IMF Completes Maldives Review as Debt Payments Ease Default Pressure but Dollar Shortages Persist

Review completed, detailed findings await publication

The International Monetary Fund Executive Board concluded its 2026 Article IV consultation with the Maldives on September 14, following a year in which the country repaid a US$500 million Islamic bond but continued to face dollar shortages, heavy debt obligations and a sharp slowdown in tourism. The Maldivian authorities need more time to consider publication of the staff report that formed the basis of the Board discussion.

The completion notice establishes that the annual review has reached the Board. It does not disclose the detailed September assessment, revised forecasts or any specific conclusions reached by directors. The clearest public account of the IMF assessment remains the preliminary statement issued after its June mission, which projected economic growth of about 1 percent in 2026 and warned that debt distress risks remained high.

That distinction matters. The June findings were those of IMF staff and did not necessarily represent the Executive Board's views. They should not be treated as a published account of the September discussion.

The central economic tension is already visible: meeting a major repayment reduced an immediate threat of default, yet the dollars used to settle that obligation also reduced the reserves available to meet other external needs. Stronger tax collection and earlier spending restraint have provided some relief, while higher energy costs and weaker tourism threaten to reverse those gains.

What the June mission established

An IMF team led by Piyaporn Sodsriwiboon visited Malé from June 4 to 14, meeting Finance Minister H. Zareer, Maldives Monetary Authority Governor A. Munawar, other senior officials, private sector representatives and development partners. The IMF's June mission statement credited the authorities with stronger resilience during a difficult economic and financial period.

Staff said revenue measures and spending controls in 2025 had helped contain financing pressures. Strong tourism demand and support from bilateral partners had also eased external pressures and helped international reserves rise. The authorities continued to meet debt obligations, including payments to official and private creditors.

The sequence separates the economic developments from the stages of the IMF review:

• April 2026: The Maldives settled its US$500 million sukuk, while official reserves fell sharply during the month.
• June 4 to 14, 2026: IMF staff visited Malé for discussions on the economy and policy priorities.
• June 16, 2026: The IMF published the mission's preliminary findings.
• September 14, 2026: The Executive Board concluded its consideration of the Article IV consultation.

An Article IV consultation is the IMF's regular review of a member country's economy and policies. Completing it does not, by itself, announce a loan or financing agreement. No date for publication of the Maldives staff report was given in the completion notice.

Tourism weakness drives a sharp slowdown

The June IMF forecast put real GDP growth at about 1 percent in 2026, with recovery expected in 2027 and growth returning to around 4 percent over the medium term. Real GDP measures economic output after adjusting for price changes. The projected slowdown reflects weaker tourism activity and higher global energy prices linked to the conflict in the Middle East.

A separate World Bank projection put growth at 0.7 percent in 2026, compared with an estimated 6.3 percent in 2025. That would represent a decline of 5.6 percentage points. The Bank lowered its 2026 forecast by 3.2 percentage points from its October estimate, citing flight cancellations, tourism disruption, higher fuel prices and tighter financing conditions.

The IMF and World Bank estimates differ by 0.3 percentage points, but both describe a steep weakening of activity. Neither is a confirmed outcome for the year, and the unpublished September staff report cannot be assumed to retain the June IMF forecast unchanged.

For the Maldives, the pressures are connected. Tourism generates foreign currency and government revenue, while imported fuel creates demand for dollars and raises subsidy costs. A slowdown in visitor activity alongside rising energy prices therefore puts pressure on growth, the budget and the country's external finances at the same time.

A bond repayment is not a debt solution

Repayment of the US$500 million sukuk, an Islamic financing instrument, removed a major immediate obligation. Fitch subsequently raised the country's credit rating to CCC-. That rating still indicates substantial credit risk and a real possibility of default; it is not a return to a strong credit standing.

Fitch estimated sovereign and guaranteed external debt service at about US$535 million for the second half of 2026, down from US$1.1 billion in the first half. The reduction is approximately US$565 million, or 51 percent. This eases the repayment calendar without eliminating the need for considerable further dollar funding.

Former economic minister Ahmed Mohamed welcomed the reduced immediate danger in a June 5 statement, while distinguishing repayment success from lasting repair of public finances:

The real test is not whether the country avoided default this year. The real test is whether this breathing space is used to put the public finances on a sustainable path,

Government supporters pointed to a different measure of progress. Ruling party lawmaker Ahmed Azaan cited US$1.29 billion in external debt repayments over two and a half years, with external debt falling from 51.3 percent of GDP in December 2023 to 44.5 percent by May 2026.

Those figures do not describe the entire public debt burden. Finance ministry figures put total state debt at MVR155 billion, equivalent to 130 percent of GDP, at the end of 2025, compared with MVR126 billion when the administration took office. The ministry later cited public and publicly guaranteed debt at 121.2 percent of GDP at the end of April. Differences in dates and debt coverage mean these measures cannot be treated as interchangeable.

Why dollar shortages persisted

Official reserves reportedly rose to US$1.3 billion in March before falling to US$718 million in April after the sukuk settlement. That is a decline of about US$582 million, or 45 percent. The April reserve level covered about 1.4 months of imports.

Gross reserves are not the same as funds readily available for immediate use. Fitch put usable reserves, after accounting for obligations affecting availability, at US$244 million. It also estimated that the Sovereign Development Fund had fallen to about US$21 million by the end of April following the bond repayment.

The strain was visible in the currency market. The reported informal dollar rate reached MVR20.50, compared with the official peg of MVR15.42 per dollar. Buying dollars at that informal rate cost approximately 33 percent more than at the official rate. That gap illustrates difficulty obtaining foreign currency at the pegged price, rather than an announced change in the official exchange rate.

