Economic growth alone cannot resolve the current situation: Erdem

Country Economist and Resident Coordinator for Maldives at the World Bank, Erdem Atas has said that economic growth or additional financing cannot resolve the economic vulnerabilities that Maldives is currently facing.

In a tweet on social media platform X (formerly twitter) yesterday, Erdem said that expenditure cuts are necessary to reduce fiscal and current account deficits and improve the country's debt situation.

"The economic vulnerabilities that Maldives face now is a combination of debt stock accumulation in the last 10 years, as well as continuously high fiscal and current account deficits over the same period," Erdem added.

Presenting the World Bank Economic Update report last month, he said it was time to take a step back and cut expenditures.

He said the World Bank predicts the Maldives' budget deficit to widen in the medium term despite government reforms. The budget deficit is expected to rise to around 11 percent this year, he added, noting that the deficit could widen further if the way subsidies are provided changes this year.

He added that this shows more reforms are required to manage costs.

He said the current account deficit is also expected to rise further. The country's challenges in raising budget funds also highlight the need for more reforms to improve the economic situation, Erdem said.

Erdem said that the Maldives' vulnerabilities would be exacerbated in the event of another crisis, given the large amounts of debt owed. He also noted the increase in costs incurred by state-owned enterprises, the rise in state spending on these companies, and the increase in the number of projects as additional financial difficulties for the country.