Former President Mohammed Nasheed, currently serving as the Secretary-General of the Climate Vulnerable Forum (CVF), has highlighted the unique position of CVF countries like the Maldives in navigating their economic challenges. Nasheed emphasised that these nations do not necessarily need to engage in International Monetary Fund (IMF) programmes to improve their economic situations. This assertion comes amidst rumours of the Maldives considering an IMF bailout package due to economic strains.
Nasheed pointed out alternative strategies for economic recovery and debt reduction, such as carbon trading and “debt-for-climate and environment” swaps. These measures are designed to leverage the country’s climate challenges as a means of securing financial support and technical assistance. This approach builds on Nasheed’s experience with an IMF programme in 2011, which, despite stabilising the Maldives’ finances, led to political challenges due to austerity measures.
The economic narrative of the Maldives is further explored in a detailed 2022 report focusing on climate-vulnerable economies within the V20 group, with the Maldives serving as a case study. The report highlights the disproportionate impact of climate change on these economies, exacerbating their fiscal vulnerabilities. The Maldives, in particular, faces high debt levels, largely owed to China, and increased capital costs due to its climate vulnerability.
A key recommendation from the report is the need for comprehensive debt restructuring across all creditor classes, suggesting a unified approach to address the intertwined challenges of sovereign debt and climate change. Drawing inspiration from past initiatives like the Highly Indebted Poor Countries (HIPC) strategy, the report advocates for multilateral institutions to employ mechanisms such as gold sales or Special Drawing Rights (SDRs) through the IMF to relieve debt pressures.
Despite these challenges, the Maldives’ economy is reportedly on a growth trajectory, with the IMF projecting a 5.2% growth rate for the year, albeit lower than the previous year. The government has also embarked on a self-imposed fiscal reform agenda, aiming to reduce economic losses by managing public debt more sustainably. Economic Minister Mohammed Saeed has refuted claims of economic distress necessitating an IMF bailout, asserting the country’s capacity for independent economic management and growth.
