A US$25 million state loan from India required to help balance the Maldives’ budget for the remainder of 2012 has been delayed after the government failed to submit the requested paperwork, a diplomatic source has revealed.
A representative for the Indian High Commission in the Maldives – who asked not to be named – told Minivan News that despite recent diplomatic tensions between the two nations, funding had actually stalled due to the Maldives’ government failing for over a month to submit the papers needed to complete the financing deal.
Although the Finance Ministry has now played down previous budget concerns, the US$25 million in funding agreed by India was last month deemed vital by the Finance Minister to ensure the government’s remaining spending in 2012 was met.
While the loan agreement still stands, the diplomatic source stressed that concerns within the Indian government about perceived anti-India sentiments from senior political figures in the Maldives could yet have a bearing on financial support offered to the country.
“Because of the current situation in the Maldives there is a perception in the Indian government that its interests are being treated unfairly,” he said. “[The government] will have the final say on approving any loan and these comments will be taken into account.”
Tensions have increased between the two countries this month as senior Maldivian government officials step up their efforts to oppose a contract signed under the previous administration with Indian infrastructure group GMR to develop Ibrahim Nasir International Airport (INIA). The contract represents the largest foreign investment ever undertaken in the country’s history.
In an arbitration case held last week, the High Court of Singapore rejected an attempt by the Maldives Airports Company Limited (MACL) to release an injunction blocking the government from taking action in the Civil Court of Maldives blocking GMR’s offset of the airport development charge (ADC).
Yet according to rumours circulating on social media sites, the government will allegedly cancel the GMR contact at a cabinet meeting today on the back of calls from some coalition parties to “renationalise” the airport.
Tweets were being circulated speculating that a Chinese intermediary was prepared to pay for the contract termination and take over the airport development.
Finance Minister Abdulla Jihad said he did not wish to comment on the matter or the loan delay at present ahead of the state budget being unveiled on November 27.
Meanwhile, recently appointed State Finance Minister Abbas Adil Riza – who publicly labelled Indian high Commissioner D M Mulay “a traitor” earlier this month over the airport development – and Economic Development Minister Ahmed Mohamed were not responding to Minivan News at time of press.
India has also this week called for the Maldives government to repay US$100 million in treasury bonds by February 2013.
Amidst increased diplomatic tensions, Finance Minister Abdulla Jihad told Minivan News earlier this week that he was unaware of the reason for the delays in receiving the US$25 million loan, requesting the question be put to the Indian High Commission in Male’.
In response, a High Commission of India representative said it had waited for over a month before Maldivian authorities this week returned a draft amendment needed to process the loan. The high commission has said it could now proceed and forward the finance request to the Indian government for final approval.
“We had sent the government the draft amendment, to which they have now have agreed. However is it unlikely they are going to get the funds soon as the decision must be sent to the cabinet for approval,” the source said, adding that the agreement would need to be first sent to India’s Ministry of External Affairs. “The Maldives government will also need to complete certain steps to obtain the funds. For instance, it will have to open a bank account with the State Bank of India for the loan.”
The US$25 million loan was agreed as part of the $US100 million standby credit facility signed with Prime Minister Manmohan Singh in November 2011.
“Deep trouble”
According to the high commission source, the credit facility had been initially agreed after the previous government of Mohamed Nasheed found itself in “deep trouble” and in need of financial assistance by late October last year.
These financial concerns were said to have been exacerbated following the controversial transfer of power on February 7, leading to fears the country may face a sovereign default.
According to the high commission, these initial loan payments were expedited at the time by Indian authorities on an emergency basis on the grounds that the correct paperwork would be completed at a later date.
However, these emergency conditions were no longer said to be in place.
“This was an extreme situation and we did not want the government to have to default,” the diplomatic source claimed, adding that the Maldives was now required to complete all requested paperwork as had been agreed.
Of the US$100 million credit provided by India, half the amount was agreed to be provided as part of budget support, while the remaining US$50 million would be set aside to aid local business by importing products from India.
However, the diplomatic source said that this agreement had been amended on several occasions to allow for a further US$25 million to go towards supporting the state budget.
Despite previously claiming that the Maldives would be unable to support state spending without securing the additional US$25 million budget support loan from India, Finance Minister Jihad announced this week that the issue of covering the government’s wage bill for the remainder of 2012 was “no longer a major concern”.
Jihad added that his department was working to secure private sector funding to make up any shortfalls in budget support.
However, he did not give further details on the nature of the private sector groups presently being sought.
Jihad claimed that a “significant” part of the private sector focus would be through issuing treasury bills (T-bills) to the private sector as recommended earlier this year by the IMF.
“When we opened up treasury bills to the private sector initially there was no response,” he said. “However, there have now been consultations with private groups.”
T-bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills have a maximum maturity of six months, after which time they must be repaid.
Foreign borrowing
Earlier this year, President Waheed reportedly said he would not resort to borrowing from foreign governments in order to finance government activities.
“I will not try to run the government by securing huge loans from foreign parties. We are trying to spend from what we earn,” he was reported to have told the people of Nilandhoo.
Despite Waheed’s reassurances, October saw a number of state owned institutions face disconnection from the capital’s power grid as bills amounting to around MVR 150 million (US$9.7 million) were owed to the State Electricity Company (STELCO).
Since coming to power in February, the government has committed to reimbursing civil servants for wage reductions made during the austerity measures of the previous government, amounting to Rf443.7 million (US$28.8 million), to be disbursed in monthly instalments over 12 months from July.
A MVR 100 million (US$6.4 million) fuel subsidy for the fishing industry was also approved by the Majlis Finance Committee, with the hope of stimulating the ailing sector.
The overall deficit for government expenditure has already reached over MVR 2 billion (US$129 million). Jihad has told the Majlis’ Finance Committee that he expected this figure to rise to MVR 6 billion (US$387 million) by year’s end – 28 percent of GDP – alleging that the previous government left unpaid bills equal to over one third of this anticipated deficit.
Former Minister of Economic Development Mahmood Razee has previously told Minivan News that this increased expenditure in the face of a pre-existing deficit represented the government “ignoring reality.”
“If they don’t get the loan, they will have to cut travel expenses, stop certain programs – take drastic measures or get another loan,” said Razee, claiming that the only alternative would be to sell treasury bills.
Following reports in August that the government was attempting to raise funds through the sale of treasury bills, former Finance Minister Ahmed Inaz claimed such a measure would not address IMF concerns about state spending, prolonging economic uncertainty.
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