As the Republic of Maldives eagerly prepares to usher in its 8th President on the 17th of November 2023, the nation finds itself grappling with a financial crisis that has deepened over the years. The burgeoning debt, exceeding MVR 10 billion, has evolved into a worrisome predicament, casting a shadow over the economic landscape.
Despite the approval of a substantial budget amounting to MVR 42.6 billion for the year 2023, the Maldives is confronted with the pressing need for a supplementary budget. This additional financial measure is imperative to sustain ongoing projects and ensure the country's fiscal stability in the coming year. However, the Finance Ministry's attempt to secure approval for the supplementary budget encountered parliamentary hurdles. Procedural oversights, compounded by the ongoing conflict arising from a no-confidence motion, further complicated the parliamentary proceedings, delaying crucial decisions on the budget for 2024.
The gravity of these delays came to the forefront during a pivotal budget committee meeting held on the 16th of November 2023. Finance Minister Ibrahim Ameer, under intense scrutiny from committee members, delved into the intricacies of the financial challenges facing the nation in the upcoming months.
Ameer's revelations painted a stark picture of the economic landscape, particularly concerning the outstanding amount of $271.9 million as of December. Notably, only India's line of credit, amounting to MVR 1.1 billion earmarked for specific projects, is currently guaranteed. The remainder of the funds is contingent on securing support from various foreign sources. Faced with this shortfall, the incoming administration is left with little recourse but to seek foreign aid and investment, aiming to bridge the substantial gap of USD 200 million crucial for the proper functioning of the country.
Complicating matters further is the government's request for an additional MVR 6.1 billion to facilitate the budget for the remainder of 2023. However, scepticism looms, notably from the Maldives Monetary Authority (MMA), which has voiced concerns over potential economic risks if the planned external funds fail to materialize. The MMA's cautionary stance extends to the possible consequences of resorting to overdrawing public bank accounts or printing money, actions discouraged by the authority. The three main concerns raised by MMA are:
● If the planned external funds are not received, the country’s reserves may not be maintained adequately.
● If money cannot be obtained from abroad the other choices left are to overdraw public bank accounts and money may have to be printed; Similarly, MVR 4.35 billion has been printed and converted into long-term payments this year. The MMA is against doing that.
● Even if you get the money internally within the country, it will be very difficult to get money; The reason is that private banks are buying fewer government bonds this year.
The most alarming revelation revolves around the precipitous drop in the Maldives Monetary Authority's reserves. Currently standing at a record low of USD 552 million, with only USD 78 million deemed usable, this poses a significant threat to the nation's economic stability. Customs statistics indicate that the Maldives requires a minimum of USD 66 million per month for essential imports, including food, oil, and medicines. With reserves sufficient for only six months, the urgency of the situation cannot be overstated.
This leaves many wondering whether the first official matter that the new administration would have to take on is going to be the hefty task of finding the solution to the USD 200 million that is required for the country to function for the year 2023. This news also broke during a time when the public, including Transparency Maldives, raised concerns about the corruption that has taken place within the past five years of this administration.