The Maldives has been downgraded to a “fragile state” by the IMF because of the tense political situation, the way business is regulated and how the country’s finances and budgets have been run in recent years. The new classification is the latest blow to the Maldivian economy from the institution, which has repeatedly spoken of the high levels of debt being driven by the current administration’s ambitious infrastructure scale-up.
Other “fragile states” include Afghanistan, Haiti, Kosovo, Liberia, Mali, Myanmar, South Sudan, and Timor-Leste, according to the IMF.
“Given extensive government-guaranteed investment and lending, the impact of a severe tourism downturn on the fiscal position could be considerable,” said the body in its 88-page report about the Maldives.
“Other fiscal risks include possibly higher expenditures related to the 2018 Presidential election, as well as those associated with climate change mitigation and an increase in non-concessional financing.
“A shallow financial system concentrated in tourism and dominated by state-owned banks accentuates the linkages of risks across sectors. Political and domestic security risks remain elevated and are hard to predict with potential adverse economic effects if they escalate.”
But President Abdulla Yameen and others from the ruling PPM party have previously hit out at the IMF and World Bank over their dire warnings.
The government has recently pushed through a number of eye-watering measures including a record budget, a controversial Free Trade Agreement with China and a whopping US$370 million sovereign guarantee with little to no debate or scrutiny about what impact these will have on the country’s economy or finances.
Last month Finance Minister Ahmed Munavvar told parliament that, at the end of 2018, public debt would be around MVR43 billion or 60 percent of GDP.
The IMF and the World Bank predicts Maldivian debt to reach 121 percent of GDP by 2020.
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