators since the last DSA. The PV of the PPG external debt-to-GDP ratio will remain above the threshold of 30 percent until 2030, after which it will converge and then fall below the threshold from 2031 onward. Meanwhile, the PV of the debt-to-exports ratio is expected to stay below its threshold in the baseline scenario as with the last DSA. Both liquidity indicators, the debt service-to-exports ratio and the debt service-to-revenue ratio, breach their thresholds under the baseline scenario due to elevated debt service obligations on existing external PPG debt as with the last DSA. Stress tests suggest that the Maldives' external debt is most vulnerable to shocks to exports. Compared to shocks to real growth, the fiscal balance, exchange rate depreciation, and external flows, the impact of an exports shock is the most severe—the PV of the external debt-to-GDP ratio increases sharply, from around 45 percent of GDP in 2023 to around 146 percent of GDP in 2025. The ratio gradually falls over the medium term but continues to breach the threshold. The shocks to exports also lead to protracted breach of thresholds for PV of debt-to-exports ratio and debt service-to-exports ratio (Figure 1).

11. Overall public debt indicators suggest a high overall risk of debt distress (Figure 2). Under the baseline, the total PPG debt-to-GDP ratio declined to around 110 percent in 2022 on the back of higher tourism led-GDP. On the back of continued expansionary fiscal policy stance, the ratio is projected to increase to around 121 percent of GDP in 2024, before gradually decline to around 112 percent of GDP by 2028. The Maldives breaches this threshold for the entire projection periods and remains at a high risk of overall debt distress. The stress tests indicate that PPG debt is vulnerable to shocks to growth. Under the growth shock scenario, all of the three ratios (PV of Debt-to-GDP ratio, PV of Debt-to-Revenue ratio and Debt Service-to-Revenue Ratio) will continue to rise over the course of medium term with the PV of debt-to-GDP ratio protracted breach of the indicative threshold of 35 percent.

12. Restoring debt sustainability requires sustained fiscal consolidation, continued strong growth, and seeking additional concessional financing that would substitute for other expensive financing. Fiscal consolidation should include rationalizing capital spending, especially in large public investment projects carried out by the central government or SOEs, and improving the targeting of social assistance, including in social housing programs. It should also comprise streamlining current expenditures—both rationalizing subsidies and holding back wage increases—and further domestic revenue mobilization. In addition to the increase of GST rates in 2023, a sustained fiscal consolidation of around 2-3 percent of GDP annually during 2024-29, would help to lower the public debt to GDP ratio around 90 percent of GDP by 2030 and increase the probability of bringing the debt back on a sustainable path (Text Figure 1). To alleviate FX shortages and debt servicing requirements, seeking additional concessional financing could be considered, in addition to the MMA's potential FX swap arrangements. The authorities' FX reform initiatives (e.g., strengthen regulations of money changers, encourage the use of Rufiyaa in domestic transactions) should also be accelerated.

Vulnerability Assessment

13. The Maldives remains at a high risk of external and overall debt distress. Since the previous DSA, some debt indicators, such as debt-to-GDP ratio, have slightly improved in 2022, reflecting robust economic recovery. Nevertheless, external and fiscal positions from 2023 onward are expected to weaken relative to the previous DSA, due to higher fiscal spending pressures arising from expanded medium-term public investment programs. Gross external financing needs are projected to increase further from that of previous DSA, due to more expansionary fiscal policy stance reflecting increased capital project related spending, subsidies, and recurrent expenditures, as well as repayments and rollovers of non-concessional debt, mainly global sukuk. External refinancing pressures are expected to peak in 2026 with higher amortizations and large interest payments, triggering protracted breaches in several debt indicators, similar to the previous DSA. The debt dynamics will remain vulnerable to adverse shocks in growth, interest rates, and fiscal position in the near term. The PV of external debt-to-GDP, will converge to the 30 percent threshold and then fall below the threshold in the medium-term. As with previous DSA, debt is assessed as unsustainable under the authorities' current policies, given sustained threshold breaches of several debt indicators and significant rollover risk from external refinancing requirements in the coming years.

Text Figure 1.
Text Figure 1.

Maldives: Indicators of Public and Publicly Guaranteed Debt under Fiscal Consolidation Scenario, 2023-2033 1/

(In percent, unless otherwise mentioned)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Sources: Country authorities; and staff estimates and projections.

