Maldives govt gets green light to borrow $272 mln in emergency central bank funding
Maldives parliament Sunday green-lighted a government proposal to borrow MVR 4.2 billion ($272 million) from the central bank to cover state expenses and maintain public services amidst the coronavirus pandemic.
The island nation’s finance minister Ibrahim Ameer asked the government-controlled parliament last week to vote for a year-long stay on fiscal limits, so that the government could access long-term borrowing from the central bank to fund public services.
The parliament was asked to raise the overdraft cap on the public bank account to MVR 4.2 billion ($272 million) for a year without any finance costs.
In a virtual parliament sitting Sunday, 60 out of the 69 members in attendance voted in favour of the proposal.
The upped overdraft facility, which was earlier capped at just one per cent of the average annual revenue of the state, will give the government a temporary cash buffer as it seeks to raise $233.39 million in loans and financial aid from global lenders to deal with the coronavirus outbreak.
In normal times, the government uses tax revenues to pay for public services and investments.
If there is a shortfall, it borrows the rest from investors by issuing treasury bonds and bills through the central bank.
But officials say some $272 million were needed urgently to maintain public services, spend on health response and provide relief to families affected by income losses and other coronavirus-related disruptions.
The government is facing a severe cash flow shortage due to the complete shutdown of the Indian Ocean island nation’s lucrative tourism industry and major disruptions to other economic activities amidst a series of precautionary measures against the coronavirus outbreak.
While it is controversial for a central bank to hand cash directly to the government, the government insists the overdraft is temporary.
Left unchecked, so-called “monetary financing” can cause prices to rise uncontrollably, like in Zimbabwe and Venezuela.
These concerns were also shared by MPs during the parliamentary debate on the government’s proposal.
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.
The Maldives has announced an MVR 2.5 billion stimulus plan, which includes MVR 1.55 billion ($100 million) in emergency loans for businesses to meet short-term working capital needs.
In addition to the emergency financing, the government’s stimulus plan is complemented by a package of financial measures, including a six-month moratorium on principal and interest repayments for personal, business and housing loans sanctioned by commercial banks.
The government is also subsidising utility bills in March and April.
Those that lose jobs due to the coronavirus pandemic will also be paid unemployment benefit for a period of three months.
Meanwhile, the central bank has announced a $150 million facility for banks to ensure healthy foreign currency reserves.
The facility is arranged through a $400 million stand-by currency swap signed by the Maldives Monetary Authority (MMA) and Reserve Bank of India (RBI) last year, he said.
If required, minimum reserve requirement of banks will also be slashed from 10 to five per cent to allow banks to increase lending.
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 on April 15, confirmed community transmission of the coronavirus. Several more clusters have since been identified, bringing the total number of confirmed case in the Maldives to 177.
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.