Presidential Address: Major economic challenges ahead

President Dr. Mohamed Muizzu, in his first presidential address to the Parliament, expressed concern about the current economic situation in the Maldives. He emphasized that major efforts were needed to overcome the challenges.

President Muizzu said that the government is facing the significant task of repaying a substantial amount of debt in the next two years.

President Muizzu said that his first priority is to ensure the timely repayment of debt. In this regard, the government will undertake necessary measures to enhance the fiscal situation and reduce debt to a sustainable level, he said.

"The main cause of the deficit and the rise in debt is the increase in government expenditure in contrast to revenue, forcing us to adopt measures to reduce government spending. We will overhaul the longstanding structure of subsidies and allocate them exclusively to those who are most in need of state assistance," President Muizzu said.

"The practice of offering subsidies to both the affluent and the underprivileged has curtailed the government's financial capacity to assist those who are truly in need," President Muizzu said.

President Muizzu highlighted that the state's finances are facing substantial challenges despite a positive economic outlook. The expanding gap between revenue and expenditure, along with the excessive fiscal deficit, is unsustainable, he said.

According to President Muizzu, the budget deficit increased to MVR 13.5 billion in 2020 due to the economic downturn caused by Covid-19.

"However, the mismanagement of resources and the formulation of government policies during that period resulted in the deficit not decreasing even when the economy returned to pre-pandemic levels. Despite the economy recovering in 2023 and reaching 2019 levels, the budget deficit for that year widened beyond the deficit in 2020 to MVR 14.6 billion," President Muizzu said in his presidential address.

He said that the government's vision for development and the future can only be realized if the country gets out of the financial abyss.

President Muizzu said that the state debt as a percentage of GDP rose to 115.9 percent at the end of 2023 due to borrowing to finance the deficit.

"In the past five years, about MVR 8 billion has been printed to meet government expenditure. This is a substantial amount compared to the total amount printed in the past 40 years. As a result, we are facing many challenges in maintaining the value of the Maldivian Rufiyaa," he said.

"Commodity prices and the cost of goods have risen. One of the first things we did after taking over the government was to end irresponsible monetization," he said.

Therefore, printing money has been stopped since December 31 last year. President Muizzu said that efforts have been made to reinstate clauses suspended by the previous government in the Accountability for Public Expenditure Act and bring the economy back on track.

Only three profitable companies

President Muizzu said today that when he took office, the debt of state-owned companies was very high. He added that there were only two or three companies that are able to meet its expenses.

"There has been a record increase in administrative operations and human resource expenses of companies. MVR 1 billion worth of capital and funds to different parties have been spent from the state treasury as compensation for various reasons," he said.

He said the foreign currency in the Sovereign Development Fund, which was set up for the repayment of the state debt, has also been withdrawn.

"This is just a small amount of the challenges we have faced in the last 11 weeks," President Muizzu said in his presidential address.

Despite major economic challenges, President Muizzu said that his administration's "Week 14" roadmap has outlined a plan to work towards restoring debt sustainability. He emphasized that the government will operate in a strategic manner to minimize the long-term burden on the state's finances.