The government has proposed issuing a new $175 million international bond or sukuk next year to ease foreign debt obligations, despite failing to execute similar market entries planned in the budgets of the past two years and the current fiscal year.
While budget documents indicate the intent to sell a sukuk, details remain unclear. Furthermore, Finance Minister Hassan Zareer did not highlight this plan during his budget statement delivered to Parliament.
The budget framework reveals a medium-term strategy to continue seeking financing through bonds or sukuks over the next three years. The government plans to raise $200 million (MVR 3 billion) in 2028 and $250 million (MVR 3.8 billion) in 2029. This brings the total targeted borrowing from international markets to $675 million over the three-year period.
The government had also planned to raise $450 million (MVR 6.9 billion) from international markets in this year's budget. However, as in previous years, these funds were not secured. The failure to execute this plan forced the government to draw heavily from the Sovereign Development Fund (SDF) to settle a sukuk payment due in April this year.
To cover the $524.7 million required for the principal and profit of that sukuk, $350 million was withdrawn from the SDF, while the remaining $175 million was sourced from the state’s official reserves.
Following the sukuk settlement, official reserves dropped from $1.3 billion to $718 million, while usable reserves fell to $148 million. Despite this decline, the timely settlement of the debt has theoretically paved the way for further borrowing.
This is because the successful repayment prevented a further downgrade of the Maldives' credit rating. Economic experts previously noted that the government’s inability to access the bond market as planned was due to poor credit ratings. However, with the Maldives' ratings still sitting at "junk" levels, securing new debt without high interest rates remains a significant challenge.
Including the funds targeted from the bond market, the government aims to secure a total of MVR 6.9 billion from foreign sources for next year's budget. Additionally, while MVR 2.36 billion is slated to be deposited into the SDF next year, the budget also accounts for the withdrawal of an equivalent amount from the fund.
