The current government inherited significant external debt associated with the infrastructure spending boom under Mr Yameen. The servicing of this debt, much of which is owed to China, will keep the country's budget balance in deficit. With the phasing-out of Covid-19 relief on resort lease rent and favourable tourism prospects boosting the collection of the goods and services tax, the deficit is forecast to narrow to 7% of GDP by 2023, from an estimated 14.1% of GDP in 2021. This is still slightly wider than the pre-pandemic average, as elevated global prices will increase the cost of the government's extensive subsidy programme, which covers utilities and food prices. We do not expect significant cuts in subsidies in 2022-23.

Grants and loans received by the Maldivian government from multilateral donors and other countries, especially India, will cover part of the fiscal shortfall in 2022-23. These will push up further the country's already high public debt/GDP ratio, which the national authorities estimate to have risen to the equivalent of 115% of GDP in 2020.