Draft:2024 Maldivian economic crisis
 Inflation rate in the Maldives since January 2024, as a percentage | |
| Date | March–August 2024 |
|---|---|
| Location | Maldives |
| Type | Economic—financial crisis |
| Cause | After the Maldives Monetary Authority warned the Ministry of Finance that the country's usable dollar reserves were critically low and could be depleted before the end of August |
| Outcome |
|
The 2024 Maldivian financial and economic crisis was an nationwide economic–financial crisis, having experienced since the beginning of 2024.[1] It has caused severe economic challenges, leading to currency and reserve shortages as well as pressure on the banking system.
Causes
[edit]Debt Accumulation
[edit]The 2024 Maldivian economic crisis has its roots in long-term structural challenges, exacerbated by government policies focused on large–scale infrastructure projects and social welfare schemes.[1] Over the years, successive administrations pursued these initiatives to expand the voter base, leading to growing budget deficits. The government's spending priorities included funding for state-owned enterprises and bureaucratic expansion, which further strained public finances.[2] This reliance on external loans and grants to sustain government spending, without addressing underlying economic weaknesses, laid the foundation for the crisis.[1]
By 2023, the Maldives's debt had increased dramatically, with total debt stock rising from US$ 3 billion in 2018 to US$ 8 billion.[3] The accumulation of debt, both domestic and external, became unsustainable as the country borrowed heavily from private lenders and key partners such as China and India.[4] Additionally, sovereign guarantees for loans taken by state-owned enterprises further increased the financial burden on the government.[5] These borrowings were primarily short-term, high-interest loans, putting pressure on public finances as repayments became due.
Economic impact
[edit]External shocks, such as the COVID-19 pandemic and the Russian invasion of Ukraine, severely impacted key economic sectors, including tourism and fisheries.[7] These disruptions led to reduced revenues and a decline in foreign reserves, forcing the government to borrow even more to meet its obligations.[7] By the time President Mohamed Muizzu took office in November 2023, the economy was already in distress, with high inflation, rising import costs, and declining exports.[8] Despite these challenges, Muizzu's administration continued to maintain a budget deficit and increased government spending through political appointments, contributing to a recurring expenditure of over US$ 65 million monthly.[1]
As of early 2024, the country's debt-to-GDP ratio had risen to 110 percent, with significant portions of loans from Chinese and Indian creditors, as well as private bondholders, coming due.[9] The government's efforts to raise funds through budget support proved insufficient to address the growing debt crisis. With no comprehensive long-term plan to stabilize the economy, the Maldives remained vulnerable to further economic deterioration, lacking the ability to shield itself from external shocks and manage its mounting financial obligations.[10]
Outcomes
[edit]Bank of Maldives
[edit]On 25 August 2024, the Bank of Maldives announced new limits on foreign transactions for its cardholders, citing concerns over the increasing usage of foreign currency through cards and the static sale of foreign currency to the Bank.[11] The changes, which took immediate effect, included the suspension of foreign transactions for both existing and new debit and credit cards linked to Maldivian Rufiyaa accounts, and a reduction in the monthly limit for foreign transactions on Standard and Gold credit cards to USD 100.[12] The announcement led to public widespread responses on social media, and international reactions. In response, the Bank reversed the decision later that day following guidance from the Maldives Monetary Authority.[13] Government officials, including President Muizzu, indicated that it was a financial coup attempt to worse the financial situation and overthrow the government, and stated that if an investigation were to take place in the future, those involved could potentially face felony charges.[14][15]
See also
[edit]- Pakistani economic crisis (2022–present)
- Sri Lankan economic crisis (2019–present)
- Economic impact of the Russian invasion of Ukraine
References
[edit]- ^ a b c d "Understanding the Maldives' economic crisis: Causes and implications". Observer Research Foundation. 7 August 2024. Archived from the original on 8 August 2024. Retrieved 7 August 2024.
- ^ "Maldives Public Expenditure Review: Charting a More Resilient and Prosperous Future". World Bank. 9 August 2022. Archived from the original on 17 August 2022. Retrieved 9 August 2022.
- ^ "Public Debit Bulletin" (PDF). Ministry of Finance. Archived (PDF) from the original on 19 March 2022. Retrieved 2 December 2018.
- ^ "Imports rise while exports fall in April". Avas. 2 June 2024. Retrieved 2 June 2024.
- ^ "World Bank Supports Maldives to Reform State-Owned Enterprises and Strengthen Private Sector". World Bank. Retrieved 12 May 2023.
- ^ "Real GDP growth rate". Maldives Monetary Authority.
- ^ a b "Maldives: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Maldives". International Monetary Fund. 13 May 2024. Archived from the original on 1 July 2024. Retrieved 13 May 2024.
- ^ "Economic situation that consecutive governments faced were incomparable: President". The Edition. 22 March 2024. Archived from the original on 23 March 2024. Retrieved 22 March 2024.
- ^ "Quarterly Bulletin 2024 Quarter 1" (PDF). Ministry of Finance. Retrieved 29 August 2024.
- ^ "Maldives Budget Analysis 2023" (PDF). Crowe. Retrieved 29 August 2024.
- ^ "Bank of Maldives announces card limits for foreign transactions". Bank of Maldives. Retrieved 25 August 2024.
- ^ "The limit on foreign transactions with Bank of Maldives cards has been limited" (in Divehi). Mihaaru. Retrieved 5 August 2024.
- ^ Osmanagic, Ameera (25 August 2024). "BML reverses new foreign transaction limit". The Edition. Retrieved 25 August 2024.
- ^ Mohamed, Mariyath (27 August 2024). "President alleges coup attempt, vows action against instigators". The Edition. Retrieved 27 August 2024.
- ^ "President suspects Card limit was changed to overthrow the government, Investigations started". Mihaaru. 26 August 2024. Retrieved 26 August 2024.
External links
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