The World Bank has acknowledged the impact of recent fiscal reforms undertaken by the Maldivian government, noting that measures aimed at boosting revenue and controlling expenditure have significantly improved the country’s financial outlook.
In its latest Maldives Development Update 2026, released on June 11, the World Bank stated that the Maldives succeeded in substantially narrowing its fiscal deficit in 2025 despite ongoing external debt pressures and broader economic challenges.
According to the report, the country’s budget deficit fell to MVR 5.1 billion in 2025, equivalent to 4.3 percent of Gross Domestic Product (GDP). This marks a considerable improvement from 2024, when the fiscal deficit stood at MVR 10.8 billion, or 9.9 percent of GDP.
The World Bank attributed the improvement largely to government policies aimed at increasing state revenues while reducing public expenditure.
Government expenditure declined to 37.1 percent of GDP in 2025, representing an 8.3 percent reduction compared to the previous year. Meanwhile, state revenues rose to 33 percent of GDP, reflecting an increase of 12 percent over 2024 levels.
The report also highlighted progress in the management of public debt, noting that the government had successfully met several major debt obligations, including sukuk repayments, outstanding dues owed to the State Bank of India (SBI), and currency swap commitments.
As a result, the World Bank stated that immediate concerns regarding a potential sovereign default had been mitigated.
The institution further projected that the Maldives’ debt servicing burden for 2027 and 2028 could decline by nearly USD 450 million.
The country’s external position also showed signs of improvement. According to the report, the current account deficit narrowed sharply to USD 578 million in 2025, compared to USD 1.5 billion recorded in 2024.
Official foreign currency reserves also strengthened during the period. The World Bank noted that gross official reserves increased to USD 1.3 billion by the end of March 2026. Following the settlement of major debt obligations in April, reserves stood at USD 717.9 million at the end of May.
The report identified several policy measures as key contributors to the improvement in reserve levels, including mandatory foreign exchange conversion regulations, changes allowing greater collection of taxes in US dollars, and the currency swap arrangement secured from the Reserve Bank of India in late 2024.
The Maldives has faced mounting fiscal and debt-related challenges in recent years, driven by high public spending, rising external borrowing and significant infrastructure investments.
However, international financial institutions have recently acknowledged improvements in the country’s financial management. Earlier this month, the International Monetary Fund (IMF) also recognized the Maldives’ progress in servicing debt obligations and addressing external vulnerabilities.
Despite the positive developments, the World Bank cautioned that continued fiscal discipline and structural reforms will remain essential to maintaining macroeconomic stability and ensuring long-term debt sustainability.
