World Bank forecasts Maldives' national debt to Gross Domestic Product (GDP) ration to increase by 115 percent.
The bank said that though Maldives economy was expected to grow by 8.2 percent in 2023, the actual economic growth will cap at 6.5 percent in the current year.
The Ministry of Finance however, projects a 9.4 percent increase.
Statistics from the ministry indicate that the state's debt stands at MVR 108 billion. According to the World Bank, this figure could rise if the debt-to-GDP ratio increases. Out of the total state debt, MVR 49 billion is external debt, while the remaining MVR 59 billion is internal debt.
World Bank in the South Asian Development Update said that Maldives would be impacted from the global economic setback.
The projected economic growth of Maldives slowed down in January 2023, while the bank estimates a 5.4 percent growth in the next two years.
Despite rate hikes for Goods and Services Tax (GST) earlier in 2023, due to inefficient implementation of revisions to subsidies had left World Bank concerned. The bank had recommended the Maldives government to promptly resolve wastage owed to higher expenditure on subsidies.
Faris H. Hadad-Zervos, the World Bank Country Director for Maldives, Nepal and Sri Lanka said that contrary to projections for a positive economic growth, the Maldives government needs to extensively work on reducing state deficit coupled with stronger debt management and prioritize investment opportunities.
"While tourism will continue to be a primary driver of growth, the Maldives stands to gain by promoting eco-tourism and fisheries development. Prioritizing limited infrastructure financing for remote areas and encouraging private sector investment can ensure that growth is inclusive, greener, and resilient to climate and other shocks," he said.
The World Bank added that Maldives faces significant challenges in terms of economic progression, including issues related to capital expenditure, subsidies, the central bank's attempts to print money to address budget deficits, and inflation.
The bank recommended prompt corrective measures to address these challenges, and prioritize sound and responsible debt management.