World Bank Group has reiterated its warning to the Maldives of negative repercussions to the nation’s economy by increasing debts stemming from the hefty loans taken for ongoing development projects.
According to the first issue of World Bank’s Global Economic Prospectus this year, the Maldives’ economy had progressed by 3.5 percent last year, which is mostly attributed to advancements in the country’s construction industry and higher expenditures on development projects.
The government of Maldives had initially projected that the economic progress would be 6.4 percent in 2016. However, due to the drastic drop in tourism and upheavals in the economy, the number was revised to 3.9 percent.
World Bank estimates in its report that the average progress in the Maldives economy over the next three years will be 4.3 percent due to projected increase in the archipelago’s tourism sector.
However, the institute projected that the economic progress of the Maldives will be 3.9 percent this year, which is lower than the government’s estimate of 4.4 percent.
The prospectus also outlined two major dangers to the Maldives economy, mainly the considerable number of large loans taken by the government for its ambitious infrastructural development projects, and the chances of heightening political tension which could affect the nation’s security. The report warned that political turmoil comprising national security would increase the state’s expenditures to secure its safety, which in turn would impact the economy.
The World Bank had raised concerns over the Maldives’ increasing domestic debts last year as well. It had reiterated its previous report’s estimation that government debt in the Maldives will increase yearly to 120 percent of the Gross Domestic Product (GDP) per head by 2020.
The Maldives’ government is currently undertaking several development projects across the archipelago, almost all of which are funded via external loans. The State Budget 2017 also includes MVR 2.9 billion to be acquired through loans and grants to finance Public Sector Investment Program (PSIP) projects, which will increase the state’s foreign debts.
The 2017 State Budget proposed to the parliament projects a revenue of MVR 21.9 billion, with MVR 14.1 billion from taxes, MVR 4.8 billion from other income, MVR 878 million from free financial aid and MVR 2 billion from proposed revenue generating projects. Meanwhile, next year’s deficit is estimated to be MVR 303.7 million, which is five percent of the Gross Domestic Product (GDP).