Government borrows US$52m for ‘short-term financing’

The government has borrowed MVR800 million (US$51.8 million) from the Bank of Maldives to settle unpaid bills.

The finance ministry told the parliament’s public accounts committee Tuesday that the government owed MVR627 million (US$41 million) to various parties at the end of 2016 along with MVR377 million (US$24 million) owed as of March 8.

“Therefore, this loan was taken for the purpose of making the abovementioned payments and to manage the state’s cash flow in the short-term,” the finance ministry informed the oversight committee in a letter seen by the Maldives Independent.

The loan was unforeseen in the 2017 budget and obtained despite record levels of tax revenue.

Finance Minister Ahmed Munawar signed the loan agreement on March 28 following approval from the president’s office on March 12. With an interest rate of six percent payable monthly and a one-year maturity, the finance ministry estimates that interest payments would amount to MVR48 million (US$3 million).

Majority Leader Ahmed Nihan, chair of the public accounts committee, shared documents sent by the finance ministry with committee members Tuesday morning.

Nihan, also the parliamentary group leader of the ruling Progressive Party of Maldives, noted that the ministry was mandated by the public finance law to provide information about loans.

“So if all members just say that we’ve gotten this and end it at that, in sum our work would be complete,” he said.

But Minority Leader Ibrahim Mohamed Solih proposed seeking assurances from the ministry that the money will be used to settle bills and outstanding payments.

MP Ahmed ‘ADK’ Nashid from the main opposition Maldivian Democratic Party observed that according to the finance ministry’s letter the government plans to repay the loan from the sale of sovereign bonds.

Some US$200 million was raised earlier this month from the country’s debut sovereign bond issue in the international finance market.

“This [BML loan] will have an interest and on top of that, the sovereign bond will also have an interest [of seven percent]. So it will become a double interest,” Nashid said.

Speaking at Wednesday’s sitting of parliament, MDP MP Abdul Ghafoor Moosa meanwhile alleged that the government was forced to borrow from BML to pay civil service salaries.

“We made a budget of MVR27 billion (US$1.7 billion), determined sources of income and passed it,” he said.

“Where is that money? It didn’t say anything about taking an MVR800 million loan from Bank of Maldives when the budget was submitted here.”

The Maldives Inland Revenue Authority collected a record MVR2.2 billion (US$142 million) in January. Some MVR6.8 billion (US$446 million) of a projected MVR14.1 billion (US$914 million) in tax revenue for 2017 has been collected as of May.

Ghafoor’s criticism prompted PPM MP Ibrahim Didi to raise a point of order and dispute the claim about the inability to pay civil servants. The government took the BML loan to settle debts with local private companies, he insisted.

During Tuesday’s public accounts committee meeting, opposition lawmakers also expressed concern with public debt rising above the legal limit of 60 percent of GDP set by the fiscal responsibility law.

The International Monetary Fund warned last year that the Maldives is facing “a high risk of external debt distress” due to financing large-scale infrastructure projects entirely with foreign loans.

The IMF and the World Bank predicts debt to reach 121 percent of GDP by 2020. But the government says its flagship projects such as the China-Maldives Friendship Bridge and airport expansion are “necessary investments” with longer-term payoffs.

MP Nashid suggested asking the finance minister to explain the government’s strategy for managing income and spending as laid out in the 2017 budget.

But MP Riyaz Rasheed, the deputy leader of the PPM’s parliamentary group, urged other committee members to wrap up discussion of the BML loan without “going into a big debate”.

“So let’s just ask for the information that we need and finish this. I’m seeing this starting to get political,” he added.

Nihan ended discussion of the agenda item after announcing that the committee will ask the finance ministry to address concerns raised by opposition members.

A legal opinion provided by Attorney General Mohamed Anil about the BML loan transaction was also shared with the committee. The loan was obtained “for the purpose of providing short-term financing to the government” after the necessary authorisation, it stated.

The MDP’s economic committee meanwhile contends that the government is selling sovereign bonds to shore up depleted foreign currency reserves.

Earlier this month, Ibrahim Ameer told reporters that the usable reserve position of US$220 million is misleading because US$100 million is owed to India’s central bank and US$75 million to the State Bank of India.

The US$100 million was secured in a currency swap deal after the central bank bought a US$140 million bond from the state-owned airport company to help compensate GMR. The Indian infrastructure giant was paid US$271 million in damages for the cancellation of its contract to develop the main international airport.

“When you deduct this, our own reserve is US$50 million. What’s in our reserve is money taken on loan. The RBI agreement will be over at the end of June and SBI will not roll over or renew any further,” the opposition economist said.

The public finance law was meanwhile changed by the PPM-dominated parliament in December 2014 to scrap provisions that required parliamentary approval for obtaining loans, providing sovereign guarantees, and leasing or selling state assets.

In December 2013, the auditor general found that the administration of former President Dr Mohamed Waheed had violated the public finance law in securing a loan worth MVR300 million (US$ 19.45 million) from BML  for budget support.

The Bank of Maldives meanwhile decided in March to pay out a record MVR107.6 million (US$6.9 million) as dividends for 2016. The national bank earned an after-tax profit of MVR1.02 billion (US$66 million), up 61 percent from the previous year.

As the majority shareholder, the government will be paid MVR62.5 million (US$4 million) as dividends.