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. 

Note

Data upto 2023 are actuals. 2024 data is based on IMF projections.
 

Sources

Maldives Monetary Authority (MMA). "Official Website." Maldives Monetary Authority, www.mma.gov.mv/#/.

Central Bank of Sri Lanka. "Weekly Indicators." Central Bank of Sri Lanka, www.cbsl.gov.lk/en/statistics/economic-indicators/weekly-indicators.

Research by: Emaad Rizwan and Anushan Kapilan