Governor: Projects planned for 2021 incompatible with economic situation, will likely fail

Governor of Maldives Monetary Authority (MMA), Ali Hashim (C) during a meeting with the Parliament’s Budget Committee on November 15, 2020. (Photo/People's Majlis)

Governor of Maldives Monetary Authority (MMA), Ali Hashim warned on Sunday that the projects included in the proposed state budget for 2021 is incompatible with the Maldives’ current economic situation.

In a meeting with the Parliament’s Budget Committee on Sunday morning, Ali Hashim said that the government runs the risk of cash flow issues and a halt to projects if it fails to earn the projected revenue in 2021 due to the ongoing COVID-19 pandemic.

“If the state fails to earn projected revenue due to the COVID-19 pandemic even in 2021, it will result in difficulties in the management of the government’s cash flow and possible failure of projects. However, the projects declared in the state budget for the coming year too, are large projects incompatible with the Maldivian economic situation,” he said.

In light of the government’s plans to finance planned projects for the upcoming year through loans despite the economic situation, Ali Hashim advised the government to prioritize concessional financing.

“Both IMF and World Bank, during their last meeting, recommended opting for blue or green financing in the upcoming year, and that they will make available blue financing funds. It’s very important at this time to tap this fund,” he said.

Ali Hashim said that the government may face difficulties in securing foreign currency to conduct projects, given the devastating impact of the COVID-19 pandemic on the tourism sector, and the resultant shortage in supply of foreign currency.

He said that MMA expects the government will be unable to secure the necessary USD needed for the projects from the domestic market, and will therefore be unable to conduct the projects.

He advised the government initiate projects only after securing the foreign currently needed for the projects first.

Ali Hashim said that attempts to secure USD for projects from the domestic market amid the shortage will negatively affect the exchange rate.

“We expect that if it becomes necessary to secure dollars for capital projects from the Maldivian market, it will have a detrimental effect on Maldives’ exchange rate. We therefore recommend that projects be conducted in a way that avoids a detrimental impact on the foreign exchange market,” he said.

The proposed state budget for 2021 is a MVR 34.79 billion budget, with MVR 8.31 billion allocated for Public Sector Investment Program (PSIP) projects – making for 24 percent of the total budgeted expenditure - and MVR 4.82 billion allocated for other capital expenditures.

The projected expenditure totals MVR 33.29 billion while the projected revenue totals MVR 17.79 billion, resulting in an overall budget deficit of MVR 15.50 billion - which is 23 percent of the GDP.