Audit Office warns of debt refinancing difficulties due to high debt and low credit rating

The Auditor General's Office warned today that with a large debt repayment due next year, and given the current decreased debt sustainability and downgraded credit rating, the Maldives will face difficulties securing funding from foreign markets and external parties on concessional terms or at adequately low-interest rates.

In the written advice submitted to the People's Majlis regarding the state budget proposed for next year, the Audit Office highlighted that a significant expenditure is required for external debt servicing next year. The budget, therefore, proposes to acquire large sums of money through loans from foreign financial markets and other parties as budget support to refinance this debt.

The advice noted that these factors will lead to consistently high debt servicing costs in the coming years as well.

"We note that to reduce interest expenditure on debt, the budget deficit must be reduced, thereby lowering the required borrowing amount. Furthermore, efforts to mitigate debt risks must be strengthened by formulating and implementing a medium-term debt strategy," the advice stated.

According to the proposed state budget for next year:

·         Debt Repayment: MVR 12.9 billion

·         Interest Expenditure: MVR 5.5 billion

·         Total Debt Servicing Cost: MVR 18.4 billion. This accounts for 29 percent of the entire budget.

To finance the budget, a total of MVR 16.8 billion is proposed to be sourced from external parties. A significant portion of the MVR 14 billion proposed to be raised through budget support loans and the sale of bonds/sukuk is due for repayment in April.

The total state debt next year is projected to be MVR 159 billion, which is 128 percent of the GDP. This figure is projected to be MVR 158 billion at the end of the current year.