India reported to be releasing further credit to Maldives

Indian media has reported that the country will re-open its US$100million standby credit facility to the Maldives during the scheduled visit of newly elected President Abdulla Yameen later this month.

Whilst the President’s Office was unable to comment on the validity of the story, the New Indian Express has today reported that the Indian Government is expected to “unfreeze” the remaining part of the loan.

The Indian government agreed to grant the facility during an official state visit by Prime Minister Manmohan Singh in 2011, in order to help the Maldives meet short-term budgetary needs.

The first installment of US$30 million was granted in October 2011, with a further installment of US$20million released in time for the early 2012 visit of President Dr Mohamed Waheed to India.

A third installment of the facility however, was delayed after tensions between the Indian and Maldivian governments rose just weeks ahead of the eviction of the Indian GMR group which had been undertaking the development of Ibrahim Nasir International Airport.

Whilst the official reason given for the delay in the disbursal of the third loan installment was described as a result of the Maldives Government’s failure to complete the required paperwork, a diplomatic source at the time suggested that perceived anti-Indian rhetoric from senior political figures could yet have a bearing on future financial assistance.

The failure to secure the third credit installment was soon followed by the Indian government calling in US$100 million worth of debt.

Despite the current governing Gulhifaivaa Coalition comprising many of the parties that made up the previous administration, President Yameen has made improved relations with India a top priority after winning the November 16 run-off election.

Yameen’s PPM suggested the termination of the GMR agreement – currently the subject of a US$1.4 billion arbitration case in Singapore – was done against its advice.

In the weeks following his assumption of office, Yameen has talked openly of the potential of Indo-Maldivian relations, whilst the Indian High Commissioner to the Maldives has called the country’s bilateral ties “privileged”.

After Yameen had written to Indian PM Singh inviting him to visit the Maldives as soon as he was able, the President’s Office announced this week that Yameen would be visiting India on his first official state visit on December 22.

Budget support

Local media has today reported that a revised budget will be sent to the Majlis today, after repeated delays required to accommodate the campaign pledges of President Yameen.

Finance Minister Abdulla Jihad – reappointed to his position under the new president – had presented a MVR 16.4 billion budget for 2014 with a projected deficit of 2.5 percent of GDP to parliament on October 30.

Yameen has expressed concern over the economic vulnerability of the Maldives and pledged to reduce state expenditure by MVR 1 billion.

“State debt is sky high. The state budget’s expenses are extremely high. Hence, we have to prioritise reducing state expenditure. I will start work very soon to reduce budget expenses,” Yameen said during his inauguration speech.

The Maldives Monetary Authorities’ (MMA) most recent quarterly review noted that Government finances had “further deteriorated in the first six months of 2013” due to a sizeable shortfall in expected revenue coupled with a marked increase in recurrent expenditure.

“These developments have resulted in a widening of the budget deficit as indicated by the large financing requirement of the government during the first six months of 2013. The difficulties in accessing long-term foreign funds to finance the budget deficit resulted in the government resorting to the Maldives Monetary Authority and other domestic sources to finance its growing deficit,” the report stated.

The Yameen administration also announced earlier this week the securing of 50 million yuan (US$8.2 million) in Chinese grant aid “for the implementation of developmental projects and the advancement of public services.”

The MMA’s November figures showed that gross international reserves had fallen in monthly terms whilst showing a slight year-on-year increase. The country was reported to have enough reserves to cover 2 and a half months’ worth of imports.


State developments to recommence by 2014 after Nasheed administration’s bills settled: President Waheed

President Dr Mohamed Waheed has claimed the country will be in a position to restart development projects next year as a result of his government repaying millions of US Dollars in bills incurred through the previous administration’s borrowing.

The government announced it would be suspending state-financed development projects in April after exhausting its annual budget for recurrent expenditure (including salaries, allowances and administration costs) in the first quarter of 2013.

The current government has continued throughout the last year to try and establish loan and credit facilities with foreign nations and banks for the stated purpose of “budget support”.

However, speaking during a campaign rally in Noonu Atoll this weekend, President Waheed was quoted by Sun Online as claiming that unpaid bills arising from the government of former President Mohamed Nasheed had now been settled, with no expense expected to be carried over to the 2014 budget as result.

“We have been through a very difficult time over the past two years. We could not do several things, not because we didn’t want to do them. The previous government left the country bankrupt,” he said during the rally.

“The money necessary to buy medicine for our children, the money necessary to repair the school building, the money necessary to repair the harbour of this island – all this money had to be repaid, the unpaid bills for work done by citizens, had to be paid.”

Finance Minister Abdulla Jihad and Minister of Economic Development Ahmed Mohamed were not responding to calls today, while Minivan News was awaiting a response from President Waheed’s Senior Advisor Teresa Wells at time of press.

Former administration’s borrowings

Ahmed Nazim, head of the Parliamentary Financial Committee and MP for the government-aligned Progressive Party of Maldives (PPM), said that former President Nasheed has undertaken “short-term borrowings” during his time in office.

He added that this borrowing included “US$200 million bond” sold to the Indian government with a maturity of one year that was later extended to 24 months.

Nasheed controversially resigned from office on February 7, 2012, following a mutiny by sections of the police and military.

Following the change in government, Nazim said that the Waheed administration had paid US$100 million and “settled the full payment” after Indian authorities requested the country be reimbursed by February 2013.

“Since this was a substantial component of the total foreign debt, [foreign borrowing] has come down because of this,” he said.

Asked whether the committee believed President Waheed had managed to reduce total state borrowing and spending since coming to power, Nazim said he would respond by tomorrow ( August 18 ) after having time to study relevant statistics.

In 2012, President Waheed reportedly said he would not resort to borrowing from foreign governments in order to finance government activities.

However, the government has since sought a number of foreign loans to supplement the state budget.

Earlier this month, the state requested parliament approve a US$29.4 million loan from the Bank of Ceylon to finance the 2013 budget approved by parliament.

In July, the President’s Office confirmed discussions had been held with Saudi Arabia, seeking a long-term, low interest credit facility of US$300 million to help overcome “fiscal problems” facing the nation.

Supplementary finance plans

Finance Minister Jihad claimed back in December 2012 that the MVR 15.3 billion (US$992 million) state budget approved by parliament might not last until the end of 2013 – requiring supplementary finance for the state.

In April 2013, Jihad sought authorisation from parliament to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditures.

Jihad warned that government offices and independent institutions might be unable to pay salaries or electricity and phone bills if funds were not transferred from the MVR 1.8 billion (US$117 million) Public Sector Investment Programme (PSIP).

“Reckless financial management”: MDP

In July, Maldivian Democratic Party (MDP) MP and Spokesperson Hamid Abdul Ghafoor said that the heavily partisan parliament now effectively controlled state finances as a result of former opposition politicians – now part of President Waheed’s government – imposing tighter spending restrictions on former President Mohamed Nasheed’s administration.

The opposition party also accused the current government of reckless financial management, pointing to a potential US$1.4 billion compensation bill facing the state after it decided last year to abruptly terminate a US$511 million airport development contract agreed with infrastructure group GMR.