Finance Minister Ahmed Munawwar says that while we speak of rising debt, we also must focus on what is being done using those amounts taken as loans.
Speaking in an exclusive interview with Maldives Business Review, the Finance Minister said there was much made about the rising amount of debt taken on. He noted that focus was placed on paying recurrent expenses through recurrent earnings, while using loans to developing the economy.
‘When we talk about debt, we also have to talk about what is being done with that debt. If that loan is used to create assets, increase productivity, then it is not an issue,’ he said.
Taking the development of Velana International Airport, Minister Munawwar elaborated that development of the airport will create a ripple effect in the economy, allowing the entry of more tourists and in turn more resources to cater for them.
‘We have launched ambitious plans to develop the nation. That includes the development of Velana International Airport, construction of 25 storey Dharumavantha Hospital, youth city, development of Addu City, Thinadhoo City and other similar projects. These are all long term projects. At the same time, our GDP growth rate was held at a steady six percent. Our inflation rates were between two to three percent. All these are indicators that this administration’s economic policies are working,’ the Minister said.
Minister Munawwar noted that last year showed the lowest in terms of deficit in the past 10 years.
He also spoke about the Ministry’s debt strategy.
‘We have drawn up a debt strategy and we’re progressing as per the set strategy. We conduct due diligence before we take a loan. And when we take loans from foreign parties, it is always taken for Public Sector Investment programs,’ he added.
Noting that financial feasibility and profitability and social gains were key, the Minister stressed that they ‘have managed to maintain deficit in single digits while running massive expansion projects’.
‘This administration places great emphasis on furthering PSIP programs. When you take a look into the past, not even 50 percent of the budget was allotted as PSIP initiatives. 80 to 90 percent was on recurrent expenses. Investing into PSIP creates a direct impact on the economy, the future and the citizens. We’ve reduced recurrent expenses where possible,’ he noted.
Stating that financial bodies had voiced their concerns over the status of debt in the country, the Minister said this was in part due to the fact that this year was an election year. However, Minister Munawar assured that the Ministry had prepared for this, planning and accounting for contingencies and different scenarios.
Reflecting on the history of debt in the country, Minister Munawar said that under previous administrations there was no solid approach to handling debt. He noted that there were certain instances where loans were taken to payback previous loans or pay recurrent expenses.
‘This administration had taken care to maintaining debt sustainability. We have put together a sovereign development fund. We have been accumulating cash into that fund. The cash in that fund is not used for any other purpose. It was created solely for the purpose of assuring that we have enough funds and eligibility to take and pay loans,’ he added.
For the next few years, outlook for the economy is for modest growth, low inflation and a narrower current account deficit.
The Minister further noted that in addition to the major PSIP initiatives, the Government attached priority to development of micro-, small- and medium-sized enterprises, in alliance with parties such as the Asian Development Bank.
‘With the assistance of ADB, we compiled a law on SME’s and strategized that aspect. This Government had already given out many loans for development and will continue doing so. This is something ADB mentioned a lot. We had focused on maintaining this sustainably, by way of a corporation to oversee this process. Right now we’re in the process of establishing an SME bank with assistance of ADB and IDB,’ Minister Munawar said.
Boosted by gains in construction and tourism industry the economy expanded in the past year. While the number of loans taken had increased in the past few years, those loans had gone to major long-term infrastructure development projects and Public Sector Investment Programs (PSIP). GDP growth accelerated to 6.5 percent in 2017, with inflation at 2.8 percent in the same period.
Maldives Monetary Authority (MMA) maintained an adaptive stance, opting to keep policy rates unchanged. This translated to growth in sector to 14.4 percent, with ‘bulk of credit going to tourism, construction, real estate and commerce’.