No fear of debt crisis for Maldives but costs are too high: World Bank

The World Bank has said that Maldives' economy is not in danger of a crisis at the moment, but government spending is extremely high.

According to the bank's "Maldives Public Expenditure Review", there is no major threat to the economy at present but significant efforts are needed to increase revenue as operating expenses have increased.

According to the report, one-third of the state budget is spent on employee's salaries and the government's efforts to bring the minimum wage and salaries in line will require even higher spending on salaries in the future. The report said that while there is an increase in development projects, the rise in the number of elderly people in Maldives in the future will increase the pressure on pension fund financing.

The World Bank said the wide gap between government spending and revenue could have an adverse impact. Even before the Covid-19 outbreak, the government spending was so high that it was difficult to manage, the report said.

Between 2014 and 2019, Maldives spending doubled compared to GDP growth, according World Bank. The budget deficit widened year after year and the government had to borrow money, the report said.

The latest figures from the Ministry of Finance show that the state debt is now over MVR 100 billion.

According to the World Bank report, the main reason for the increase in public debt was the increase in housing and health projects. The report noted that even with high expenditure on these two sectors public concerns over them are still unresolved.

The World Bank said revenue increases are essential to address these issues. The agency said the increase in GST was an important decision to increase revenue. The report also recommended that the threshold for income tax should be reduced.

The World Bank has called for reforms in government spending on health and housing, and develop a system where Aasandha scheme gives high priority to those in need.

The World Bank has advised the state to stop paying "double pension" to some people under public assistance and pension scheme.