IMF urges tighter fiscal controls to save Maldives

MALE, Maldives: The Maldives needs “urgent and stronger” fiscal consolidation to salvage its troubled economy despite a thriving tourism industry, the International Monetary Fund has warned.

The upmarket Indian Ocean holiday destination expects its economy to grow by five percent in 2025, but the IMF warned the sunny forecast masked potential headwinds.

“There is large uncertainty around the forecasts and risks are tilted to the downside,” the Washington-based lender of last resort said in a Tuesday statement.

“There is the need for more urgent and stronger fiscal consolidation. Holistic expenditure rationalisation is necessary to restrain excessive spending.”

The tiny nation refused an IMF bailout loan late last year and the government announced severe spending cuts, with President Mohamed Muizzu taking a 50 percent pay cut.

Muizzu has also introduced a mandatory 10 percent pay cut to most public sector jobs.

The Maldives said in September that its financial troubles were “temporary” and that it had no plans to seek a bailout, despite warnings of a possible sovereign default.

The IMF said overall fiscal deficits and public debt are projected to stay elevated and called for urgent policy adjustment.

“The Maldives is navigating a pivotal moment to urgently restoring macroeconomic stability and debt sustainability,” the IMF said.

Known as a luxury holiday destination with pristine white sand beaches and secluded resorts, the Maldives has also become a geopolitical hotspot.

China and India are the two largest bilateral lenders to the Maldives, which is made up of 1,192 coral islands scattered across the equator.

Beijing has pledged more funding since the 2023 victory by Muizzu, who thanked China for its “selfless assistance” in providing development funds.

Muizzu was welcomed in New Delhi in October by Indian Prime Minister Narendra Modi, who rolled out financial support to bolster the archipelago’s struggling economy.

Official data showed the Maldives’ foreign debt at $3.37 billion in the first quarter of 2024, equating to around 45 percent of GDP.

China accounted for about 20 percent of the external debt, while India owned just under 18 percent.

-AFP