Halting Debt Monetisation Won’t Affect Cash Flow if Revenue Forecasts Are Met: Finance Ministry
The Ministry of Finance has said that the cash flow will not be affected, with the halting of debt monetisation, should the government continue to receive dues and revenue as accounted for within the 2024 National Budget.
The recently in-office Mohamed Muizzu administration decided not to extend the practice of debt monetisation or overdrawing from public accounts, initiated during the pandemic by the Ibrahim Mohamed Solih administration by invoking emergency relief measures through parliament.
The Solih administration, backed by a Maldivian Democratic Party (MDP) majority in parliament, suspended parts of the Fiscal Responsibility Act, allowing the government to borrow MVR 4.4 billion from the central bank till the end of 2023.
However, the new Muizzu administration decided not to extend consent to overdraw from public accounts under the emergency condition that had been prevalent during the pandemic.
The Solih administration had overdrawn MVR 8.2 billion overt the past three years, mainly to meet the government’s cash flow.
Asked whether it would be difficult to manage cash flow without debt monetisation, the Ministry of Finance’s Chief Financial Budget Executive Ahmed Saruvash Adam said that since the MVR 2 billion ceiling had been reached, there was no space to utilise the overdraft facility.
If the dues and revenue matches what has been budgeted, there will be no difficulty in managing cash flow, he said.
“It is a deficit budget so the budget is being financed by borrowing. If we are getting debt inflows and revenue, it will not be difficult to manage cash flow,” Adam said.
The Parliament has approved a budget of MVR 49.8 billion for 2024, adding MVR 300 million to the proposed budget.
With revenue expected to be MVR 33.5 billion, the deficit of MVR 16.3 billion will be financed by borrowing from internal and external sources — this includes borrowing MVR 10.4 billion from external sources with the rest to be financed by internal debt.
However, when revenue falls short of the budgeted amount, and expenditures exceed the estimates, it has become commonplace every year for a supplementary budget to be submitted to parliament. Similarly, a supplementary budget of MVR 42.8 billion was submitted to Parliament towards the end of 2023.
The amount overdrawn from the public bank account has been securitised and converted into a long-term bond issued to the government by the Maldives Monetary Authority (MMA).
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