The government has said it hopes to secure longer-term financing to plug a shortfall in annual revenue that has seen the number of 28-day Treasury Bills (T-bills) sold by the state almost double in July 2013, compared to the same period last year.
According to the Maldives Monetary Authority (MMA) monthly review for August 2013, sales of T-bills for July 2013 has risen by 95 percent year on year.
The MMA stated that there had been a 163 percent in 28 day T-bills by July 2013 compared to the same time last year, despite sales of T-bills with a maximum maturation period of three month and six months declining by 63 percent and 83 percent respectively. Sales of T-bills were up 35 percent for July 2013 over the previous month, according to the MMA’s figures.
T-bills are sold by governments all over the world as a short-term debt obligation backed by sovereign states. In the Maldives, they have a maximum maturity of six months, in which time they must be repaid.
Budget issues
Finance Minister Abdulla Jihad told Minivan News this week that the state’s increased reliance on T-bills between July 2012 and July 2013 reflected the current difficulties faced by the government in trying to raise budgeted revenue during the period.
He added that with only “a few people” in the private sector were interested in purchasing the short-term debt obligation, T-bills has been sold as part of wider investments made by the state through the country’s pension fund.
Jihad stressed that although there had not been an increase in state expenditure over the last twelve months, the increased reliance on T-bills by the state arose partly from having to repay US$100 million in treasury bonds to the Indian government by February 2013.
He also raised concerns over a lack of parliamentary approval for numerous revenue raising measures.
Parliament in April rejected government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.
Other proposed measures include hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, introducing GST for telecom services as well as oil, and “selectively” reversing import duty reductions.
Without such measures introduced, Jihad said that the Maldives had relied on 28 day T-bills, which were being sold as a means to “roll over” debt one month at a time.
“We are trying to have banks get longer-term finance such as T-bills at present,” he said.
According to the MMA, the Maldives fiscal deficit for 2013 was estimated to have fallen from MVR 4.3 billion or 13 percent of national GDP in 2012 to MVR1.3 billion in 2013 – four percent of current GDP.
A total of 62 percent of the current deficit – which reflects the total amount of government expenditure that exceeds its earnings – is expected to be covered through foreign financing. The remaining 38 percent will be covered through T-bills and “other means,” added the financial report.
The findings have been met with criticism from the opposition Maldivian Democratic Party (MDP), which has questioned why there had been an increased reliance on short-term financing through T-bills considering total state revenue rose 16 percent over the last 12 months based on MMA findings.
Mahmoud Razee, former Economic Development Minister under the previous government, claimed that it was important to understand that T-bills should only be used by the state to help cover its operational expenses, rather than serve as a long-term means of financing.
“With income tax revenue having increased according to the Maldives Inland Revenue Authority (MIRA), why have [T-bill sales] gone up? Under the MDP government we were using T-bills to meet our cash flow,” he said. “This had nothing to do with the fiscal deficit.”
Razee argued that while the former government had itself sought foreign loans to balance the financial deficit while in power, the administration of former President Mohamed Nasheed had worked to avoid relying on T-bills for longer-term financial concerns like balancing the national fiscal deficit.
“The moment T-bills are increased, this directly affects loans that banks are able to give to the private sector, leading to the cost of borrowing increasing,” he said.
Razee claimed that the MDP government had attempted to try and extend income tax reforms introduced during its time in office to further boost revenues – a plan he said was cut short by the controversial transfer of power on February 7, 2012.
“Beyond appropriate” spending
The Finance Ministry last month said it has managed to reduce state spending over the last twelve months, despite the MMA raising fears over the current “beyond appropriate” levels of government expenditure had led to a vicious cycle of borrowing.
Finance Minister Jihad at the time told Minivan News that efforts had been successful over the last twelve months to curb recurrent government expenditure, while its borrowing had at the same time remained consistent.
In April, the government announced it was suspending state-financed development projects to curb outgoings.
The suspension of development projects was taken after the state was found to have exhausted its annual budget for recurrent expenditure (including salaries, allowances and administration costs) in the first quarter of 2013.
The decision was made the same month that currency reserves in the Maldives were found to have “dwindled to critical levels”, according to the World Bank’s bi-annual South Asia Economic Focus report.
The government has since 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 also confirmed that discussions had been held with Saudi Arabia to secure a long-term, low interest credit facility of US$300 million to help overcome the “fiscal problems” facing the nation.
Parliamentary approval will be needed to obtain either of the loans, the Finance Ministry has previously confirmed.
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