Parliament approves overdraft extension

The Parliament has approved a one-year extension to the period the government is authorized to overdraw from the public bank accounts.

The temporary parliamentary committee set up to review Finance Ministry’s request for the overdraft extension made its decision last Thursday, voting in favor of approving the request.

The report compiled by the committee was called to vote during a parliamentary sitting on Sunday morning. The report passed with a majority vote of 47 out of 51 parliamentarians in attendance. Four parliamentarians voted against the report.

Implementation of Article 32 (a), (d), and (e) of the Fiscal Responsibility Act was suspended for one year, starting from April 26, 2020, with the powers bestowed upon the Parliament under Article 36 of the Act.

Finance Ministry requested a one-year extension to the period last Monday, citing that the COVID-19 pandemic remains ongoing and that while the economy is recovering, it will take time to reach to pre-pandemic levels.

The committee, in its report after its one-day review, wrote that the Finance Ministry, when granted the exemption last year, managed the cashflow so that the overdraw limit does not exceed MVR 4.4 billion.

Officials from Finance Ministry, Maldives Monetary Authority, and Auditor General’s Office were summoned by the committee for consultation.

MMA warned that monetizing the budget will result in adverse effects on the economy in the midterm and long term, and that given that the exchange rate plays the key role in controlling the inflation rate in Maldives, long term monetary financing will present further challenges to MMA’s efforts to manage the exchange rate.

MMA said that it is important to limit the amount and duration of MMA’s overdraft facility by factoring in Maldives’ economic growth and midterm cashflow projections, and that it is important not to raise the limit for overdrawing from the public account above MVR 4.4 billion, and not to extend the duration of the overdraft beyond one year.

MMA warned that exceeding MVR 4.4 billion will result in irrevocable losses to the economy, forcing changes to the foreign exchange rate, and raise inflation rate.

MMA said that it is important to have a plan for the repayment of the overdraft, and that including a financial cost will encourage the maintenance of the discipline of repayment.