Commerce - ވިޔަފާރިއާއި އިޤްތިޞާދު

This UNDP Discussion Paper examines the public debt situation in the Maldives. It is one of four case studies on debt in small island developing states carried out by UNDP in 2010 in the framework of the project entitled: ‘Achieving Debt Sustainability and the MDGs in Small Island Developing States.’ The initiative looks at the problem of high levels of public debt in many small island developing states (SIDS) and the possible impacts on governments’ efforts to reduce poverty and increase economic growth. The other countries covered by this initiative are: Grenada, St. Kitts and Nevis and Tonga. The case studies are accompanied by a further discussion paper which provides an overview of the problem of debt in many small island economies as well as presents a range of policy options to deal more effectively with the growing problem. The Maldives has experienced rapid public and private debt accumulation over the last six years. As a percent of GDP, public debt levels have almost doubled from 55 percent in 2004 to approximately 97 percent in 2010. Public debt service as a percent of government revenues will more than double between 2006 and 2010 from under 15 percent to over 30 percent. The IMF recently classified the country as ‘at high risk’ of debt distress. From a human development perspective, the extent to which increased debt service obligations may put at risk key social and infrastructure expenditures give serious cause for concern. The Maldives has made excellent progress towards many of the Millennium Development Goals and is South Asia’s only MDG-plus country. Nevertheless, important challenges remain with respect to several MDGs which include gender empowerment and environmental sustainability. Rapid debt accumulation in the Maldives is the result of short-term economic ‘shocks’ combined with longer-term ‘structural’ factors. Short-term causes include the Indian Ocean tsunami of December 2004, a large expansion in public expenditures between 2004 and 2008 and the recent concurrent food-fuel-financial crises. Long-term causes include structural weaknesses associated with the country’s geographical characteristics and a narrow tax and revenue base. Arguably the country is about to experience its fourth economic ‘shock’ in the form of its imminent graduation from Least Developed Country (LDC) status in January 2011 which will entail the loss of several trade related concessions. The sharp increase in debt can be attributed predominantly to the increase in domestic debt. Domestic debt as a percent of GDP has increased from just 15 percent in 2004 to an estimated 55 percent by 2010. Debt service on domestic debt has also increased significantly over the last couple of years and is expected to rise further still. The domestic debt market has developed quickly in the Maldives and the government is now issuing USD denominated bonds on the domestic financial market. One important consequence of the government’s reliance on bond finance is that major national banks have shifted a large portion of their assets to government securities. Increased government borrowing is now crowding out bank credit to the private sector with implications, in turn, on output and employment. External debt levels in the Maldives have remained relatively stable as a proportion of GDP since 2004 at around 40 percent Multilateral lenders account for 59 percent of external debt, bilateral lenders for 23 percent and private lenders for 17 percent. Most official sector debt is on concessional terms due to the ‘small island exception’ extended by several multilateral financial institutions. However, overall the proportion of official debt on concessional terms has declined steadily over the last decade. In 2000, over 78 percent of the government’s public external debt burden was on concessional terms.

Commerce - ވިޔަފާރިއާއި އިޤްތިޞާދު

Browse

Filters

Settings

Sort By

Results per page

Search Results