Government inherited outstanding debts of US$446 million, says Finance Minister

The former government left a dispersed outstanding debt of US$446.5 million owed to foreign and local banks, Finance Minister Ahmed Inaz informed MPs today during Minister’s Question Time in parliament.

In response to a query by Dhivehi Qaumee Party (DQP) MP Riyaz Rasheed about the amount of loans obtained by the previous and incumbent governments, Inaz revealed that as of April 30 2011, the new administration has taken loans amounting to US$196.4 million.

“Out of that, US$5.1 million has been paid back in accordance with the agreement,” he said. “Therefore, the total dispersed outstanding amount is US$191.2 million.”

Inaz stressed that the loans of both governments were being paid on schedule “without any default.”

Outstanding debts of the previous government included a loan obtained for a fisheries project in 1979, Inaz said.

Asked by MP Abdulla Yameen – leader of minority opposition People’s Alliance – if the figures provided included receipts from sale of treasury bills, Inaz explained that “the total figures I’ve provided do not include treasury bills because the question today was about loans, which is different from securities.”

The total domestic debt in November 2008 – including T-bills issued by the former government – when the new administration took office stood at Rf809 (US$52.4 million), Inaz revealed.

“As of July, 2011, there is now Rf4.9 million (US$317,700) as total debt in T-bills,” he said, adding that parliament approved a budget with Rf1.3 billion (US$84 million) from issuance of T-bills to cover recurrent expenditure.

Inaz noted that the state budget passed by parliament in past years was structurally in deficit, with expenditure outstripping revenue: “To solve this, the tax bills proposed by the government has to be passed and I hope the honourable Majlis will solve this,” he said.

Jumhooree Party (JP) Leader Gasim Ibrahim – who as Finance Minister oversaw the expansionary fiscal policies – meanwhile asked to clarify if the total outstanding debt of the former government included foreign loans to assist victims displaced by the December 2004 Asian tsunami.

According to a UNDP paper on the Maldives’ debt sustainability published in December 2010, “as a percentage of GDP, public debt levels have almost doubled from 55 percent in 2004 to approximately 97 percent in 2010.”

“Public debt service as a percent of government revenues will more than double between 2006 and 2010 from under 15 percent to over 30 percent,” the paper noted. “The IMF [International Monetary Fund] recently classified the country as ‘at high risk’ of debt distress. From a human development perspective, the extent to which increased debt service obligations may put at risk key social and infrastructure expenditures give serious cause for concern.”

In May, 2011, the IMF warned that the Maldives “continues to suffer from large fiscal and external imbalances.”

The IMF agreed to a “medium-term” policy from the government to reduce its budget deficit “substantially”, “both through additional revenue measures – which would require the support and approval of the Majlis – and through expenditure restraint.“

“The authorities have introduced an initial voluntary separation plan for government employees and are continuing their detailed analysis of the public service, with an eye toward right-sizing government over the medium term,” the IMF noted.