Between government optimism and World Bank warnings: dissecting the 2026 budget

"When President Dr Mohamed Muizzu assumed office on November 17, 2023, international financial institutions were ringing the alarm bell about the Maldives going bankrupt," Zameer said, referring to persistent warnings from the IMF and World Bank about the country facing "a high risk of debt distress."

Zameer went on to castigate "fiscal mismanagement" under former governments and stress the "heavy responsibility" of repaying US$ 600 million by April 2026 to avert a sovereign default. 

Debt became unsustainable and destabilised the economy as a result of running up unaffordable deficits and failing to secure foreign financing, Zameer continued, accusing the preceding Maldivian Democratic Party government of selling a US$ 500 million sukuk at a high interest rate in 2021 in order to refinance bonds sold in 2017.

The current administration has pursued policies to renew the treasury and spur growth – including raising dollar-denominated taxes and fees – and has serviced debt obligations on schedule while maintaining a budget surplus for 40 consecutive weeks, Zameer said. 

However, contrary to Zameer's claim of having restored macroeconomic stability, the World Bank's bi-annual update released later on Thursday reiterated: "The Maldives remains at high risk of debt distress." 

By 2026, 70 percent of government revenue will go towards debt payments, it warned. 

Zameer acknowledged uncertainty and anxiety among both Maldivian citizens and foreign observers about the ability to meet the substantial debt obligations. Fiscal and operational targets have been devised to achieve "debt sustainability and macro-fiscal stability," he said. 

This breakdown analyses the minister's statement against the World Bank's assessment. 

Zameer framed the budget surplus as evidence of fiscal discipline. He compared the surplus of MVR 1.2 billion the end of June to a deficit of MVR 4.9 billion during the same period in 2024.

But according to the most recent fiscal update, the surplus was down to just MVR 6.3 million as of October 23. 

The surplus is attributed to "a sharp reduction in capital expenditure" – the underutilisation of MVR 12.5 billion allocated for infrastructure development, of which only MVR 4.2 billion had been spent by last week. This was down 62.6 percent from last year on a cash basis.

In the meantime, "arrears are likely to have picked up," as the government owes billions to private contractors and suppliers. Unpaid bills worth MVR 9 billion were inherited from the previous administration, according to the finance ministry.

"The cut in cash outlays for capital expenditure has not been accompanied by a reduction in commitments. As a result, it is likely that expenditure arrears have increased."

Government offices and state-owned enterprises owe MVR 661 million to the State Electricity Company for unpaid electricity bills, leading to power outages in Malé. The National Social Protection Agency owes MVR 662 million to hospitals locally and internationally. While the Aasandha health insurance scheme's outstanding payments to hospitals, clinics, and pharmacies reached MVR 1.15 billion as of November 2023, "It is unclear if even these outstanding amounts have been paid."

According to the finance ministry's weekly fiscal update, the figures show "transactions that have been posted, indicating that they have been recorded but not necessarily settled in cash." 

Zameer accused the MDP government of "awarding projects without any planning, and particularly awarding projects to companies lacking technical and financial capacity," which he blamed for disrupting timely payment procedures. 

The official reserve stood at US$ 860 million by September, up from US$ 591 million in 2023. The usable reserve exceeds US$ 200 million.

Zameer presented the recovery from a historic low of US$ 371.2 million in September 2024 as a success story. He credited the new dollar surrender policy. This made it mandatory for tourist operators to exchange a portion of foreign currency earnings with local banks.

The usable reserves of US$ 200 million – funds readily available for use – are insufficient to cover imports for a month. International standards recommend three months. The present coverage for 0.7 months is critically low. 

Contrary to Zameer's claim, "the cash balance of the Sovereign Development Fund – reportedly at US$ 80 million in July 2025 – falls short of external debt servicing needs."

The apparent reserve recovery was largely achieved through a US$ 400 million currency swap with India together with the forced conversion of tourism earnings and reduced imports due to the construction sector slowdown.

Meanwhile, the black market exchange rate "reached an all-time low of MVR 20.2 in July amid reported FX shortages" with a widened premium between the official exchange rate (MVR 15.42) and the parallel exchange rate of 31 percent, "contributing to the rise in the price of imported goods."

"Traders and businesses are reportedly still struggling to acquire dollars even at higher rates."

The operational budget for 2026 is actually MVR 55 billion – and smaller than this year's budget of MVR 56.4 billion – when MVR 9.3 billion earmarked for debt repayment is excluded. This includes the US$ 500 million sukuk bullet payment and a US$ 100 million private bond. 

Total public and publicly guaranteed debt rose to US$ 9.5 billion or 126.9 percent of GDP in the first quarter of 2025 "compared to US$ 8.2 billion or 119.8 percent of GDP in 2024Q1."

It is projected to "remain elevated at an average of 135 percent of GDP over the medium term."

After US$ 393.6 million in 2024, rising external debt servicing needs are estimated to reach US$ 900 million in 2025 and exceed US$ 1.5 billion in 2026.  

Debt service payments are "projected to absorb around 70 percent of government revenue by 2026." 

This means 70 cents of every dollar the government collects will go to paying off debt, leaving only 30 percent for healthcare, education, infrastructure, and social welfare.

For the US$ 600 million coming due by April 2026, the government "has not yet announced a clear strategy for meeting this obligation."

