Audit finds sovereign fund 'misused' until 2023 end

The Auditor General’s report on the Sovereign Development Fund (SDF), established during President Abdulla Yameen’s administration to support foreign debt repayments, states that the fund is no longer in a condition to serve its intended purpose.

According to the audit, most of the fund has been diverted towards domestic government expenses, primarily through the purchase of treasury bills (T-bills) and loans to state-owned enterprises. During the COVID-19 pandemic, US dollar holdings were converted into Maldivian rufiyaa.

As of the end of 2023, the total value of the fund stood at MVR 7.5 billion, with MVR 7.2 billion, or 96%, already invested. The fund had MVR 282 million in immediately available cash.

The audit noted that 88% of the SDF’s assets were invested in government T-bills. Other investments included:

Although the government intends to utilise the fund for debt repayments in 2025 and 2026, the audit warned that the fund can only be accessed once returns on these investments, particularly T-bills, are recovered — a process that may prove difficult.

Projected foreign debt repayments over the next three years are:

The audit found that the fund issued MVR 206.1 million in loans to Housing Development Corporation (HDC) in 2018 and 2019. The amount remains unpaid. Further loans included:

The report questioned the legality and risk associated with issuing loans from the fund, which were seen as inconsistent with its objectives.

The audit highlighted that in December 2019, all US dollar assets in the SDF were converted into Maldivian rufiyaa. While 94% of the fund’s holdings were in US dollars at the end of 2018, the fund held no dollars in 2020. By the end of 2023, some funds had been converted back, with US dollar holdings totalling USD 170.25 million — or 35% of the fund.

The report noted this shift away from foreign currency diminished the fund’s capacity to support foreign debt repayment obligations.

The audit also raised concerns about the SDF’s governance structure. It found that there are no written or publicly accessible policies on fund management and investment. The absence of a legal framework and international best practices in the fund’s operation has left room for potential mismanagement, the report stated.

The Auditor General recommended that a comprehensive legal framework be introduced to regulate the fund and ensure it fulfils its stated objectives.