Debt-to-GDP ratio expected to reach 75.7 per cent by end of year

Central Bank, Maldives Monetary Authority (MMA) has revealed that the nation's debt-to-GDP ratio will be above 75% by the end of the year.

Speaking at the Parliament's Budget Review Committee, Governor Ali Hashim said the debt-to-GDP ratio is expected to be at 75.7% by the end of the year.

Governor Hashim said the MVR 37.5 billion budget proposed by the government for 2020 estimates the debt-to-GDP to be at 58.4 per cent excluding the sovereign guarantees provided by the government. However, as the proposed budget does not provide details of guaranteed loans, the total debt-to-GDP ratio is unknown, said the governor.

The former government took several loans through state owned companies, and provided loan guarantees until the end of 2018. The amount of guarantees provided by the government increased by 267 per cent during the period. While loan guarantees of MVR 1.1 billion was provided to state owned companies, loans amounting MVR 2.2 billion was given to state companies.

The governor said the country's economy will be affected in the long term by the loans, bonds and sukuk taken to ensure financing. While loans and bonds are ways to attain funds for the budget, it will affect the economy, he said.

Speaking at the committee, Executive Director of MMA Ahmed Imad said MMA is concerned that the government intends to take out loans to finance recurrent expenses.

Imad said the budget will be financed through loans in US$, therefore, even if there is no effect on the exchange rate, challenges will be faced as a result of the move in future.

"There may not be short term effects of foreign currency on the money supply. We believe the state's infrastructural projects will develop the tourism industry, and that the economy will improve with increased revenue from airport development", said Imad.

However, MMA's concern is the government financing the budget through internal and external loans, said Imad.

The proposed budget for 2020 is focused mainly on recurrent expenditures which accounts for MVR 22.2 billion from the budget. While MVR 10.2 billion has been allocated for PSIP, MVR 5 billion has been set for capital expenditure.

Five new strategies have been included in next year's budget to increase state revenue. It is estimated that the new changes will generate an additional MVR 2.5 billion as revenue.

This includes the introduction of quota fees for expatriates, and increasing the work permit fees. While this is estimated to generate a revenue of MR 714 million, the introduction of income tax is estimated to generate a further MVR 770.6 million. A revenue of MVR 290 million is expected as acquisition cost for new resorts that will be leased during the year.

Changes to customs fees and import duty is likely to increase revenue by an additional MVR 558 million, and airport service charges and airport development fees are expected to increase revenue by MVR 319 million.

While a budget deficit of MVR 5.6 billion is expected, the government intends to sell a samurai bond of US$ 300 million to Japan to compensate for the deficit. The remaining MR 563 million will be raised through the sale of T-Bills.