Authorities’ Views

14. The authorities agreed that, without significant policy changes, the risk of external debt distress and overall risk of debt distress remains high. The authorities are committed to a fiscal consolidation path that will bring debt-to-GDP ratio to a downward trend. In this regard, the authorities are taking a welcome step to develop an ambitious and homegrown fiscal reform agenda, including subsidy reforms that phase out existing subsidies and replace them with targeted direct income transfers, Aasandha—healthcare reform, reprioritization and rationalization of public sector investment program (PSIP), and SOE reforms, and committed to urgently implement this. The authorities highlighted the Sovereign Development Fund (SDF), established in 2017 to set aside funds for future debt repayment obligations, has accumulated at around US$500 million at end-2023, of which US$115 million in foreign currencies. With the expected increase in the tourist arrivals and the expansion of the Male International Airport, the SDF size will continue to grow in the coming years in foreign currencies. The authorities underscored that the SDF will be further strengthened, as the new SDF law to be enacted this year will further clarify its legal status and improve governance. The authorities have been working to draft the Public Debt Management Law to strengthen debt management process with, for instance, ensuring transparency (e.g., debt reporting). The authorities also underscored that the medium-term debt strategy would be further articulated under the upcoming debt management law. The authorities will explore a new FX swap agreement under the South Asian Association for Regional Cooperation (SAARC) framework, should the need arise. The authorities are also working to establish FX swap arrangements with bilateral partners.

Figure 1.
Figure 1.

Maldives: Indicators of Public and Publicly Guaranteed External Debt, 2023-2033 1/2/

(In percent, unless otherwise indicated)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2033. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Maldives: Indicators of Public Debt, 2023-2033 1/

(In percent, unless otherwise indicated)

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2033. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Maldives: Drivers of Debt Dynamics—Baseline Scenario

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Figure 4.
Figure 4.

Maldives: Realism Tools—Baseline Scenario

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Figure 5.
Figure 5.

Maldives: Market-Financing Risk Indicators—Baseline Scenario

Citation: IMF Staff Country Reports 2024, 106; 10.5089/9798400275920.002.A003

Sources: Country authorities; and staff estimates and projections.
Table 1.

Maldives: External Debt Sustainability Framework, Baseline Scenario, 2020-2043 1/

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - p(1+g) + Ea (1 +r)]/(1 +g+p+gp) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, p = growth rate of GDP deflator in U.S. dollar terms, E=nominal appreciation of the local currency, and a= share of local currency-denominated external debt in total external debt. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Maldives: Public Sector Debt Sustainability Framework, Baseline Scenario, 2020-2043

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Maldives: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2023-2033

(In percent)

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Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the threshold. 2/ Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 3/ Includes official and private transfers and FDI.
Table 4.

Maldives: Sensitivity Analysis for Key Indicators for Public Debt, 2023-2033

(In percent)

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Sources: Country authorities; and staff estimates and projections. 1/ A bold value indicates a breach of the benchmark. 2/ Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP. 3/ Includes official and private transfers and FDI.
1

This DSA has been prepared jointly by the IMF and World Bank, following the 2018 Guidance Note on the Bank-Fund Debt Sustainability Framework for Low Income Countries.

3

The Maldives Composite Indicator of 2.40 indicates a weak debt-carrying capacity, based on the October 2023 IMF's World Economic Outlook (WEO) and the 2022 World Bank's Country Policy and Institutional Assessment (CPIA).

4

The advances were initiated in March 2020. The Ministry of Finance was granted a one-year extension to the increase in the cap on government advances to help bridge financing needs in 2021. A further extension of the increase in cap in the amount of MVR 4.4 billion was granted until April 2022 and extended until December 2023 at 1.5 percent per annum. In September 2021, the authorities securitized in the amount of MVR 2.5 billion of the outstanding advances converting into 40-year bond at 2.4 percent per annum.

5

The SBI bond is included in commercial bank claims on the central government.

6

The Maldives used the swap arrangements with the Reserve Bank of India (RBI) in the amount of US$400 million in 2020. This was paid back in full in two tranches, an early payment of US$150 in January 2021 and remaining US$250 at end end-December 2021. The Maldives and RBI subsequently entered a swap arrangement in the amount of US$100 mil in (Dec) 2022, which was paid back in full in 2023. The swap arrangement with the RBI was for the purpose of reserve management and there is no indication of it is being used for fiscal purposes. Thus, the swap with RBI was excluded from external public debt.

7

The Maldives issued two sovereign Eurobonds with a total face value of US$350 million: i) the first US$250 million maiden Eurobond (also known as Sunny side bond) issued to the international market, which was partly repurchased in March 2021, with the remainder repaid on maturity in June 2022; and ii) another US$100 million issued to Abu Dhabi in 2018, which was expected to fall due in 2023 and extended to 2026. In April 2021, the government issued a global Sukuk bond, due to mature in 2026, in the amount of US$200 million priced at 97.616 with a yield of 10.5 percent, that helped repurchase 77 percent of the US$250 million maiden Eurobond that was expected to mature in 2023. Subsequently, the Maldives issued another US$100 million Sukuk in April 2021 under the same conditions, and another US$200 million in September 2021 to cover budgetary expenses, trading at about 20 percent yield. In May 2022, the government also secured a US$100 million loan through private placement maturing in 2025 at a 7 percent annual interest rate.

