Govt to refinance USD 500mn out of staggering debt servicing due in 2026

Finance Minister Dr. Mohamed Shafeeq says the government will be refinancing USD 500 million (MVR 7.7 billion) out of the staggering USD 1.07 billion (MVR 16.4 billion) in external debt it is required to service in 2026.

In a meeting with the Parliament’s Public Accounts Committee on Wednesday, Shafeeq said that the government plans to refinance half of the debt due in 2026.

“In preparation of paying this in lumpsum, we are depositing to and building up the sovereign development fund, after which we will settle and refinance half,” he said.

Shafeeq said the government will refinance the debt in a sustainable manner.

He explained that if the government takes USD 300 million to refinance the debt, it will be structured so that it can be repaid over several years.

He said the government plans to restructure the debt in the most sustainable manner possible.

Shafeeq blamed the current economic downturn on the policies of the former administration, which he said had decided to spend beyond the state’s means. He said the previous administration failed to utilize the loans it took on initiatives designed to generate economic revenue.

He said the policies have resulted in challenges in debt servicing.

50 percent of the USD 500 million in debt serving due in 2026 was spent by the former administration in 2021. It had used the reminder of the funds generated from sukuk to manage cashflow amid the economic downturn during the height of the Covid-19 pandemic.

Part of the sukuk was used to service the “sunny side” bond taken by the PPM administration in 2017. The state paid USD 200 million for the bond.

The incumbent administration has announced measures to boost revenue from US dollars. This includes revising the airport development tax rate, expanding the tax base, raising import duty on products injurious to the health, revising green tax rates, and diversifying the economy.

As the country struggles to service its debt, it also has over MVR 15 billion in uncollected state revenue.