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).
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“This will reduce the circular flow of rufiyaa in the economy,” said Abbas.
Circular flow? Whether it's spherical, helical or comical, taking out a commercial loan of this magnitude from the only "local" bank in the country will have devastating ramifications to the wider economy. The bank's ability to lend to the private sector will be curtailed significantly, stifling the economy.
This is not a "mop up", but rather an "up shit creek without a paddle" operation! In other words, no one from the outside world is willing to lend any more money to the discredited and bankrupt regime, so they are left with the very expensive option of taking commercial loans from banks. There aren't many commercial banks willing to do that either. After all, the probability of default by the Maldivian government is very significant.
The hefty interest rate as well as the reduced ability of the Bank of Maldives to lend to the private sector as a result of this can only be seen as beneficial by the mentally retarded.
title does not make sense. the loan is from BML - the central bank is not BML.
also, agree with Inaz. more money used uselessly (and who trusts it will be used in the private sector for job creation?) will only increase inflation
Increase in government spending that CROWDS OUT private investment is a basic phenomenon in economics.
That means the few funds available in Maldives to grow the economy (by the private sector) is siphoned off to the Government to carry out non-productive activities like wasteful spending, international travel and political partying.
Every citizen should be aware that he/she is paying the price for this excess, in the form of high inflation, reduced economic growth and its negative ills.
But I guess this is why they put yes men in cabinet.
Well done coalition, you have destroyed the stable recovering economy of the Maldives in 100 days!!!
Abbas explained "new Rufiyaa denominated loan would help to ease inflation"??!
Yes, it might. But this would be at the cost of driving Bank of Maldives and other local businesses not controlled by Yamin/Gayoom to bankruptcy.
Coup leaders administration fail to run it's adminstration, Islamic ministry provides fund box for all Maldivians to run the ministry, government takes loan from BML to provide salaries for the government staff. Coup leaders are unable to manage budget, cox all the ministers and state ministers were uneducated, unethical thugs.
MV please do not publish the coup govt. verbatum without explaining how unrealistic this is.... They will win the "misinformation" battle hands down. This could have disasterous consequences.
this is the result of robbing by the dictator Anni and we are now suffering from his robbery.
Finance is not my field so I wish someone from the sector would answer my questions in this regard.
Isn't this the same thing we've been doing excessively since the 2004 tsunami?
Is there really significant difference between selling T-bills to commercial banks such as SBI and BML and the proposed loan the current administration wishes to take out from BML?
Doesn't the issue of T-bills also restrict the capacity of commercial banks to lend to private investors in the Maldives?
Politically speaking, isn't it necessary to do this if the public is unwilling to countenance expenditure cuts? And wasn't government borrowing from commercial banks fairly high in the Nasheed and Qayyoom regimes as well?
does this mean waheed can pay CoNI members without getting hiccups?
Do not eat our money!!!Maldives is on a nose dive with coup leaders!!!They have damaged everything for their own benefit!!
BML shoul not lend this money for any reasons.
@mode on Tue, 26th Jun 2012 11:17 AM
"this is the result of robbing by the dictator Anni and we are now suffering from his robbery."
May you and your kind suffer for a very long time...
WHERE FROM NEXT?