The Maldives needs to take urgent action to stave off high debt distress risk and other financial challenges which have left the nation vulnerable to shocks, World Bank Country Director for the Maldives, Nepal and Sri Lanka, Faris Hadad-Zervos said in a post to social media.

In a post linking to the United Nations (UN) affiliated financial institution’s ‘Scaling Back and Rebuilding Buffers, the latest Maldives Development Update’ which was released on 8 May 2024, Hadad-Zervos said the Maldives’ spending was far in excess of its income.

“For decades [the] #Maldives has been spending beyond its means. Sharp spending rise & subsidies have widened deficit, leading to a vulnerable fiscal situation & unsustainable debt,” Hadad-Zervos wrote in his post, going on to explain that the nation’s annual debt servicing needs are likely to be US$512 million for 2024 and 2025, and a will likely almost double, to US$1.07 billion, in 2026.

The Country Director warned that urgent fiscal reforms were needed; such as phasing out blanket subsidies, addressing the weaknesses of state-owned enterprises (SOEs), improving healthcare spending efficiency, and streamlining the Public Sector Investment Programme (PSIP).

Minister of Finance Mohamed Shafeeq, in his initial response to the World Bank’s 8 May Update, had already acknowledged that measures need to be taken in order to protect the Maldives from possible economic shocks. The minister, during discussions of the Update, said that implementing reform measures could no longer wait.

“We have no choice but to take measures due to the fragility of our financial situation and debt management. We are ready to do that,” Shafeeq said, even as he attributed 2023’s lacklustre performance to planned reform programmes not being implemented.

While stating that the priority would be to reform SOEs, the Minister outlined that the administration will take steps to reform the Aasandha healthcare spending mechanism while also discontinuing blanket subsidies in favour of a more targeted approach.

“The administration needs to stabilise [state-owned] enterprises. This cannot be postponed. We will start very soon,” Shafeeq had said in his initial response to the Update.