Maldives deepens spending cuts, seeks $233 mln from global lenders

Maldives will shave another MVR 5 billion ($324 million) off state expenditure and borrow $233.37 million from international lenders to plug the gap in balance of payments stemming from the coronavirus pandemic, the island nation’s finance minister announced Friday.

Ibrahim Ameer told reporters that existing measures to cut MVR 1-2 billion ($64.8-129.6 million) in state expenditure were not enough.

Another MVR 5 billion ($324 million) cut will reduce the total state expenditure to MVR 30 billion ($1.944 billion) from the approved MVR 38.7 billion ($2.5 billion) for the year, he said.

New measures announced by the minister include 30-70 per cent cuts across travel, training, renovations and capital equipment budgets.

A 36 per cent reduction will also be made to capital grants allocated to local councils under a recent legislative amendment to give more powers and financial flexibility to the local administration in the islands.

The Public Sector Investment Programme will also be put on hold.

Meanwhile, the finance minister said his government was in talks with bilateral lenders and international financial institutions to secure some $233.39 million in loans and financial aid.

The government expects to receive:

  • Asian Development Bank: $27.60 million
  • Asian Infrastructure Investment Bank: $5 million
  • Islamic Development Fund: $25.59 million
  • SAARC Development Fund: $1.50 million
  • European Investment Bank: $20 million

A $50 million facility is also being arranged for the Bank of Maldives (BML), the country’s main commercial bank, from the International Finance Corporation (IFC), the private sector arm of the World Bank Group.

The government is also trying to secure a $25 million trade financing facility to State Trade Organisation (STO), the nation’s largest oil and food importer, from HSBC.

Funds already pledged by international lenders include $28.9 million from the International Monetary Fund (IMF), $20 million from the OPEC Fund for International Development, $17.3 million from the World Bank, and $3.28 million from the European Union.

These announcements come a day after the government asked the parliament to grant a stay on fiscal limits to ease borrowing.

The MPs were also asked to raise the overdraft cap on the public bank account to MVR 4.4 billion ($285.3 million).

Finance minister Ameer told the government-controlled parliament that MVR 4.2 billion ($272 million) was needed immediately to cover state expenses and maintain public services.

The coronavirus outbreak has hit the Maldivian economy hard, as travel restrictions and other preventive measures affect the country’s lucrative tourism industry, which contributes the bulk of the island nation’s state revenue and foreign reserves.

Before the pandemic, the government had been bullish about tourism prospects, targeting two million, high-spending holidaymakers this year after last year’s record 1.7 million.

However, tourist arrivals saw a year-over-year decline of 22.8 per cent in the first 10 days of March. Officials say the number of tourist arrivals to the Maldives could drop by half in 2020.

All international airlines have suspended scheduled operations to the Maldives, as the island nation enforced a blanket suspension of on-arrival visa in late March in a bid to combat the spread of the novel coronavirus.

Even before the visa suspension, the Maldives had closed its borders to arrivals from some of the worst-hit countries, including mainland China, Italy, Bangladesh, Iran, Spain, the United Kingdom, Malaysia and Sri Lanka. Visitors from three regions of Germany (Bavaria, North Rhine-Westphalia and Baden-Württemberg), two regions of France (Île-de-France and Grand Est) and two regions of South Korea were also banned from entering the country.

All direct flights to and from China, Italy, South Korea and Iran were also cancelled.

Cruise ships and foreign yachts were also banned from docking at any of the country’s ports.

With arrival numbers falling and the visa suspension in effect, several resorts across the Maldives had been closed.

Tourism has been the bedrock of the Maldives’ economic success. The $5 billion-dollar economy grew by 6.7 per cent in 2018 with tourism generating 60 per cent of foreign income.

However, the government is at present projecting a possible 13 per cent economic contraction this year — an estimated $778 million hit.

On March 8, Maldives reported its first cases of the novel coronavirus, as two hotel employees tested positive for Covid-19 at a luxury resort in the archipelago.

Eighteen more cases — all foreigners working or staying resorts and liveaboard vessels except five Maldivians who had returned from abroad — were later identified.

A six-case cluster of locals, detected in capital Male last week, confirmed community transmission of the coronavirus. Several more clusters have since been identified, bringing the total number of confirmed case in the Maldives to 116.

No deaths have been reported and 16 have made full recoveries.

The Maldives announced a state of public health emergency on March 12, the first such declaration under a recent public health protection law.

The public health emergency declaration has allowed the government to introduce a series of unprecedented restrictive and social distancing measures, including stay-at-home orders in capital Male and its suburbs, a ban on inter-island transport and public gatherings across the country, and a nationwide closing of government offices, schools, colleges and universities.

Non-essential services and public places in the capital such as gyms, cinemas and parks have also been shut.

Restaurants and cafes in the capital have been asked to stop dine-in service and switch to takeaway and delivery.

A nationwide shutdown of all guesthouses, city hotels and spa facilities located on inhabited islands is also in effect.

Photo: Sun Online

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