Deputy Governor of the Maldives Monetary Authority (MMA), Ahmed Imad, has said that the reduction in capital expenditure will have an impact on economic growth. Imad was responding, during a hearing of the Parliament Public Accounts Committee on Wednesday, to a question by Member of Parliament (MP) for Vilufushi, Hassan Afeef, on whether cutting capital expenditure instead of reducing recurrent expenditure would have an adverse impact on economic growth.

“We also believe that a contraction in capital expenditure will have an impact on growth,” Imad said.

Imad said the slowdown in capital expenditure would affect the pace of the economy, but responding to other questions in the committee hearing, he said the current administration was managing expenditure without financing large amounts or debt monetisation.

“When we look at the government expenditures in January, February and this month, we are managing by spending almost [all] what we get,” he said.

Members were concerned about the reduction in spending on development projects, but Imad’s comments in the committee made it clear that the MMA supports this approach and that this is what is necessary under current circumstances.

The Deputy Governor said it would be difficult to manage the economy as a whole without taking more stringent measures to cut costs, in addition to the measures already taken, and urged the nation to aim to cut costs even further.

Although the state’s US dollar revenue is increasing, it will be difficult to overcome the challenges facing the economy unless it makes major changes in spending by cutting expenditure and solving the problem of lack of US dollar availability through banks, Imad said.

Another reason for the cost cuts was the challenges in raising funds from both domestic and foreign markets. According to the Ministry of Finance’s Annual Borrowing Plan (ABP), the state will need to cover a total MVR 16.31 billion deficit in 2024. Imad said it would be difficult to implement the budget without major changes.

“There are difficulties in executing the budget in accordance with the advice given when we presented the budget, especially in obtaining financing. It is expected to be challenging to execute the budget without major reform changes,” Imad told the committee.

The ministry is looking to fund the projected MVR 16.31 billion deficit by issuing treasury bills and treasury bonds within the domestic market and to raise the remaining through project loans, sustainable financing, loans, and bonds via external sources. Additionally, the Ministry of Finance, in January, issued a Request for Proposals (RFP) seeking institutional investors to secure up to US$550 million through loans and treasury securities in line with the 2024 ABP.

While Imad denied that the Maldives would look to the International Monetary Fund (IMF) for assistance, the MMA concurs with the IMF recommendation of implementing a medium-term fiscal strategy targeted at reducing spending, he said.

The MMA also called for development projects to be cut in order to reduce expenditure. The agency advised to suspend implementation of projects that do not have enough allocated funds and to identify projects that can be scrapped from the budget.

Minister of Finance Mohamed Shafeeq, however, said no projects will be halted and that, for the time being, projects have been suspended until the required funds are available.