World Bank Group has warned the Maldives of major negative repercussions to its banking system due to increasing amount of domestic loans taken by the nation’s financial institutions.
According to World Bank’s biannual South Asia Economic Focus report released last Monday, the Gross Domestic Product (GDP) of the Maldives is at 35 percent whereas state expenditures exceed it at 48 percent. World Bank attributed this imbalance to the major infrastructural development projects undertaken by the Maldives beyond a sustainable budget.
“Maldives’ high levels of fiscal deficits and public debt pose a significant risk, as the country is structurally spending beyond its means,” it stated.
This course of action has led to a drop in currency in circulation and, consequently, hefty loans taken by financial institutions of the Maldives, the report stated. World Bank added that the amount of unrepaid short-term domestic loans are piling up.
“… heavy reliance of domestic sources of financing has increased the exposure of the domestic banking system to sovereign risk,” read the report.
According to Maldives Monetary Authority (MMA)’s statistics, the state had sold government securities of MVR 21.2 billion by the end of last July to settle its cash flow, which is a yearly increase of 13 percent. MMA also reported a 12 percent increase in unrepaid T-Bills and T-Bonds by the government.
Banks have also increased purchase of the government’s short-term T-Bills and long-term T-Bonds, with a 27 percent spike in the amount of T-Bills purchased by the end of last July.
World Bank reiterated its previous report’s estimation that government debt in the Maldives will increase yearly to 120 percent of the GDP per head by 2020. The bank warned further in the latest report that the Maldives is exceeding the limitations for external debt as set by the World Bank and International Monetary Fund (IMF).
World Bank urged the Maldives again to proceed with development projects in segments to reduce its debt and deficit.
The Maldives government is currently undertaking a number of major infrastructural development projects simultaneously, most notably the construction of a bridge linking capital Male to airport island Hulhule. Several other foreign entities in addition to World Bank have also raised the issue of the archipelago’s increasingly debilitating foreign debt resulting from these ventures.