The government has asked the People’s Majlis to approve a budget support loan of Rf300million in place of an existing $65million (Rf1billion) loan which had been approved for the 2012 budget.
The Parliamentary Finance Committee today discussed whether the loan proposal needed to be approved by the full floor of the Majlis. The committee agreed that the matter ought to be passed on to the Counsel General.
“We cannot grant it as it was not in the state budget,” said Finance Committee member Abdul Ghafoor Moosa, who argued that the new loan would cost the government more money.
He explained that the new rufiyaa denominated loan would be obtained from the Bank of Maldives (BML), whereas the US dollar loan would have come from foreign banks.
Moosa claimed that the Rf300 million loan would be taken on a commercial basis, with high interest rates that would require the government to pay back Rf384million.
He said that the $65million loan, delayed due to incorrect paperwork, would have only been taxed at rates of around 2 percent.
Using these figures, the interest paid on the original loan would be Rf20million (US$1.3 million), whilst the interest on the new loan would be Rf84million (US$5.4million).
“Mop up” operation
President’s Office Spokesperson Abbas Adil Riza said that the figure given by Moosa was incorrect, adding that the government was “not going to lose money on the deal”.
Abbas explained that Abdullah Jihad and other members of the current Finance Ministry had advised the government to take out the new loan as part of a “mop up” operation.
“This will reduce the circular flow of rufiyaa in the economy,” said Abbas.
He explained that new Rufiyaa denominated loan would help to ease inflation, which government figures show had risen to an annual rate of 16.53 percent in April.
Jihad was not responding to calls at the time of press.
Former Finance Minister Ahmed Inaz said that it was the central bank’s job to conduct open market operations – the buying and selling of government debt – as part of its monetary policy. He contended that it made little sense for the government to become involved with this kind of policy.
Inaz argued that this operation would not help in mopping up liquidity – unless the government intended to do nothing with the borrowed money.
He argued that the money would be better used in the private sector, stating that the job of the government was to facilitate the running of the economy.
“If you take the fuel out of the engine, the engine will stop running,” said Inaz.
Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or Rf9.1 billion (US$590 million).