The Bank of Maldives also capped foreign card spending and limited customers to 30 overseas electronic commerce transactions a month. These restrictions show how external financing pressure can reach households and businesses even after the government has met a major debt payment.

IMF staff said the Foreign Currency Act had helped ease foreign exchange liquidity pressures and build reserves. They nevertheless argued that broader economic adjustments were needed to preserve the exchange rate peg. Collecting more foreign currency through regulation does not, on its own, close the gap between dollar earnings and spending.

Budget gains face rising subsidy costs

The IMF credited the government's 2025 effort to increase revenue and control expenditure. The World Bank put that year's fiscal deficit at 4.3 percent of GDP. However, it also warned that the restraint had included deferred capital spending and unpaid commitments accumulating as arrears across ministries and state enterprises.

Early June fiscal figures showed pressure returning. The finance ministry's weekly report recorded a deficit of MVR110.6 million by June 4, compared with a surplus of just over MVR1 billion at the corresponding point in 2025. Cumulative tax collection increased to MVR19.1 billion from MVR17.3 billion, a rise of about 10 percent, led by business taxes and the tourism goods and services tax.

Higher receipts were insufficient to offset spending growth. Subsidies reached MVR2.3 billion by early June, almost 69 percent above the corresponding period a year earlier and already around 80 percent of the annual allocation. The public sector wage bill increased by MVR477.4 million to MVR5.3 billion.

Forecasts differ on the size of the resulting budget gap. The World Bank projected a 2026 fiscal deficit of 10.9 percent of GDP, while Fitch projected 14.6 percent. Both exceed the government's 7.1 percent target. The World Bank estimate is 3.8 percentage points above that target; Fitch's is 7.5 points above it.

The institutions also differed on the current account deficit, which measures the country's balance of trade, income and transfers with the rest of the world. The World Bank projected 20.6 percent of GDP, up from 7.5 percent in 2025, while Fitch projected 17.5 percent. These are separate forecasts, not a single agreed estimate.

Subsidy reform must protect vulnerable households

The June IMF recommendations called for credible fiscal reform that restrains spending and strengthens revenue. Staff urged the authorities to build on efforts to streamline capital spending in 2025, review subsidy schemes and improve control over state enterprises.

The subsidy recommendation was more specific than a general spending cut. Staff proposed targeting vulnerable groups through proxy means testing, supported by better administrative capacity and delivery systems. Proxy means testing uses observable household circumstances to estimate need when reliable income records are difficult to obtain.

With global oil prices rising, the purpose is to reduce public costs while directing assistance toward households least able to absorb higher prices. The statement did not specify new eligibility thresholds, benefit amounts or a timetable for changing individual schemes.

IMF staff also identified energy efficiency and a transition to renewable energy as ways to reduce future subsidy costs. Stronger oversight of state enterprises was another priority because their financial difficulties and governance weaknesses can create additional demands on the budget. Better public financial management would help make spending commitments and their costs more transparent.

Banks, government borrowing and monetary policy

The IMF described the financial system as stable during the June mission, but warned about the elevated connection between banks and the sovereign. This connection arises when banks hold substantial government debt, making their financial position more exposed to government repayment difficulties.

Domestic bonds and treasury bills reportedly accounted for nearly 90 percent of new government financing in 2025, as expensive external borrowing pushed the authorities toward lenders at home. Much of that domestic debt was itself denominated in dollars. Borrowing domestically therefore does not necessarily remove foreign currency repayment risk.

Heavy bank exposure to government debt can also limit funds available for productive private investment. The IMF warned that the connection, combined with other economic and policy conditions, could create risks for financial stability and constrain growth.

The Maldives Monetary Authority had resumed open market operations, a step welcomed by IMF staff. These operations allow a central bank to influence money available in the banking system through market transactions. Staff recommended continuing them to tighten monetary conditions, alongside stronger banking supervision and crisis management arrangements.

Recommended legal changes covered central bank and financial sector laws and regulations. The June statement did not provide a legislative schedule, and the September completion notice did not announce whether these recommendations had been adopted.

Growth plans and the publication gap

Beyond the immediate financing pressures, IMF staff called for measures to remove barriers to growth, build human capital and improve resilience to climate risks. They noted that trade and financial agreements with key bilateral partners had advanced, potentially widening sources of external demand.

The mission also recommended stronger legal institutions and governance to support private business. Incorporating climate considerations into public budgets and investment decisions could help direct spending toward resilience and improve access to concessional climate finance, which generally carries more favourable terms than commercial borrowing.

These were recommendations, not announcements of approved funding or completed projects. The June statement provided no amounts for prospective climate finance and no dates for implementing the broader reforms.

The next information milestone is publication of the staff report, should the authorities agree to its release. No publication deadline has been announced. Until then, the record shows a completed Board review and a detailed preliminary warning: timely repayment and a stable financial system have reduced immediate pressure, but weak growth, scarce dollars and large financing gaps still require policy action.

Key Points

• The IMF Executive Board completed the Maldives' 2026 Article IV consultation on September 14; the staff report has not been published.
• June IMF staff projections put 2026 growth at about 1 percent, with recovery expected in 2027.
• The US$500 million sukuk repayment eased immediate default pressure but coincided with a sharp reduction in reserves.
• Fitch estimated external debt service at US$535 million for the second half of 2026.
• World Bank and Fitch forecasts both put the fiscal deficit above the government's 7.1 percent of GDP target.
• IMF priorities included targeted subsidies, stronger control of state enterprises, continued monetary tightening and closer banking supervision.
• No date has been announced for publication of the detailed staff report.