Councils allowed to take on state guaranteed debt for projects
Under this policy, the state will not give any guarantee to the private sector.
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By
Mariyam Umna Ismail
A policy has been formulated enabling local councils to provide guarantees in the name of the state for the implementation of projects.
In November last year, parliament amended the Public Finance Act to allow councils to borrow money for projects included in the development plan of the island or city the council represents.
On Monday, regulations were published in the government gazette for issuing guarantees in the name of the state. The objectives of formulating the policy are:
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Prescribe the mechanism for issuing guarantees in the name of the state
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Explain the procedure for applying for guarantee in the name of the state, transactions, and the procedure to be followed by the ministry in issuing guarantees
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Facilitate issuance of guarantees in the name of the state in a transparent and effective manner, keeping in view the economic situation of the country, the fiscal policies and development plans of the government
Under the policy, guarantees in the name of the state can be issued only to applicants for carrying out major projects given priority by the government and financial transactions approved by the minister. Those who will be granted this by the state, including the councils, as per the policy, are:
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Subsidiaries of state-owned enterprises
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Companies registered or re-registered to do business in the country
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The institutions of the state
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Local bodies
As per the policy, applications can be made for guarantees:
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To implement development projects in the tourism sector
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To implement social housing projects as per the conditions proposed by the government
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To implement development projects on the government's priority list
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To conduct financial transactions permitted by the finance minister
According to the policy, deduction of "variable interest" from the effective interest rate on guaranteed loans should not exceed 3.5%. However, the condition can be waived with the approval of the minister after taking into account the economic condition of the country, the market rate at which the debt was borrowed at that time, the objective to be achieved by borrowing it, and the importance of borrowing it.
Under the policy, the state will not give any guarantee to the private sector.
A guarantee will not be given for those who have not been able to reach an agreement on how to pay an accruing amount to any agency. It also states that guarantees will not be issued to those who owe any dues to any person in connection with any judicial verdict or debt.
