The International Monetary Fund (IMF) has suggested that the Maldives explore debt-for-nature swaps as part of a wider fiscal strategy to tackle the country’s vulnerability to climate change.
With Maldives’ debt reaching MVR 107.77 billion or 113% of GDP at the end of last year, the IMF has identified the need for a sustained fiscal consolidation to reduce public debt. Tidiane Kinda, the IMF’s mission chief to the Maldives, acknowledged that the country’s post-pandemic recovery had helped to reduce the public debt-to-GDP ratio, but the level of public debt remains high. The IMF has encouraged the authorities to continue their plans to reduce fiscal and debt vulnerabilities, such as by reforming state-owned enterprises and improving the targeting of social assistance.
According to Kinda, the Maldives’ reserves have declined to a low level, which calls for policy actions. A sustained fiscal consolidation will not only reduce public debt but also lower financing needs, decrease pressures on reserves, and lower imports. To support the country’s efforts, the IMF has been providing technical assistance through its surveillance work and capacity building effort.
IMF country team has prepared a note on options to improve the Maldives’ access to climate financing as part of the 2022 Article IV consultation, and technical assistance is planned for this year to support the authorities in improving public financial management requirements for climate financing.
