MMA recommends write off of govt debt to sovereign fund
If that happens, the value of the sovereign fund will decline by 7-8%.
The Sovereign Development Fund (SDF) is 10% of Maldives' domestic debt and the debt should be written off, the Maldives Monetary Authority (MMA) said on Monday.
According to Senior Research Analyst Mohamed Imthinan Saudullah, who is part of the central team that appeared before the parliament committee that is reviewing the proposed 2024 budget:
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The total value of the sovereign fund as of September was $486.2 million
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The fund had very little in liquid assets; that is MVR 89.6 million
“76% of the fund has been invested in domestic instruments… We notice that out of the 60% total domestic debt, 10% is debt to the sovereign fund,” Imthinan said, stressing the importance of doing so to reduce domestic debt.
If that happens, Imtinan said the value of the sovereign fund will decline by 7-8%. However, Imthinan stressed that it is something that needs to be done.
“Given the current state, our advice is to write off that amount,” Imthinan said.
He expressed concern over the government's plan to increase the liquid assets of the fund. He said:
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The government plans to increase the liquid assets of the fund by reselling the debt instruments to a secondary market
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However, there is currently little interest in purchasing such instruments in the global financial market and it is not expected that the government will be able to raise funds in a secondary market as planned
Imthinan also mentioned some of the current recommendations of the MMA on strengthening the sovereign fund. He brought to the attention of the parliamentary committee:
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Determine the maximum level of investment in financial instruments by the sovereign fund
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If the Public Bank Account (PBA) is overdrawn, use the money to surplus the PBA balance without depositing it in the sovereign fund
