Yameen dismisses concern over debt as Maldives turns to global bond markets

Yameen dismisses concern over debt as Maldives turns to global bond markets
January 23 18:51 2017

President Abdulla Yameen has dismissed concern over risks posed to the Maldivian economy by growing public debt as the country prepares for its first foray into global bond market with the hope of raising US$200million, and the central bank announced a treasury bill sale to raise MVR1 billion (US$65 million).

In speeches delivered Monday afternoon on the islands of Dhiggaru and Mulaku in Meemu atoll, Yameen said external debt was necessary for an unprecedented infrastructure scale-up which he said would ensure long overdue economic development.

“Those who shiver over the high debt we have to shoulder [for development projects] can keep shivering. We are going forward with this debt because we do not shiver,” he said after inaugurating a clean water project in Dhiggaru.

“You can only go forward with the resolve and spirit to do so. If you shiver over this without the spirit of service, I don’t think [opposition leaders] qualify to be the captain of a boat travelling at maximum [speed] with today’s youth.”

Speaking on the island of Mulaku, Yameen said the purpose of taking risks with the accumulating debt is “to bequeath a bigger benefit for future generations,” referring to plans to develop the rebranded Velana International Airport with US$800 million worth of foreign loans to cater to more than seven million passengers by 2018.

“If we leave the airport to be developed within our means, it could remain the same for another 30 years,” he said.

The government is confident of repaying the loans in less than 10 years, he added, by which time the state would have the means to provide all necessary public services.

The president’s remarks come after the World Bank warned in its Global Economic Prospects report last week that “rising debt levels” and “persistent political tensions” are among the risks facing the Maldivian economy.

Large-scale borrowing to fund infrastructure projects such as the China-Maldives Friendship bridge, the development of a new urban centre in Hulhumalé, and the expansion of the international airport “has led to elevated public debt,” the World Bank observed, echoing warnings from the International Monetary Fund last year that the Maldives is now facing “a high risk of external debt distress”.

Economic growth increased from 1.9percent in 2015 to 3.5percent, the report said.

Presenting the 2017 budget to the parliament, Finance Minister Ahmed Munawar had noted that public debt is estimated to reach MVR36.9 billion or 64 percent of GDP at the end of 2016.

The IMF warned that debt could reach 121 percent of GDP in 2020.

Public debt

But during consultations with the IMF last year, the government said it expects “substantial growth gains from infrastructure scale-up—with the payoffs enabling debt reduction in the medium term.”

The government was “optimistic that the increase in external debt is manageable and that non-tax revenues, expenditure restraint and a boost to growth will be sufficient to repay infrastructure project loans.”

Munawar told MPs in November that the government has also planned “major changes” to deficit financing in 2017, such as converting short-term debt to long-term and securing funds for development projects from the international financial market.

With increasing expenditure outstripping income in recent years, the government has been plugging revenue shortfalls through the sale of treasury bills and bonds. But the bulk of deficit financing was raised from domestic sources such as commercial banks, the pension fund, and private businesses.

Last week, the Maldives Monetary Authority announced the sale of treasury bills worth MVR1 billion (US$65 million) to raise funds to manage the government’s cash flow.

According to the central bank, the total stock of government securities stood at MVR22.9 billion (US$1.5 billion) at the end of November.

Last month, the finance ministry announcedd plans to sell US$200 million worth of sovereign bonds after the opposition accused Yameen of saddling future generations with debt.

The Maldives’ first ever international sovereign bond issuance would help raise finances for infrastructure projects, the ministry said.

According to pro-government outlet Avas, the government has decided to hire the Deutsche Bank as the lead manager or bookrunner to issue the US dollar-denominated bonds, which will be listed in the stock market before the end of March.

The global credit rating agency Moody’s was meanwhile enlisted earlier this year to assign the Maldives’ first sovereign credit rating in order to prepare for the bond sale, the finance ministry said.

The Maldives was assigned a local and foreign currency issuer rating of B2, which is considered “speculative and subject to high credit risk.”

The government’s debt is “significantly higher than peers” and is projected to rise, Moody’s said, which “coupled with a sizeable proportion of foreign-currency denominated borrowing that subjects debt servicing to exchange rate movements, act as fiscal constraints.”