The government, on Thursday, requested the Parliament to suspend certain provisions of the Fiscal Responsibility Act for a one-year period, as a legislative remedy to navigate through the challenges posed by the COVID-19 pandemic in a fiscally responsible manner.
In a letter addressed to the Parliament Speaker Mohamed Nasheed, Minister of Finance Ibrahim Ameer requested Parliament's assistance to suspend Article 32, section (a), (d), and (e) of the Fiscal Responsibility Act, and quoted Article 36 of the Act, which outlines circumstances for exemptions, as a justification for his request.
Article 32, section (a) of the Act stipulates the conditions for the government to borrow from the central bank. As per the provision, the government is required to pay back the borrowings in full within a 91-day period, with an interest rate not below market rates. The conditions set out in the provision also caps the maximum borrowable amount to not exceed 1% of average government revenue over the past 3-year period.
Section (d) of Article 32 of the Fiscal Responsibility Act states that effective January 2016, the government can only borrow for the purpose of procuring resources for development projects and to increase economic productivity. The section prohibits borrowings for the purpose of paying a debt.
Section (e) of Article 32 lays out exemptions to section (d) of the Act, and authorizes the government to borrow from the central bank for the purpose of managing the government's cash flow, under the condition to repay the borrowings within a 14-day period.
"Although the finance ministry has an obligation to implement the Fiscal Responsibility Act, amidst the global COVID-19 pandemic and the ensuing economic slowdown and fiscal challenges the country is facing, it is impossible for the ministry to carry out our work as stipulated in Article 32 of the Act under current circumstances", wrote the finance minister in his letter addressed to the Parilaiment Speaker.
The Fiscal Responsibility Act came into effect in 2013 amidst increasing public debt, intended to achieve fiscal stability and sustainability and sets the minimum standards for fiscal transparency and accountability for the government.
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