With the decision to stop overdrawing, the state has to explore other financial management strategies or sources to meet its cash flow requirements, as they have exhausted the available limit within the overdraft facility.
Finance Minister Ameer - allowed overdrawing over MVR 8 billion from MMA
In recent years, the Maldives has grappled with a significant challenge – the growing national debt. Since the beginning of 2022, the government has taken various steps to address this issue. These measures included raising taxes, particularly through the increments in GST and TGST, and the introduction of a plastic bag tax. These moves contributed to boosting the country's internal revenues, offering a glimmer of hope that the government was actively managing the nation's debt.
However, optimism was dampened when it was disclosed that the previous administration had resorted to printing money and overdrawing from the Central Bank (MMA) since 2020 to sustain the economy. Despite initial efforts, like printing MVR 4.4 billion annually (later reduced to MVR 2.2 billion) and converting MVR 4.2 billion into long-term bonds following the public bank account overdraw, it became evident that a more profound issue needed attention.
As 2023 concluded, the new administration shifted its focus to addressing the deep-seated debt problems. Planning the 2024 budget, their approach deviated from raising taxes or increasing revenue; instead, it aimed at reducing government spending to both sustain the economy and alleviate the national debt.
With this, one of the first measures that were put into place was the decision to halt the extensive practice of printing money effective from January 1st, 2024 - which means, ending the practice of over-drawing the public bank account at MMA - a practice that has been ongoing since 2020. With such extensive over-borrowing practices having continued since 2020, by the end of 2023 it appears that the Government had racked up a staggering total of MVR 8.2 billion in order to manage the government cashflow.
As this practice has continued for longer than needed, wrecking up such major internal debts in the country, the Chief Financial Budget Executive, Ahmed Saruvash Adam also revealed that the state has decided to stop the usage of the overdraft facility for cashflow management.
Although an overdraft facility is essentially a credit line provided by a bank to its customers, in this case, the public bank account at Maldives Monetary Authority (MMA) to the Government, allowing them to withdraw more money than is available in the account, in this case, the overdraft facility has reached its maximum limit which is set at MVR 2 billion.
With this decision, the state has to explore other financial management strategies or sources to meet its cash flow requirements, as they have exhausted the available limit within the overdraft facility. In order to facilitate the public sector investment projects as well as finance the MVR 49.8 billion budget that was set for 2024, it appears that the Government plans to cover MVR 16.3 billion through internal and external financing - with MVR 10.4 billion to be covered through external sources.
In addition to these adjustments, the government has taken steps to ensure financial stability. Despite the Ministry of Finance's choice to cease overdrawing from the public bank account, the government remains confident in meeting the budget demands for 2024.
This assurance is contingent on the government's access to alternative loan facilities and the successful realization of projected income throughout the year. In essence, by tapping into other available financial resources and maintaining expected income levels, the government aims to sustain its budget without adversely affecting cash flow.
