President Mohamed Muizzu, in an interview with the BBC, has confirmed that the Maldives will not undertake an International Monetary Fund (IMF) package. This is despite concerns from external agencies about the nation’s debt repayment capacity due to its foreign exchange shortfall.
The President, while responding to a question regarding Moody’s downgrade of the Maldives’ credit rating to CAA-2 —a rating that serves as a warning of a potentially imminent risk of default— expressed confidence that the Maldives would not go into sovereign default and highlighted his administration’s “home-grown agenda” to manage debt. The administration has, since taking office, touted a fiscal reform package as well as proposing significant cost cutting measures.
The proposed fiscal reforms include reforming subsidies, healthcare expenditure (Aasandha), and state-owned enterprises (SOEs), as well as reducing political positions and wasteful spending. Reforms also include the initiation and diversification of economic activities, particularly in foreign exchange-earning industries.
Although Muizzu stated that spending cuts and revenue increases will reduce the debt repayment burden, a significant portion of the proposed reforms remains to be implemented.
While the deadlines for subsidy and Aasandha reforms have not been met, SOE reforms are currently ongoing. Bunkering services have also been launched as part of efforts to diversify economic activities.
The administration has also announced plans to review taxes with a view to increase foreign exchange earnings — this will include increasing the departure tax levied on passengers departing from the airport. Recently, the administration has also changed foreign exchange regulations to require businesses and entities which earn US dollar income to pay taxes in the same denomination.
A further change to the foreign exchange regulations, aimed at injecting higher amounts of US dollars into the local economy, has seen the Maldives Monetary Authority make it mandatory for tourists to exchange a fixed amount of US dollars per visitor through local banks — visitors to resorts are required to exchange US$500, while visitors to guesthouses must exchange US$25.