Rising debt is no issue if loans are funding development, says Maldivian Finance Minister

Rising debt is no issue if loans are funding development, says Maldivian Finance Minister

Male, May 17 (newsin.asia): The Maldivian Finance Minister Ahmed Munawwar has said that rising national debt is not an issue if the borrowed money is being used for national development,

“While we speak of rising debt, we also must focus on what is being done using those amounts taken as loans,” Munawwar told Maldives Business Review.

The Finance Minister said that much is made about the rising amount of debt. But one should remember that the Maldivian government is meeting recurrent expenditure through its recurrent earnings, while using borrowed money for developing the economy.

“When we talk about debt, we also have to talk about what is being done with that debt. If that loan is used to create assets, increase productivity, then it is not an issue,’ Munawwar said.

Taking the development of Velana International Airport, the Minister said that the development of the airport will create a ripple effect in the economy, allowing the entry of more tourists, which will in turn generate more resources to cater to  them.

“We have launched ambitious plans to develop the nation. That includes the development of Velana International Airport, construction of 25 storey Dharumavantha Hospital, youth city, development of Addu City, Thinadhoo City and other similar projects. These are all long term projects. At the same time, our GDP growth rate has been held at a steady 6%. Our inflation rates have been between two and three percent. All these are indicators that this administration’s economic policies are working,’ Munawwar said.

Last year, the deficit was the lowest in ten years.

On the strategy to tackle issues posed by debt, Munawwar said: “We have drawn up a debt strategy and we’re progressing as per the set strategy. We exercise due diligence before we take a loan. And when we take loans from foreign parties, it is always taken for Public Sector Investment programs,” he maintained.

Noting that financial feasibility, profitability and social gains were key, the Minister stressed that they the government has e managed to maintain the deficit in single digits while running massive expansion projects.

“This administration places great emphasis on furthering Public Sector Investment Programs (PSIP). When you take a look into the past, not even 50 percent of the budget was allotted as PSIP initiatives. 80 to 90 percent was on recurrent expenses. Investing in PSIP creates a direct impact on the economy, the future and the citizens. We’ve reduced recurrent expenses where possible,” he noted.

Admitting that financial institutions have voiced concerns over Maldives debts, the Minister said this is in part due to the fact that this year is an election year. However, he assured that the Ministry is prepared for this, planning and accounting for contingencies and different scenarios.

Reflecting on the history of debt in the country, Minister Munawwar said that under previous administrations there was no systematic approach to handling debt. He noted that there were certain instances where loans were taken to payback previous loans or to meet recurrent expenses.

“This administration had taken care to maintain debt sustainability. We have put together a sovereign development fund. We have been accumulating cash in that fund. The cash in that fund is not used for any other purpose. It was created solely for the purpose of assuring that we have enough funds and eligibility to take and pay loans,’ Munawwar said.

For the next few years, the outlook for the Maldivian economy is modest growth, low inflation and a narrower current account deficit ,he said.

The Minister noted that in addition to the major PSIP initiatives, the government has given priority to development of micro, small- and medium-sized enterprises, in alliance with parties such as the Asian Development Bank (ADB).

“With the assistance of ADB, we compiled a law on Small and Medium Enterprises (SMEs). This government has already given out many loans for development and will continue doing so. This is something ADB mentioned. We had focused on sustainabilty, by setting up a corporation to oversee this process. Right now we’re in the process of establishing an SME bank with assistance from ADB and the Islamic  Development Bank (IDB),” Minister Munawwar said.

(The featured image at the top shows the Maldivian Finance Minister Ahmed Munawwar)