Maldives can use debt-for-nature swaps to reduce debt, IMF says
IMF said that the Maldives’ reserves have declined to a low level, which calls for policy actions.
Maldivian authorities may consider options such as debt-for-nature swaps as part of an overall fiscal strategy given the Maldives’ vulnerability to climate change, the International Monetary Fund (IMF) has said.
According to finance ministry data, the country's debt rose to MVR 107.77 billion or 113% of GPD at the end of last year.
In written responses provided during last week's World Bank-IMF Spring Meetings, Tidiane Kinda, IMF's mission chief to the Maldives told Atoll Times that a strong post-pandemic recovery helped the public debt-to-GDP ratio to decline from the pandemic peak, but public debt level remains still high.
A sustained fiscal consolidation that relies both on expenditure rationalisation and domestic revenue mobilisation is the top priority to reduce public debt, he said.
"The authorities’ homegrown reform agenda under the 2023 budget, notably the recent increase of the General Goods and Services Tax (GST) and the Tourism Goods and Services Tax (TGST) is already taking significant steps in this direction," Kinda said.
"We encourage the authorities to continue their plans to further reduce fiscal and debt vulnerabilities, including by reforming state-owned enterprises to reduce their dependence on the central government budget, improving the targeting of social assistance, and rationalising capital spending."
Kinda noted that the Maldives’ reserves have declined to a low level, which calls for policy actions. A sustained fiscal consolidation, which the IMF says is a top priority to reduce public debt, will also reduce financing needs, lower imports, and decrease pressures on reserves.
"The IMF has been supporting the Maldives in this area through our surveillance work and capacity building effort. For instance, our country team prepared a note on options to improve the Maldives’ access to climate financing as part of the 2022 Article IV consultation," he said.
"We also have technical assistance planned for this year to support the authorities improve public financial management requirements for climate financing."