The options include debt restructuring, asset sales, securing emergency financing or refinancing through bilateral or multilateral lenders. "However, the feasibility and terms of these options remain uncertain."

Credit ratings agencies Fitch and Moody's downgrading the Maldives to "junk" status in 2024 – citing liquidity pressures and the risk of default – "significantly constrained the country's ability to access markets for new financing."

While yields on the sukuk surged to 55 percent in April, up from 17 percent at the end of 2023, "they declined sharply to 15 percent in July 2025 following an investor call."

Consequently, the government's sources of financing are "limited to selected bilaterals, expensive commercial debt, and borrowing from the domestic banking sector."

Banks have 38 percent of their assets tied up in government debt. 

The economy is "healthy and resilient." The revised estimate for growth for 2025 is 5.4 percent. It is projected to slow slightly to 5.3 percent in 2026. Growth is expected to be driven by the strong performance of the tourism sector. The opening of the Velana International Airport's new passenger terminal will significantly boost arrivals by removing a critical bottleneck. 

Unlike previous years, tourist arrivals were higher than usual during the low season. The number of holidaymakers reached 1.5 million by August, up 9.4 percent from the same period in 2024, boosted by strong growth in the Chinese, Russian, British and European markets. Bed nights increased by 6.6 percent. 

The construction and real estate sectors are expected to grow by 3.1 percent, buoyed by government spending on infrastructure and housing.

The growth rate of 5.4 percent for 2025 was revised downward from an estimated 6.2 percent. It is forecast to "moderate to around 4 percent over the medium term". 

While tourist arrivals have increased, the average duration of stay has shortened – "6.8 days in first half of 2025 from 7.6 days during 2024H1" – dragging GDP growth to 2.5 percent in the first quarter of 2025, down from 6.4 percent in the corresponding quarter of 2024 amid "a contraction in the non-tourism real economy." 

The fisheries sector, however, "recovered strongly in the first half of 2025" after declining 32.6 percent in 2024. 

Despite Zameer claiming that government policies were containing inflationary pressures through subsidies and price controls, inflation jumped from 1.4 percent in 2024 to five percent in the first half of 2025. Food inflation stood at 6.1 percent and fish at 7.9 percent as restaurant and accommodation costs surged 29.4 percent. Inflation in the atolls (5.6 percent) exceeds Malé (4.5 percent).

"While changes were brought to the rates of many taxes and fees in recent years, no additional revenue-raising policy has been proposed with this year's budget," Zameer said, citing the need to avoid "weakening the economy."

The tax authority's enforcement powers will instead be bolstered with new legislation. Tax revenue is projected at MVR 31.3 billion with non-tax revenue at MVR 8.7 billion. Along with higher receipts from tourism-related taxes, the "full effect" of the higher rates from the airport development fee for business class, first class and private jet passengers is expected to be seen with the full operationalisation of the airport terminal, generating an estimated MVR 2.3 billion.  

The government only secured MVR 269.9 million from projected grant aid of MVR 2.5 billion for 2025. Grant aid for next year was projected at MVR 373.6 million.

No progress on implementation of key reforms announced in 2024, which included "reducing expenditures by reforming SOEs; removing blanket subsidies for fuel, electricity, food, and sanitation; and improving health spending efficiency."

Heading into the final quarter, 99 percent of funds allocated for subsidies has been exhausted and the finance ministry is "reportedly working on a supplementary budget."

In the absence of reforms to curtail spending and right-size SOEs, the fiscal deficit is expected to rise back to 13 percent of GDP. 

"A comprehensive fiscal adjustment along with a credible financing strategy remains critical to restoring macroeconomic and fiscal sustainability."   

The April 2026 deadline looms as the ultimate test of whether the government's optimistic claims or the World Bank's warnings prove closer to reality.

Total: MVR 64.2 billion

Expenditure: MVR 49.2 billion (excluding debt repayment, loan issuance and capital investment)

Recurrent expenditure: MVR 39.9 billion (62 percent of the budget)

Expected revenue and grant aid: MVR 40.4 billion (up 6.6 percent from MVR 37.9 billion this year)

Deficit: MVR 8.8 billion (7.1 percent of GDP)

Debt servicing cost: MVR 5.5 billion 

Required: MVR 26.3 billion

Debt repayment: MVR 12.9 billion

Plugging budget deficit: MVR 8.8 billion

Sale of bonds or sukuks in International market and multilateral or bilateral financing: MVR 16.8 billion

Sukuk refinancing: US$ 450 million (MVR 6.9 billion) from foreign sources 

Budget support from bilateral donors: US$ 300 million (MVR 4.6 billion)

Domestic financial institutions: MVR 5 billion 

Sovereign development fund (US$ 100 million at present): MVR 4.2 billion (US$ 272 million)

Overall deficit: five percent of GDP 

Public debt (excluding publicly guaranteed debt): 117 percent of GDP

Publicly guaranteed debt: 10 percent of GDP

Public Sector Investment Program spending: capped at seven percent of GDP and funding from domestic budget at 70 percent 

Interest payments: capped at 12 percent of revenue (excluding grant aid)

Interest on foreign debt: capped at five percent of revenue  

Revenue: not below 32 percent of GDP

Recurrent expenditure: covered by revenue