The Government of President Abdulla Yameen offered sovereign guarantees to public and private entities looking for foreign investment in certain areas. This move is purportedly intended to facilitate and promote industry and development. In a separate move, also aimed at development-budgeting, the Government has decided to float bonds worth $ 200 m in the international market in the New Year, as against cheaper loans and Treasury bills, the latter exclusively targeting the local purchasers.
According to Maldives Independent’s web journal, sovereign guarantees will not be given for loans with interest rates below four percent. These loans can be used to finance tourism-related projects and social housing projects that are in line with government criteria. According to the regulations, the main purpose of the regulation is to ensure guarantees given by the state are transparently provided in an equal way and in compliance with sound principles.
The “Government will charge an annual administrative fee of 0.25 per cent and a one-time fee for sovereign guarantees” which are not offered by many countries to private sector projects. The company must also pay for the cost of the evaluation, which will be done by an independent auditor firm or the finance ministry. The Government will pay the loan dues to the company if the company defaults. After selling the mortgaged assets, the Government will reclaim the money from the debtor-company.
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For sovereign guarantees to be issued, the public finance law doesn’t require parliamentary approval. The Maldives Independent noted that documents must be submitted the Public Accounts Committee of Parliament (PAC). “The government has provided sovereign guarantees to foreign companies in the past. A $328 million sovereign guarantee was given to a Turkish company that had been contracted to construct 5,000 units of housing in Hulhumale, the capital’s suburb.
Going Global
Nearly simultaneously, the Finance Ministry announced plans to approach international finance markets with a sovereign bond issue of $ 200 million. According to the Maldives Independent, the nation’s first ever international sovereign bond will “help raise funds for infrastructure projects…and…further open the door for both private- and State-owned businesses to raise money overseas”. It added that the process would “help develop the country’s capital market and monetary system”.
The Government sought the assistance of Moody’s global credit rating agency. This has given it a rating of B2 for local and foreign currency issues. It is considered “speculative” and is subject to high credit risks. Moody’s believes that the outlook and rating reflect the country’s healthy growth prospects, low institutional strength, high debt burden and moderate susceptibility to events, which are primarily driven by domestic politics.
Business Savvy
President Yameen, a Maldivian politician, is considered to be business-savvy and well-versed in understanding global economic trends. This more than Gasim Ibrahim, founder of Jumhooree Party, who was known for his rags-to riches story. Yameen was the Finance Minister during his seven-year stint as a minister under Maumoon Abdul Gayoom (half-brother, long-term President).
Apart from this, Yameen, who was his chosen Vice-President candidate in the 2013 election, was known to have assigned socio-economic ministries to the overall health care. He also worked closely with Abdulla Jihad, the Finance Minister at the time. Yameen is now able to rely on Jihad, who has extensive experience and expertise in economic and money matters, to be his third Vice President after his two failed attempts.
