Government seeks a stay on fiscal limits to access borrowings from central bank

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

The Finance Minister’s 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.

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.

Finance Minister 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.

He said the COVID-19 pandemic was having an unprecedented impact on the economy and the State coffers, resulting in a surge in unemployment and major losses to businesses.

The Parliament is scheduled for a debate regarding the Finance Minister’s request on Thursday.