The government has submitted an amendment to the Fiscal Responsibility Act to scrap borrowing limits from the Maldives Monetary Authority (MMA).
The amendment was proposed to remove all limitations on government borrowing imposed by article 32(a) of the law and authorise the central bank’s board of directors to make decisions concerning lending in consultation with the Minister of Finance and Treasury.
The act stipulates that money borrowed from the MMA must be repaid within 91 days at an interest rate that is not lower than the market rate at the time.
The article also sets limits on the amount that can be borrowed, which must be no more than one percent of average government revenue (based on the previous three years).
The amendment was proposed on behalf of the government by Maavashu MP Abdul Azeez Jamal Abubakr and its first reading took place at yesterday’s sitting of the People’s Majlis.
According to the government, the purpose of the amendment is to ensure that funds for providing basic services can be accessed as required.
Another amendment was proposed to article 39(b), which allows the president to defer enforcement of some provisions of the fiscal responsibility law by 12 months if they require establishment of certain procedures or mechanism.
The second amendment proposed by Kinbidhoo MP Moosa Zameer seeks to increase the period for delaying enforcement from 12 to 36 months.
The stated purpose of the amendment was providing more time for the government to prepare for implementation and prevent challenges it may pose to the functioning of the government “as the state’s cash flow is very tight at the moment.”
With the enactment of the Fiscal Responsibility Act on May 6, 2013, President Dr Mohamed Waheed issued an executive decree to delay the enforcement of four articles.
These were article 10 on the publication of an annual fiscal strategy statement, article 28 on activities of local councils, article 32 which limits government borrowing from MMA, and article 34 which requires maintenance of government deficit at a certain level.
Prior to the resignation of former Governor Dr. Fazeel Najeeb’s in January, MMA criticised the government on several occasions over excessive spending and dependence on borrowing, particularly as a means to finance budget deficit.
In its professional opinion on the 2014 national budget, which was submitted to the People’s Majlis in December 2013, the MMA noted that overdrawing from the state’s Public Bank Account (PBA) to accommodate government spending significantly increased the amount of rufiyaa in circulation and reduced the foreign exchange reserves to alarming levels.
The PBA overdraft facility was misused by the government, according to the MMA, using it to finance long term budget deficit even though it was intended to manage cash flow within a short period of time.
The amount overdrawn from PBA started increasing in October 2012 and reached MVR2.5 billion by 9 December 2013. At the time MMA noted the government had unpaid due treasury bills, treasury bonds and PBA overdrawing debts worth MVR945 million.
Newly-appointed Governor Dr Azeema Adam meanwhile gave assurances of the central bank’s assistance to the government to finance the budget deficit through a market mechanism.