Statistics from the Finance Ministry reveal that the state's securities debt is once again approaching MVR 100 billion, less than six months after a significant reduction followed the repayment of a USD 500 million (MVR 7.7 billion) sukuk.
According to the Ministry's latest Weekly Fiscal Development report, total debt from T-bills and bonds sold to both domestic and international markets stood at MVR 99.3 billion by the end of last month. This figure is almost the same as the MVR 99.6 billion recorded at the beginning of the year.
The increase during this period has been driven entirely by domestic debt. By the end of last month, the government had raised MVR 7.3 billion from the domestic market—an excess of MVR 2.2 billion over the MVR 5.1 billion initially projected in this year's approved budget.
As domestic borrowing to cover government expenditure surges, the administration has relied almost exclusively on financing from local banks, the Pension Fund, and state-owned enterprises (SOEs) such as STO and MACL.
Calculations based on the latest Debt Bulletin from the Finance Ministry show that domestic debt has increased by MVR 23.9 billion over the past two and a half years of this administration. Commercial banks account for the largest share of this borrowing.
While MVR 15 billion was sourced from banks, MVR 5.4 billion was borrowed from non-bank financial institutions and MVR 3.6 billion from state-owned enterprises.
The heavy reliance on the domestic market stems from the government's consistent inability to secure budget financing as planned. The biggest challenge remains the failure to obtain foreign financing according to projections.
In the budgets for the past two years, as well as the current year, the government planned to raise billions through the sale of bonds and sukuks abroad, alongside direct budget support. However, with foreign funding falling short of targets in each of these years, the bulk of budget financing has had to be shifted to the domestic market.
Official figures show that MVR 8.6 billion was raised domestically last year, with another MVR 8.9 billion in 2024. Including the amounts borrowed so far this year, domestic debt has grown by MVR 25 billion during the current term.
Economic experts warn that over-reliance on the domestic market to cover expenditures is a dangerous trend. Reports from international financial institutions have also noted that this has intertwined the financial health of the banking sector with that of the state, creating a "sovereign-bank nexus."
The risk of such a nexus is that any shock to state revenue could lead to significant losses for the banks. Furthermore, should the banking sector require a bailout or emergency support, the state would lack the financial capacity to intervene.
