Chief Government Spokesperson Mohamed Hussain Shareef (Mundhu) said on Saturday that domestic debt will decrease once the government's ongoing "reform" efforts are completed.
Speaking on the "Presser with the Spox" podcast to clarify the government's stance on domestic debt, Shareef noted that while the administration accepts the advice of international financial institutions, implementing it remains challenging. He explained that the government must balance fiscal management with ensuring the continuous operation of the economy.
Shareef highlighted that the government prioritized external debt over domestic debt. This decision was made because the consequences of defaulting on foreign debt would be far more severe, he said.
Shareef described domestic debt as a type of liability that can be easily addressed through internal government reforms. He further noted that there are certain essential functions the government cannot halt, regardless of recommendations from financial institutions or other parties.
"For instance, we must pay salaries to all state employees. We must import fuel and settle those bills. We also have to meet payment obligations arising from expenditures within the Aasandha [universal healthcare] system," Shareef said.
While defending the government’s borrowing, Shareef admitted that the administration acknowledges the domestic debt is high. However, he argued that it would have been difficult to move forward if the government had attempted to reduce domestic debt while servicing foreign debt obligations.
"We can manage domestic debt by reducing our current expenses. These expenses will decrease substantially once the ongoing reform work is finalized, as our relative spending will be lower by then," Shareef added.
Despite Shareef’s remarks, financial experts and international institutions maintain that the surge in domestic debt is due to the government’s failure to secure planned budget financing, delays in implementing cost-cutting measures, and the lack of progress in executing the administration's fiscal reform agenda.
The reform efforts the government claims to have initiated were launched following setbacks in council elections and a referendum. However, the government has yet to disclose details of these reforms. To date, the only visible reform measure has been the dismissal of employees from state-owned enterprises.
According to the latest statistics released by the Finance Ministry, domestic debt stood at MVR 95.6 billion at the beginning of this month. Records indicate that the current administration has borrowed MVR 27.8 billion from the domestic market.
