| Abstract: | From October 19 to 27, 2009, a World Bank team in collaboration with the Commonwealth
Secretariat undertook a debt management performance assessment of the Government of the
Republic of Maldives (GRM). The objective was to undertake a comprehensive assessment
of debt management functions using the Debt Management Performance Assessment tool
(DeMPA, version of November 2008). As part of the assessment, the team met relevant
officials dealing with public debt management in Maldives from the Ministry of Finance and
Treasury (MOFT), the Maldives Monetary Authority (MMA), the Attorney General, the
Auditor General‘s office, the National Disaster Management Centre, Capital Markets
Development Authority, the State Bank of India and the Bank of Maldives (see Annex 1 for a
list of meetings).
The assessment for Maldives was timely. The current situation shows moderately high
government debt levels (around 55 per cent of GDP) with sustainability indicators reflecting
vulnerabilities (at current trajectory of primary deficit, the IMF Article IV report estimated
debt levels would reach 75 per cent of GDP by 2013). The recently concluded Public
Expenditure and Financial Accountability (PEFA) findings highlighted areas for
improvement relating to budget execution and credibility, audit and legislative oversight,
cash management and the treasury single account (TSA), and monitoring and managing fiscal
risks. Meanwhile, the government has significant funding needs to meet development and
growth priorities (gross financing including rollover is estimated at an average of 12-13 per
cent of GDP per year for the next 5 years). This requires prudent debt management to avoid
debt–related vulnerabilities from crystallizing. The DeMPA tool was applied to Maldives to
assess the strengths and areas for improvement in debt management operations and provide a
baseline for undertaking future reforms in debt management.
The main findings of the mission are summarized below:
Governance and Strategy Development
• The primary legislation (the Constitution and the Public Finance Law, 2006) provide
authorization to borrow and issue debt and loan guarantees; in addition the requirements for
reporting and audits are also specified. Pre-authorization for specified borrowing purposes is
a requirement. An important gap, however, is that the objectives for debt management are not
specified in the law.
• A debt management strategy is not prepared and no entity is given the responsibility to
coordinate its formulation in the government. There is a lack of focus on total central
government debt which is a priority area for reform, especially when contemplating the
development of the strategy. There is no description of measures to develop the domestic
debt market.
Coordination with Macroeconomic Policies
• Coordination among the debt management entities, the fiscal advisors and monetary
authorities has been weak with infrequent exchange of information. The Macro Economic
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Coordination Committee (membership from the MOFT and the MMA1,) does provide the
structure but needs to meet more regularly.
• External debt service projections are provided by the External Resource Management
Division of the MOFT to the Budget Division, but a debt sustainability analysis is not
undertaken by them.
Domestic & External Borrowing
• On the external borrowing side, yearly borrowing plans with a detailed assessment of the
most beneficial terms (lowest cost) from creditors are prepared. Due diligence through a
formal organizational structure and procedural requirements is exercised while issuing loan
guarantees and on-lending funds. However, due to staff shortages credit risk assessments
prior to issuing loan guarantees are not always done in a consistent and regular manner for all
loan guarantees.
• There is no borrowing calendar available for accessing the domestic markets. The
reliance on Ways and Means Advances (WMA) from the central bank constrains the
development of the domestic market. The market participants, however, informed the mission
that transparency and disclosure practices on the part of the government were strong which
was also demonstrated by the disclosure of information on the MMA website.
Cash Balance Management and Cash Forecasting
• Steps were being taken by the MOFT to improve cash management for the entire
government, through the development of a model to forecast cash flows. The government
had a large number of bank accounts (over 1800) that were not reconciled on a daily/weekly
basis.
Operational Risk Management
• There are readily accessible procedures manuals for contracting, recording, and servicing
debt. However, business continuity and disaster recovery plans were not in place. Data
security practices (offsite storage, etc) were weak. There was no established procedure in
case of emergency situation. Key person risk was high and recruitment and retention of
skilled staff is a severe constraint.
Debt Records and Reporting
• Recording of debt data is completed within reasonable time. There is, however, no
centralized reporting of total central government debt; domestic guaranteed loans are not
reported and a debt statistical bulletin giving risk indicators was not published. On the quality
of debt data, debt data records were accurate and complete for all external loans, albeit with a
lag of some months for external guarantees and on-lent funds but data for domestic debt
(specially the recent securitized advances with the MMA) were being uploaded onto the
Book Entry System.
1 The Fiscal affairs and Economic Policy Division, Department of Inland Revenue, External Resources
Management Division from MOFT sits on the technical level committee whereas the membership of the ―Policy
Committee‖ comprises of the Minister of Finance and the State Minister, Minister of State for Fisheries and
Agriculture, MMA Advisor to the Governor, Deputy Minister of Economic Development, Permanent Secretary
Ministry of Tourism and the Department of National Planning. |
