Talking Economy: Ineffective reforms adversarial despite loan deferment

Local economic expert and former State Minister of Finance Ahmed Assad Ali has made cautious observations about the Maldives' economic stability and future, noting that a lack of reforms will stretch the adverse economic impact despite deferring loan repayments.

Speaking on SSTV's "Talking Economy," Assad said that foreign countries extend financial support in the hopes the Maldives will utilize the financial assistance to ensure its issues do not repeat. He added that foreign helpers will lose confidence if the economic woes continue to repeat without rectification.

He added that the foreign allies conducted research before they extended support and would condition the Maldives to manage its expenditures more appropriately.

"If these instructions are not followed, seeking foreign support will become difficult. At this point, it would become tedious for these countries to continue lending, or if they continue lending, then they obviously have certain motives behind it," Assad said.

At the Independence Day commemorative ceremony, President Dr. Mohamed Muizzu revealed India has deferred the USD 50 million loan the Maldives owed them by five years and added China is also in talks to provide a similar leniency.

He further said that the MVR 15.4 billion owed to the state in outstanding money would collectively solve the state's debt obligations.

Former Economic Minister Ahmed Mohamed responded to this, noting that the country may not receive any moment of respite from the hope of a large sum in receivables.

Despite loan deferments by foreign allies, the Maldives has significant debt obligations to several other parties that it must honor, the former minister added.

"We are talking about just three countries [that have provided leniences], but there are still outstanding loans acquired from other parties, inclusive of the hefty USD 500 million sukuk in 2026 and the USD 100 million bond from Abu Dhabi Fund," Ahmed said.

He added that the Maldives must ensure better debt servicing options for its future loans.

"This is the right time to strengthen Maldives' debt management policies. This is also not the correct time to hike taxes, but rather the time to strengthen tax compliance of taxpayers," the former minister said.

While drawing parallels from a few foreign economies, Ahmed said that GST earnings is structured as a prompt revenue stream in several countries, which enhances state's cashflow management and increases confidence of tax receipts.

Ahmed also cautioned that the Maldives must factor changes to currency exchange rates as the island nation is heavily import-reliant.

"If the official exchange value of the dollar increases even by 10 percent, our national debt portfolio would balloon to approximately MVR 5 billion. So, during this breathing room we get, we should profoundly think about these issues and reform policies to reduce our debt," the former minister added.

"Out of the total state debt, 56 percent is external so we must seek options to reduce our cumulative state debt and its maturity rate as well as reduce the budget deficit."

Another economic expert, Athif Shakoor, opined that the Maldives' deficit spending pattern needs to end and added that the state must take more stringent measures to manage its finances to reduce debt and budget deficits. He asserted that delaying crucial reforms will only impact the economy more adversely.