Saudi Arabia has agreed to lend the Maldives US$150million to make payments on loans taken out for an unprecedented infrastructure scale-up, including a project to develop the country’s main airport
The pledge was made by Saudi King Salman during President Abulla Yameen’s four-day visit to the kingdom earlier in the week, Fisheries Minister Dr Mohamed Shainee said on Thursday.
“The Maldives is witnessing extraordinary development, and the expenses on these projects are also unparalleled. Repaying these foreign currency [loans] is important for the government,” Shainee said. “So to help with balance of payments, the Saudi government has pledged US$150million in aid to the Maldives.”
The move has drawn criticism, with the opposition claiming the Maldives appears to be heading towards a balance of payment crisis.
Balance of payment accounts record all flows of money in and out of a country, and problems occur when a country is unable to meet its international payment obligations.
The International Monetary Fund has previously warned that the Maldives is at high risk of external debt distress, with the government borrowing some US$828million for an airport development project and some US$400million to develop Malé’s suburb island, Hulhumalé.
The government is expected to pay back some US$1.1billion, the IMF estimates.
Debt to GDP ratio is expected to climb to 83.1percent by the end of the year, and may cross the 100percent mark by next year, the World Bank has said. Laws on fiscal responsibility, however, mandate the government to maintain the ratio at 60percent.
Shainee said the Saudi loan would help dissipate the concerns of international financial institutions.
“We need to have a certain amount of cash in our reserve to pay back [loans] taken out for projects. Any assistance for that process will improve our leverage. It will help ease anxiety by foreign institutions like the IMF, and improve the capacity of our government,” he told reporters.
Shainee added: “We don’t know what form it [the loan] will take. Maybe as sovereign bonds, or a money swap. We will be discussing that format further.”
The main opposition Maldivian Democratic Party has slammed the government for what it called economic mismanagement, with MP Fayyaz Ismail claiming that the government is near bankruptcy.
“I believe the government is having severe cash flow problems. This reflects greater malaise in the economy,” he said, alleging that economic growth and investment was declining because of “the government’s haphazard and illogical policy decisions, and impossibly corrupt court decisions.”
Ibrahim Ameer, an economist with the MDP, added: “This means the economy is in a free fall. We fear that recent policy changes by the government is a sign that the Maldives may have to seek IMF assistance as well.”
The government had previously dismissed concerns over its ability to pay back debts, saying that gains from the infrastructure scale up will be used to pay off debt.
The external debt challenges are compounded by a widening deficit in the current account, projected to rise to US$367.2million (10percent of GDP) in 2016, and persisting fiscal deficits. The World Bank in a recent report warned that the Maldives “is reaching dangerously low levels with around US$209million in [usable] reserves, the equivalent of 1.2months of goods and services import coverage.”
Growth which slowed sharply to 1.9percent in 2015, knocked down by a slowdown in tourism, is expected to rise to 3.5percent this year.
In recent weeks, the government has imposed a host of austerity measures, and hiked food and electricity prices, triggering protests across the country.
Shainee was not responding to calls for comment.
But he told reporters on Thursday: “I want to assure the Maldivian people that this government will not fail economically. That I am sure of.”