Government to Guarantee BML's $300 Million Sukuk, Pushing State-Guaranteed Debt to 13.5% of GDP

The Maldivian government has decided to provide a sovereign guarantee for the 300 million dollar sukuk being sold to foreign investors by the Bank of Maldives (BML). According to the Finance Ministry's budget proposal for next year, this guarantee will increase the state's guaranteed debt. The government has revised its target for reducing this debt from the previously stated 10 percent of GDP by the end of 2028 to a new target of 15 percent of GDP. The budget book explains that this is a key fiscal adjustment to support the banking sector. It states that BML's sukuk will expand the banking sector, open up investment opportunities for tourism, and help increase state revenue in the medium term. The Finance Ministry estimates that without the BML sukuk, the guaranteed debt next year would be 7.5 percent; however, with the sukuk, it will rise to 13.5 percent. The government has clarified that funds from the sukuk will not be used for the state budget or to balance government cash flow. Instead, the proceeds are intended to finance resort development in the northern part of the country, aiming to increase bed capacity and expand economic activities and employment in the north. Former Finance Minister Moosa Zameer had stated this was a joint effort with BML to develop tourism in the north and south, though the budget book makes no mention of using the funds for the south. The Ministry of Finance has also warned that guaranteed debt poses a major and increasing risk to state finances. As of the end of June this year, the guaranteed debt stood at 19.1 billion rufiyaa, which is 15.4 percent of GDP, with 97 percent of this debt denominated in foreign currency.