The World Bank has said that the Maldivian economy is facing serious challenges due to rising expenditure, rising debt and external shocks.

Released last month, the Maldives’ Economic Update 'Batten Down the Hatches' report offered an optimistic view of the country's economic outlook due to a strong tourism industry, but noted of serious challenges as the central bank continues to borrow money to cover the budget deficit, increased expenditure on projects as well as blanket subsidies.

To address those issues, meaningful swift and consequential fiscal reform measures are needed, including better management of project spending, shifting to needy-only subsidies, increasing revenue and more robust debt management.

The World Bank said Maldives has plans to reduce its fiscal deficit but has not yet achieved its targets. In the medium term, the country’s debt to GDP ratio is expected to be above 115 percent.

The agency said that despite the government hiking the Goods and Services Tax (GST) rate earlier this year, cost-cutting measures, especially reforms to subsidies, have been delayed for this year. The key reforms recommended for implementation are:

- Reforms to the National Health Insurance Programme

- Monitor the state budget allocations to government-owned companies, especially in the energy and food sectors, and achieve a subsidy system that is only available to those in need

- Establish a strong public investment framework to ensure that development projects are implemented wisely and plannedly

- Among the urgent measures to increase revenue, expansion of the tax base - Establish domestic revenue sources and promote equitable taxation

“Although Maldives has set an example in recovering from the pandemic, new shocks such as global unrest, rising prices in global markets and higher inflation affecting the savings of residents in key tourism markets must be tackled strategically,” the World Bank Country Director for Maldives Faris H. Hadad-Zervos said.

He said: “It is important to address the nation’s fiscal vulnerabilities through prudent debt management and expenditure reforms, and work urgently to ensure long-term growth and prosperity with a sustainable and infrastructure investment framework.