Maldives Turns to World Bank and Foreign Lenders as Oil Prices Push Deficit to 9 Percent

The Maldives has sought assistance from the World Bank and international aid-providing parties to overcome the economic challenges facing the country, strengthen reserves and advance economic reform measures, Finance Minister Hassan Zareer has said. Speaking in an online interview with Reuters, Minister Zareer said the Maldives now imports all of the oil it uses, and that the war ongoing in the Middle East, which has driven oil prices up, has forced government spending on energy subsidies to increase threefold this year. As a result, he said, the government's budget deficit is expected to rise from the previously estimated 7.1 percent to nine percent. Zareer said the government is working steadily to reduce state expenditure, adopt fiscal reform measures and reduce the deficit, but that foreign assistance is still needed to make the economy stronger. While the economy has suffered a big hit from rising oil prices and falling tourist arrivals, the minister noted that Maldives' economic growth in 2026 is expected to be only one percent. At the same time, the minister said it is planned to lease additional aircraft for the national airline to address travel constraints and increase tourist arrivals next year, and to increase flights to Australia, which is the Maldives' eighth-largest market. Zareer also revealed that negotiations are underway with seven more foreign airlines to increase travel to the Maldives. His remarks came in parallel with the government's ongoing efforts to repay large state debts and increase fiscal prudence. Moody's international credit rating agency has raised the Maldives' sovereign credit rating from Caa2 to Caa1. Moody's said the upgrade to 'Caa1' was due to sound measures taken to increase foreign exchange inflows, the repayment of large debts, and a significant reduction in the risk of being unable to repay debts in the future. However, according to the Asian Development Outlook report for last month, issued by the Asian Development Bank to forecast changes in Asian economies, although gains seen in tourism and construction have had positive effects on the Maldives' economy, the country still faces risks from global recession, growing debt and a decline in the volume of fish exports. The ADB also noted that, because of the war being waged in the Middle East, tourism is likely to be affected during the peak season at the end of this year and the beginning of next year. In addition, the ADB expressed concern that the burden on the state will increase if reforms of loss-making government companies and subsidy schemes are delayed. Among the measures included in last year's budget to reduce state expenditure was a plan to provide electricity and food subsidies, previously given to everyone to make them affordable, only to those in need. However, at some point last year, President Dr. Mohamed Muizzu decided not to implement those reforms, saying this was in order not to reduce anything that people had been receiving. The President's decision drew criticism from economic experts. Furthermore, among the measures announced early by this government to reduce state expenditure were decisions to eliminate and merge some companies. However, in this government, with the creation of additional companies and in line with elections, problems have emerged of large numbers of employees being hired into companies.