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. The government deficit widened sharply in 2020 on account of a steep decline in earnings, but it will narrow gradually over the forecast period. With the phasing-out of covid-19 relief on resort lease rent and with favourable tourism prospects boosting the collection of the goods and services tax, the deficit is forecast to narrow to 7.2% of GDP by 2023, from an estimated 18.1% 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. This will inflate the country's public debt levels but a strong economic recovery will temper the public debt/ GDP ratio, which the national authorities expect to fall to 104.5% of GDP in 2022, from 115.6% in 2020.