Maldives Monetary Authority (MMA)'s Governor Ali Hashim, on Sunday, warned that borrowing foreign funds to finance development projects could have a negative impact on exchange rates.
Speaking at the parliamentary committee reviewing the 2020 State Budget, Governor Hashim requested the parliament to caution the government against initiating projects without guaranteeing a source to acquire the required foreign currency.
Despite Maldives' decision to reopen borders on July 15, he highlighted the continued shortages in Maldives' foreign currency market which resulted from disruptions to the global tourism industry as a result of the COVID-19 pandemic.
Governor Hashim expressed concern that the projects scheduled for commencement in 2021 in the proposed State Budget were not feasible considering projected state revenue figures and Maldives' economic situation.
In the event that Maldives' economic situation did not improve in the upcoming year, the MMA governor stated that the state government would face difficulties in managing cash flow and fail to carry out planned projects.
As the majority of planned projects for next year are to be funded through foreign loans, Governor Hashim urged the state to prioritise acquiring concessional finance, particularly for social and environmental initiatives.
Elaborating on potential sources of concessional finance, he highlighted that the World Bank and International Monetary Fund (IMF) had announced plans to introduce green financing and blue financing schemes in 2021.
Although the 2021 State Budget proposed by the Ministry of Finance projects total government expenditure at MVR 33.3 billion, overall revenue, including foreign assistance, was only noted at MVR 17.8 billion.
Additionally, Minister of Finance Ibrahim Ameer revealed estimates that national debt would reach 124 percent of Maldives' GDP by the end of 2021, as the government continues to borrow to cover its budget deficit.
The Maldivian economy is expected to contract by 29.3 percent by the end of 2020.
As with numerous countries around the world, amid the ongoing COVID-19 pandemic, Maldives closed its air and sea borders to tourist arrivals from March 27 to July 15.
The restrictions on international travel left Maldives' heavily tourism reliant economy in an extremely vulnerable state. In mid-April, the World Bank projected that Maldives would be the worst-hit economy in the South Asian region due to the pandemic.