Nasheed: State must pay debt by boosting revenue, not impoverishing regular citizens

The state should be paying off its debt by boosting revenue streams and expanding the tax base, not by impoverishing regular citizens, says former President Mohamed Nasheed.

Nasheed, who is contesting the main opposition Maldivian Democratic Party (MDP)’s chairpersonship election, made the remarks during a campaign rally on Friday night in Hulhumale’.

Addressing the rally, Nasheed spoke about the need for the state to boost its revenue streams in order to pay off the country’s massive debt obligations.

He also called on the state to expand the tax base, instead of raising taxes.

During his 2023 campaign, President Dr. Mohamed Muizzu had promised to expand the tax base, instead of introducing new taxes or raising existing taxes. But since assuming office, his administration has raised several taxes, including the airport departure fee, airport development fee, green tax and tourism goods and services tax.

“One question that is constantly asked is, when a road is redeveloped with asphalt, does it boost the income of homes that open its doors to that road? It usually takes around five to 10 years to generate income from capital assets. We have fewer days that that to repay debt. Five years… So that makes a huge difference. It creates a certain risk. It creates concern,” he said.

Nasheed said that it is also the recommendation of global financial institutions such as the International Monetary Fund (IMF); to cut costs and shore up revenue to repay debt.

“The phrase that economists use to describe this is austerity measures. We need to increase our revenue, increase what the people earn, expand the tax base based on what we get, and use it to repay debt,” he said.

The Maldives approved a record high budget of MVR 64.2 billion for this year – mainly due to the USD 1.1 billion (equivalent to roughly MVR 16.96 billion) in debt obligations due this year.

The administration repaid a USD 500 million sukuk in April alone.

Following the repayment of this massive debt, Fitch recently upgraded Maldives’ credit rating from 'CC' to 'CCC-'. However, the 'CCC-' rating remains within speculative or "junk" territory.

Economic analysts, including former minister Ahmed Mohamed (AM), continue to raise concern.

He recently stated that while the immediate threat of default has diminished following the sukuk repayment, substantial economic challenges continue to persist. Referring to Fitch’s assessment, he noted that the Maldives’ public debt-to-GDP ratio is expected to increase to 119.2 percent, while foreign reserves remain at critically low levels, insufficient to cover even a single month of imports.