8

The Maldives is classified as a small state IDA-only country, and currently assessed to be at a high risk of debt distress under the Bank-Fund Low-Income Country Debt Sustainability Framework (LIC DSF). In FY23, the Maldives breached its zero non-concessional borrowing (NCB) ceiling Performance and Policy Action (PPA) for the third consecutive year under the IDA's Sustainable Development Finance Policy (SDFP). Due to the repeated breaches of the NCB ceiling, IDA management has approved a hardening of terms for the Maldives to 100 percent credit in FY24. Previously, the breaches in FY21 and FY22 had resulted in a hardening of terms from 100 percent grant to 50/50 grant/credit for FY23. As a small island economy, the country remains eligible to receive IDA credit on IDA small economy terms in FY24. To improve debt management and fiscal sustainability, Maldives will be required to implement four PPAs in FY24: (i) approval of the Medium-Term Revenue Strategy, (ii) revision in the Fiscal Responsibility Act, (iii) approval of the Public Debt Management Bill and (iv) zero limit for non-concessional borrowing.

9

The new SDR allocation was transferred in 2022 to the Ministry of Finance together with the associated liability and therefore recorded as external debt.

10

The first tranche of US$200 million was issued on April 8, 2021, with a tap on the same series on April 30, of US$ 100 million, and another US$200 million later in September 2021, leaving another US$500 million to access, of which a total of US$250 million is assumed to be used in the baseline for rollover. This issuance of 5 years is priced at 97.616 with a coupon of 9.875 percent with a yield of 10.5 percent at issuance. The US$ sukuk currently trades at a yield of around 18-19 percent, suggesting global bond market access would not be affordable.

11

Residuals to changes in total external debt would be largely attributed to movements in private sector, primarily tourism resorts, on their debt-creating inflows and outflows.

12

The Government of Maldives signed lines of credit for more than US$1.2 billion with EXIM Bank India. The largest, for US$800 million and US$400 million, were signed in March 2019 and October 2020 respectively to finance several infrastructure projects (e.g., the development of the Gulhifalhu Port and relocation of Male Commercial Harbour, the Greater Male' Connectivity Project, construction of social housing units, and water and sanitation projects).

13

"About 83 percent of the existing debt is based on fixed interest rate instruments," page 13, Debt Bulletin, Issue 10, December 2022, Debt Management Department, Ministry of Finance.

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Cover IMF Staff Country Reports
Maldives: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives
Author:
International Monetary Fund. Asia and Pacific Dept
Volume/Issue:
Volume 2024: Issue 106
Publisher:
International Monetary Fund
ISBN:
9798400275920
ISSN:
1934-7685
Pages:
101
DOI:
https://doi.org/10.5089/9798400275920.002
  • <sup>Figure 1.</sup>
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    Figure 1.

    Maldives: PPG Debt, 2022

    (In percent of total)

  • View in gallery

    Maldives: Domestic PPG Debt, 2022

    (In percent of total domestic PPG)

  • View in gallery

    Maldives: External PPG Debt, 2022

    (In percent of total)

  • View in gallery

    Maldives: External PPG Debt by Creditor Type, 2022

    (In percent of total)

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  • <sup>Text Figure 1.</sup>
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    Text Figure 1.

    Maldives: Indicators of Public and Publicly Guaranteed Debt under Fiscal Consolidation Scenario, 2023-2033 1/

    (In percent, unless otherwise mentioned)

  • <sup>Figure 1.</sup>
    View in gallery
    Figure 1.

    Maldives: Indicators of Public and Publicly Guaranteed External Debt, 2023-2033 1/2/

    (In percent, unless otherwise indicated)

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Maldives: Indicators of Public Debt, 2023-2033 1/

    (In percent, unless otherwise indicated)

  • <sup>Figure 3.</sup>
    View in gallery
    Figure 3.

    Maldives: Drivers of Debt Dynamics—Baseline Scenario

  • <sup>Figure 4.</sup>
    View in gallery
    Figure 4.

    Maldives: Realism Tools—Baseline Scenario

  • <sup>Figure 5.</sup>
    View in gallery
    Figure 5.

    Maldives: Market-Financing Risk Indicators—Baseline Scenario

Figure 1.

Maldives: PPG Debt, 2022

(In percent of total)

Maldives: Domestic PPG Debt, 2022

(In percent of total domestic PPG)

Maldives: External PPG Debt, 2022

(In percent of total)

Maldives: External PPG Debt by Creditor Type, 2022

(In percent of total)
Text Figure 1.

Maldives: Indicators of Public and Publicly Guaranteed Debt under Fiscal Consolidation Scenario, 2023-2033 1/

(In percent, unless otherwise mentioned)
Figure 1.

Maldives: Indicators of Public and Publicly Guaranteed External Debt, 2023-2033 1/2/

(In percent, unless otherwise indicated)
Figure 2.

Maldives: Indicators of Public Debt, 2023-2033 1/

(In percent, unless otherwise indicated)
Figure 3.

Maldives: Drivers of Debt Dynamics—Baseline Scenario
Figure 4.

Maldives: Realism Tools—Baseline Scenario
Figure 5.

Maldives: Market-Financing Risk Indicators—Baseline Scenario