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The Maldives’ primary deficit still remains high
The Maldives’ primary deficit has increased since 2020, raising concerns about the country’s debt sustainability. This contrasts with Sri Lanka, where the primary deficit also increased but recovered, following its suspension of debt repayments, along with a fiscal consolidation program. A primary deficit—or negative primary balance—occurs when government revenue is insufficient to cover non-interest expenditure. All deficits are funded through borrowing, which can contribute to long-term fiscal risks. Before 2020, the Maldives’ primary balance was already in deficit, ranging from 1%–5%. In 2020, it climbed above 20% due to the sharp decline in revenue and economic activity caused by the COVID-19 lockdowns. Although the tourism-dependent economy has begun to recover, the primary deficit remains high—around 10%—as spending continues to outpace revenue. Sri Lanka also faced an increased primary deficit in 2020 and 2021, driven partly by the pandemic but largely due to misguided fiscal policies. This led to the country’s worst debt crisis and a default on external debt. Sri Lanka has since shown signs of recovery, achieving a positive primary surplus in 2023 and 2024 with support from an IMF program focused on fiscal consolidation and revenue enhancement. Moving forward, it is important for the Maldives to identify and address its fiscal challenges, such as the higher primary deficit, promptly, to avoid a crisis similar to Sri Lanka. Previous analysis has highlighted that the country’s reserves are on a declining trajectory similar to Sri Lanka and could be depleted within the next two years unless decisive corrective measures are implemented.
Featured Insight
The Maldives’ primary deficit still remains high
The Maldives’ primary deficit has increased since 2020, raising concerns about the country’s debt sustainability. This contrasts with Sri Lanka, where the primary deficit also increased but recovered, following its suspension of debt repayments, along with a fiscal consolidation program. A primary deficit—or negative primary balance—occurs when government revenue is insufficient to cover non-interest expenditure. All deficits are funded through borrowing, which can contribute to long-term fiscal risks. Before 2020, the Maldives’ primary balance was already in deficit, ranging from 1%–5%. In 2020, it climbed above 20% due to the sharp decline in revenue and economic activity caused by the COVID-19 lockdowns. Although the tourism-dependent economy has begun to recover, the primary deficit remains high—around 10%—as spending continues to outpace revenue. Sri Lanka also faced an increased primary deficit in 2020 and 2021, driven partly by the pandemic but largely due to misguided fiscal policies. This led to the country’s worst debt crisis and a default on external debt. Sri Lanka has since shown signs of recovery, achieving a positive primary surplus in 2023 and 2024 with support from an IMF program focused on fiscal consolidation and revenue enhancement. Moving forward, it is important for the Maldives to identify and address its fiscal challenges, such as the higher primary deficit, promptly, to avoid a crisis similar to Sri Lanka. Previous analysis has highlighted that the country’s reserves are on a declining trajectory similar to Sri Lanka and could be depleted within the next two years unless decisive corrective measures are implemented.
Featured Insight
The Maldives’ primary deficit still remains high
The Maldives’ primary deficit has increased since 2020, raising concerns about the country’s debt sustainability. This contrasts with Sri Lanka, where the primary deficit also increased but recovered, following its suspension of debt repayments, along with a fiscal consolidation program. A primary deficit—or negative primary balance—occurs when government revenue is insufficient to cover non-interest expenditure. All deficits are funded through borrowing, which can contribute to long-term fiscal risks. Before 2020, the Maldives’ primary balance was already in deficit, ranging from 1%–5%. In 2020, it climbed above 20% due to the sharp decline in revenue and economic activity caused by the COVID-19 lockdowns. Although the tourism-dependent economy has begun to recover, the primary deficit remains high—around 10%—as spending continues to outpace revenue. Sri Lanka also faced an increased primary deficit in 2020 and 2021, driven partly by the pandemic but largely due to misguided fiscal policies. This led to the country’s worst debt crisis and a default on external debt. Sri Lanka has since shown signs of recovery, achieving a positive primary surplus in 2023 and 2024 with support from an IMF program focused on fiscal consolidation and revenue enhancement. Moving forward, it is important for the Maldives to identify and address its fiscal challenges, such as the higher primary deficit, promptly, to avoid a crisis similar to Sri Lanka. Previous analysis has highlighted that the country’s reserves are on a declining trajectory similar to Sri Lanka and could be depleted within the next two years unless decisive corrective measures are implemented.
Featured Insight
The Maldives’ primary deficit still remains high
The Maldives’ primary deficit has increased since 2020, raising concerns about the country’s debt sustainability. This contrasts with Sri Lanka, where the primary deficit also increased but recovered, following its suspension of debt repayments, along with a fiscal consolidation program. A primary deficit—or negative primary balance—occurs when government revenue is insufficient to cover non-interest expenditure. All deficits are funded through borrowing, which can contribute to long-term fiscal risks. Before 2020, the Maldives’ primary balance was already in deficit, ranging from 1%–5%. In 2020, it climbed above 20% due to the sharp decline in revenue and economic activity caused by the COVID-19 lockdowns. Although the tourism-dependent economy has begun to recover, the primary deficit remains high—around 10%—as spending continues to outpace revenue. Sri Lanka also faced an increased primary deficit in 2020 and 2021, driven partly by the pandemic but largely due to misguided fiscal policies. This led to the country’s worst debt crisis and a default on external debt. Sri Lanka has since shown signs of recovery, achieving a positive primary surplus in 2023 and 2024 with support from an IMF program focused on fiscal consolidation and revenue enhancement. Moving forward, it is important for the Maldives to identify and address its fiscal challenges, such as the higher primary deficit, promptly, to avoid a crisis similar to Sri Lanka. Previous analysis has highlighted that the country’s reserves are on a declining trajectory similar to Sri Lanka and could be depleted within the next two years unless decisive corrective measures are implemented.
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Summary of Government Fiscal Operations (1950-2024)
Provides yearly fiscal data on revenue, expenditure, deficits, financing in LKR millions and as a share of GDP. Source: Table 6, Special Statistical Appendix, CBSL Annual Report (Various Years)
Cross Country Comparison of Overall Balance
Provides the overall fiscal balance as a share of GDP for most countries in the world. Source: World Economic Outlook Database, October 2020, IMF
Cross Country Comparison of Primary Balance
Provides the primary balance as a share of GDP for most countries in the world. Source: World Economic Outlook Database, October 2020, IMF
Financing of the Government Net Cash Deficit (Monthly)
Provides monthly breakdown of deficit financing in LKR millions from Jan 2016 to November 2020. The presentation of this data was discontinued after November 2020.
Government Fiscal Operations (Actual and Estimate)
Provides annual approved estimates and actual data on revenue, expenditure, deficits, financing in LKR millions and as a share of GDP. Source: Central Bank Annual Reports Table 6.1
Financing of the government net cash deficit
Provides the methods of financing of the government's net cash deficit decomposed into domestic and foreign financing in LKR millions. Source: Table 101, Statistical Appendix, CBSL Annual Report