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Challenges caused by debt are high, but the nation will overcome it: Shafeeq

This is a translation of a report written by Fathimath Shana Mohamed of Mihaaru. The report delves into an exclusive interview conducted with the Finance Minister who explains that despite difficulties caused by debt, the nation will overcome it.

Aishath Shuba Solih
17 April 2024, MVT 07:54
Minister of Finance Dr Mohamed Shafeeq.
Aishath Shuba Solih
17 April 2024, MVT 07:54

Many were doubtful of the Maldives’ financial status when the recent new administration had assumed office. A single look at the statistics clearly reveals that the nation is in great financial strife.

Consequently, the most prominent hurdles currently faced by the Minister of Finance, Mohamed Shafeeq is also the country’s impending debt alongside the reckless expenditures of the former government.

Speaking with Mihaaru News during his first ever exclusive interview to an online media since assuming office, these were the two things he had prominently highlighted . In the midst of ongoing wide-scale economic developmental projects, the State has been challenged in arranging the country’s expenses with the revenue generated. However, these projects also cannot be halted due to the people’s eager expectations, prompting the need for solutions in reducing expenses without affecting the advancement of any such projects.

In cases where the country is compelled to take loans, Minister Shafeeq places the highest priority into ensuring these loans are sustainable and guarantees the lowest possible interest rates.

“The biggest concerns are the issue of high expenses, the issue of high waste produce and challenges in debt repayment. With these concerns, we are trying to properly manage these matters and deliver the change that the people want,” assured Shafeeg.

A special priority to reducing expenses

In addition to the income generated into State accounts, the government is presently in need of an additional MVR 16 billion worth of funds for this year’s annual budget. The administration had a high number of bills that had collectively amassed to a debt of USD 200 million (MVR 300 million) pending to private companies even when last year’s supplementary budget was passed. Consequently, the Ministry said that the foremost priority will be extended towards managing the State budget with dedicated austerity measures in this situation where pending payments to private companies have been highly accumulated and the government’s debt has amassed alarmingly.

“Domestic market has also been significantly squeezed. Similarly, when foreign parties are sought to obtain it [loans] internationally, Maldives’ economic indicators are too severe for them to be able to issue good rates for it,” he remarked.

He further assured that the best courses of actions are being considered when arranging expenses even at this moment in a bid to resolve this. This had resulted in the primary balance of the budget allocated for the first three months of the year standing at a surplus. Last February had also been concluded with the overall balance remaining at surplus.

Shafeeq maintained that while there remains a hefty payment to be settled in 2026, importance is being given to ensure that the loans withdrawn starting now will not require any settlements during this period.

“Our plan is to prepare for this before 2026, prepare to settle large payments. A Sukuk refinance measure can also be proceeded ahead of time,” he revealed.

In addition to stabilizing the debt, austerity measures are being set in place, including reforming State-Owned Enterprises (SOE)s, minimizing excessive unjustified spending within the Aasandha scheme, and altering the policy on issuing subsidies.

Will not go bankrupt, but action is necessary

Remarking that tourist arrival rate has soared and economic activities are being firmly proceeded, Shafeeq affirmed that this consequently provides the assurance that the Maldivian economy can overcome its financial hurdles without experiencing bankruptcy.

“It won’t be easy, but it is necessary (to take action). Expenses need to reduced. Deficit can be reduced only once this is lowered.” he said.

The Minister had remarked that one of the measures that must be employed to reduce expenditure is lowering the costs of specific industries, further emphasizing that areas allowing reduction of costs must therefore be identified amid this procedure.

He had assured that the government has settled on a method that is best suited for the majority and highlighted that important projects will be given priority within this. Moreover, he also affirmed that projects launched by the former government will also proceed without any interruption.

“Priority will be given to advancing the economy stronger than before without it experiencing major shocks,” the Minister stated.

“We will plan things and make arrangements in a way the economy will not go bankrupt.”

Shafeeq had further emphasized that the people’s cooperation is required to go forward with this.

Improving financial hurdles cannot be done at a moment’s notice. While Shafeeq’s aim is to stabilize the country’s debt crises within the next two years and plan procedures for reducing expenditures in a way that does not incur any burdens, this has been decided to proceed free of any disruptions to the economical balance. Shafeeq is confident that the Ministry of Finance will devise propitious plans to achieve this and implement the same.