Finance Minister: An immediate MVR 4.4 billion required to manage cash flow

Finance Minister Ibrahim Ameer has announced the State requires an immediate MVR 4.4 billion to maintain public services, fund healthcare services and provide economic support to families over the next three months.

Minister Ameer has requested the Parliament for a one-year stay on the fiscal limits set in the Fiscal Responsibility Act in order to allow the government to access long-term borrowings from the central bank to manage its cash flow.

His letter was read at the virtual parliamentary sitting held this Wednesday morning.

He asked that the parliament vote to on an one-year stay on Article 32 (a), (d) and (e) of Fiscal Responsibility Act, citing that Maldives now faced a natural disaster as defined under Article 36 (a) of Fiscal Responsibility Act. The clauses set limits to both the purposes for which the State may borrow from the central bank, as well as the repayment period.

In an additional letter which accompanied his request, Ameer said the government needed to find more sources of finance to manage the State’s cash flow in the short run.

He said the State was facing challenges in managing the cash flow include the halt in business activities due to the lockdown, as well as the difficulties faced by businesses in paying dues to the State.

Ameer said that additional measures to cut down State spending in light of the fall in consumer demand would only exacerbate the situation, and that the change in the trend of the spread of COVID-19 meant the State now needed to increase its spending on the health sector and crisis management.

He also noted that State-owned enterprises were now dependent on the central government to cover operational costs amid the crisis.

Ameer noted that despite the danger of cutting down State spending any further, it had taken several measures to cut down unnecessary expenditure.

COST-CUTTING MEASURES:

• 20 percent pay cut on all political appointees above deputy minister level pay grade
• Reduction of travel expenditure
• Suspension of repair work procurement of assets
• Reduction of other recurrent expenditures
• Halting new appointments
• Halting award of projects

Ameer said the government was seeking financial aid and loans from foreign countries and international financial institutions, but that it would take time before the negotiations were done, and the money released.

THE FISCAL LIMITS SET UNDER ARTICLE 32:

Article 32 (a) establishes that the State may only borrow from the central bank Maldives Monetary Authority (MMA) if the repayment is made within 91 days, and that such borrowing must be limited to no more than one percent of the average State income, based on income for the past three years.

A stay on the clause will allow the government to delay repayment on borrowings from the central bank indefinitely, and possibly also allow the government to forgo the limit on the amount it may take out as borrowings.

Meanwhile, Article 32 (d) establishes that the State may only take out borrowings to fund national development projects and/or procure resources to boost productivity. It also establishes that the State may not take out borrowings for debt repayment, effective January 1, 2016.

Article 32 (e) establishes that the State may take out borrowings from the central bank to manage its cash flow with the stipulation that the repayment be done within 14 days.

Ameer said in his letter that compliance with the fiscal limits set under Article 32 of Fiscal Responsibility Act was economically impossible in light of the financial and economic impact of the COVID-19 pandemic.

“If we attempt to comply with the aforementioned fiscal limits, there is great danger of multiple challenges in managing the State’s cash flow and the running of the State,” said Ameer.