Muizzu's first daunting task: Raise $200m or face reserve shortfall
After taking office next Friday, Muizzu will have to start working to recover the money.
By
Ahmed Naif
One of the questions repeatedly asked by members of the Budget Committee on Thursday, which summoned Finance Minister Ibrahim Ameer for information on the supplementary budget, was whether there was any guarantee that the MVR 4.2 billion (USD 271.9 million) needed to cover expenditures for the remainder of this year would be available.
The minister had little o say in answer to those questions. Ameer must leave the responsibility of recovering the money to the new President Dr Mohammed Muizzu.
To the members’ questions, Ameer said he had discussed with various parties to get the money during his tenure as minister. The green signal has been given, he said.
Of the USD 271.9 million due by December, only India's line of credit, or MVR 1.1 billion for projects, is guaranteed to be received, he said. The rest of the money is still to be raised from various foreign sources.
According to Minister Ameer, there is no option but to raise the money from abroad.
"We have to get this money [USD 200 million] from abroad. Otherwise, we cannot move forward without improving the reserves. Otherwise, the reserves will be severely affected," he said.
The committee has now approved the supplementary budget and plans to borrow money to cover the expenditure.
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Foreign sources - MVR 4.2 billion
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Local sources - MVR 1.9 billion
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Total recovery - MVR 6.1 billion
Why USD 200 million?
The biggest concern in the MMA's recommendation for the supplementary budget is that the USD 200 million needed for additional expenditure for the rest of this year may not be available from abroad. The recommendation urged the parliament not to approve supplementary budgets without guaranteeing that the money would be received.
The MMA is concerned about the supplementary budget because of the economic risks if it does not happen. The MMA detailed the risks in their recommendation:
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If the planned external funds are not received, the country’s reserves may not be maintained adequately
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If money cannot be obtained from abroad, public bank accounts have to be overdrawn, money may have to be printed; Similarly, MVR 4.35 billion has been printed and converted into long-term payments this year. The MMA is against doing that
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Even if the money was attained from inside the country, it will be very difficult to get money; The reason is that private banks are buying less government bonds this year
Of all these concerns, the biggest concern is that the reserves will have to be used up and eventually the reserves will run out. If so, it is a very bad threat economically. It will also be a challenge for the new government.
The concern was expressed by Muizzu's Economic Minister Mohammed Saeed.
He said there is a high probability of a reserve minus if USD 271 million is not raised from abroad for the 45 days remaining of this year. The talks with the MMA during the initial phase show that the agency had warned earlier that things could go this far, he said.
“That is not debatable. [Money from abroad] must be obtained. Otherwise, we are headed to a negative reserve" he said.
Saeed's claims are also supported by MMA statistics. The figures show that:
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The MMA's official reserves fell to USD 552 million at the end of last month
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Of that, the usable reserves stood at USD 78 million; This is a record low
According to customs statistics, Maldives needs at least USD 66 million a month to import essential commodities such as essential foodstuffs, oil and medicines. The current reserve is enough to import basic goods for six months.
There are no dollars in reserve even close to the amount needed for expenses for the rest of this year. If additional dollars are not available for budget support and the reserves are used to cover expenditures, the reserves will run out.
When the minister said he had negotiated with some countries and international financial institutions for USD 200 million for budgetary support, Saeed asked where it was from.
To the question, Ameer said he had received the green signal from the Asian Infrastructure Investment Bank (AIIB) to provide the funds. He said he had also held discussions with some Middle Eastern countries.
Saeed said he had recently held discussions with the bank and that the bank had decided to provide financial assistance to Maldives not in the form of budget support. Therefore, the money is not available for that expenditure, he said. Saeed also questioned whether the talks with the Middle Eastern countries were held at the level of their leaders.
What was said in the Budget Committee on Thursday confirms that external funds will be needed to cover the remaining days of the year. Otherwise, the reserve will go to a dangerous point. After taking office next Friday, Muizzu will have to start working to recover the money.
He is likely to visit Saudi Arabia, the UAE and Turkey as soon as possible after taking the oath.
