A newly proposed Sovereign Development Fund (SDF) Bill sent to Parliament stipulates that funds from the SDF can only be utilised as reflected within the nation’s annual budget, and only upon authorisation by the President, based on consultations with a Governance Council appointed by the head of state.

The SDF Bill is the first to be introduced for legislative consideration by the current Mohamed Muizzu administration, with the main objective being to establish procedure, and rules, for;

  • Utilisation of the fund
  • Duties of those entrusted with the management of the fund
  • Auditing the accounts of the fund

The Member of Parliament (MP) for Thulusdhoo, Ibrahim Naseem, proposed the legislation on behalf of the administration and told local media that the Sovereign Fund, currently, lacks a proper legal framework and that various administrations had utilised the fund however they saw fit.

The main purpose of the bill is to provide legal substance to the fund, which would serve as a sign of progress for the country, the MP noted.

“The budget and financial statements show that the country’s situation is deteriorating. Cash flow cannot be managed during the month of a loan repayment. Loan repayments are done by withholding payments to contractors… For the fund to operate within a proper legal framework would be a great step forward for the country,” he said.

According to the SDF Bill, funds in the SDF can only be utilised via a directive from the President, on the advice of a Governing Council, in accordance with the provisions of the legislation. The income accrued must be reflected in the budget and any proposed expenditure must also be reflected.

The President shall, according to the proposed legislation, form the Governing Council and has the power to appoint and dismiss members.

The bill proposes that the SDF’s Governing Council be composed as follows;

  • The Minister of Finance
  • Two senior employees at the Ministry of Finance
  • The Governor of the Maldives Monetary Authority (MMA)
  • A senior employee of the MMA
  • A senior employee of the Ministry of Economic Development and Trade
  • A public member with economic development and trade credentials — a representative of the public selected through public nominations

The Minister of Finance and the Governor of the MMA will remain at the Council for as long as they hold their respective positions while other members serve a five-year term, the bill proposes.

Contributions to the SDF are proposed to be collected as follows;

  • All receipts from airport development fees
  • Ten percent of dividends paid by state owned enterprises (SOEs) to the state
  • Revenue from sovereign guarantee fees
  • Other funds, or contributions, as the President may determine to be deposited in the fund on the advice of the Governing Council

SDF funds are proposed to be utilised as follows;

  • To repay national debt in the event of default
  • To provide the necessary funds for an unforeseen deficit as a result of an unforeseen economic shock

Additionally, upon passing of the bill into law, an office shall be established at the Ministry of Finance under the designation ‘Sovereign Development Fund Administration Office’ acting as an administrative body to manage the fund. The office will operate as an independent body with an independent budget.

A Chief Executive Officer (CEO) will be appointed to the office by the Governing Council, with the CEO required to submit a quarterly report to the Governing Council outlining the fund’s deposits, expenditures, investments and balances — an annual report of the fund shall also be published.

The Fund’s deposit thresholds shall be determined by the President on the advice of the Governing Council, with reductions subject to parliamentary approval. Once the threshold is reached, any excess will be diverted to the state’s budget as revenue.

Funds from the SDF may be invested, by an investment committee empanelled by the Governing Council and according to a documented investment policy formulated by the committee, to further expand the fund.

The central bank, MMA, will be the custodian of the fund, and thus will be responsible for preparing and sharing inflow and outflow reports as directed by the Governing Council.

The bill also outlines that the SDF may only be dissolved by the President, with the express consent of Parliament, in which case funds shall be deposited to the state budget.

The Sovereign Development Fund was established by President Abdulla Yameen Abdul Gayoom with the stated objective of cushioning the state from a debt default, due to unforeseeable shocks to the nation’s economy.

Initially set up as a US dollar-denominated fund, prior to the COVID-19 crisis, the shortage in US dollars (USD) during the pandemic, saw the accumulated funds converted to Maldivian Rufiyaa on 30 December 2020 under the Ibrahim Mohamed Solih administration.

One of the first orders of business for the current Muizzu administration was to reconvert the fund, and subsequent deposits, to USD.