Gross state reserves to reach US$310 million by June, MMA Governor warns parliament

The head of the Maldives’ central bank, Fazeel Najeeb, has warned parliament that the country’s gross state reserves will drop to US$310 million in two months due to outstanding debts.

The statement by the governor of the Maldives Monetary Authority (MMA) follows confirmation from Finance Minister Abdulla Jihad this week that the government had suspended new development projects due to shortfalls in revenue, and was in the process of drawing up a supplementary budget.

“This is not a healthy level. The existing amount is equivalent to that needed for imports of the next two months. The best practice is to have funds for imports needed for six months,” local media reported Najeeb as telling parliament’s finance committee.

The government trying to address the problem by selling bonds to foreign countries, he said, noting that the overdrawing of the state account was “common” as a result of cash flow constraints.

He dismissed rumours that the MMA had recently frozen the state’s current account, but said there were ongoing discussions to increase the state’s overdraft limit from MVR 140 million (US$9 million) to MVR 200 million (US$13 million).

Earlier this month, India’s Financial Express publication reported that Axis Bank had initiated an arbitration process to recover US$160 million in loans granted to infrastructure developer GMR, which were guaranteed by the Finance Ministry during the former administration.

The developer was given a seven-day eviction notice late last year after the new government declared that its 25 year, $US$511 million contract to upgrade and manage Ibrahim Nasir International Airport (INIA) was ‘void ab initio’ (invalid from the start).

The Attorney General (AG’s) Office at the time denied receiving any notice of arbitration from Axis Bank.

Maldivian President Dr Mohamed Waheed meanwhile told a rally on Thulusdhoo last Saturday that there was no cause to worry about the budget or rumours of impending bankruptcy.

“The Maldivian economy is not really that bad,” he declared.

However, the president acknowledged that as a consequence of deficit spending financed by loans, the government had to spend an amount almost equal to the state’s wage bill on interest and loan repayments.

“We Maldivians are not indebted to anyone. We are proud people. We pay back what we borrow. We don’t have any outstanding payment, to any party,” Dr Waheed said in his speech, according to the President’s Office website.