By Ajay Makan
September 24, 2007
The government is refusing to explain why it has borrowed $30 million from international bank HSBC at commercial interest rates.
Governments are generally able to borrow money from development institutions such as the World Bank or Asian Development Bank at below market rates.
But HSBC is a profit making private bank, and their loan must be repaid at 2.25% above LIBOR, LIBOR is the floating rate at which banks lend to each other.
LIBOR is currently at just over 5%. Repayments are due to start in two years and must be complete within eight.
A Finance Ministry statement said the loan will be used “to rebuild harbours destroyed in the 2004 tsunami,” and for, “other important projects.”
But Finance Minister Gasim Ibrahim had already earmarked finance for harbour rebuilding in his 2007 budget.It is the second time the government has turned to HSBC for finance. In 2002, the bank lent just over $10 million for the redevelopment of Gain airport.
But this time the government has borrowed for an already budgeted spend, adding to fears it has failed to raise finance to meet the ambitious spending plans outlined in Gasim’s $1 billion budget.
Analysts are speculating on other possible motives for borrowing from a private bank.
A Colombo based financial journalist said a development bank would demand expenditure is linked to development projects, whereas a commercial lender does not impose any limits on how money is spent.
The HSBC loan could therefore be intended for money printing, or to resolve a short term cash flow crisis.
"But 7.5% is not a bad rate for a country like the Maldives, if they spend it wisely. It just depends what they are going to use it for," she added.
Ali Hashim the former shadow Finance Minister, suggested the government may have been forced to borrow from a private bank because of a poor credit rating.
According to Hashim a team from Standard and Poor visited the Maldives two months ago to carry out an independent credit rating, but the Finance Ministry has refused to reveal the results.
“If the government’s credit rating is poor, private banks will be the only people they can get money off,” Hashim said.
Government finances have been under intense scrutiny following a barrage of negative assessments from international institutions, including the International Monetary Fund and Asian Development Bank.
But the government is avoiding questions about the loan. The Finance Ministry statement was not released to Minivan News or Jazeera, the papers most critical of the government.
Minister of state Rilwan Shareef told Minivan News “I have nothing to add to the press statement.” While Finance Minister Gasim Ibrahim said he was too busy to comment.
HSBC has so far also refused to comment.
