Maldives Development Update

Overview & Synopsis

Maldives remains at high risk of debt and liquidity distress despite temporary improvements in fiscal and reserve indicators. Foreign exchange (FX) liquidity pressures have intensified, and there is increasing evidence of FX shortages for the private sector. Debt service obligations are high in the short to medium term, elevating solvency risks, with a sovereign Sukuk bullet repayment of US 500 million dollars due in April 2026. Financing sources are constrained amid credit rating downgrades. Sources of financing are limited to selected bilateral, expensive commercial debt, and borrowing from the domestic banking sector. The banking sector’s exposure to sovereign debt has increased significantly over the past year. While the fiscal balance has improved in 2025, this has likely been accompanied by a significant buildup in arrears. There has been limited progress in fiscal consolidation reforms. The tourism sector continues to provide a key lifeline to the economy. A comprehensive fiscal adjustment along with a credible financing strategy remains critical to restoring macroeconomic and fiscal sustainability. Downside risks are significant, including a shock to the tourism sector, global commodity price increases, and domestic fiscal and external vulnerabilities. The Maldives Development Update (MDU) has two main goals. First, it takes the pulse of the Maldivian economy by outlining key developments over the past 12 months. Placing these in a global context, and based on these recent developments, the MDU then analyzes the outlook over the medium term. Second, every other edition of the MDU provides a more in-depth investigation of selected economic and policy issues. It has a wide audience, including policy makers, policy analysts from think tanks or nongovernmental organizations, and business and financial sector professionals interested in the economic development of Maldives.