external debt management in maldives- tarun das

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Debt Management by the Government of Maldives:

Debt Profiles, Policies, Strategies, Systems, Techniques and

Assessment of Capacity Development Requirements

Draft Inception Report

Tarun Das1 Ph.D.,

PWC Debt Management Specialist

ADB Program on Institutional Strengthening

For Economic Management

Government of Maldives

Male, Maldives

January 2011

1The Consultant would like to express his gratitude to the PricewaterhouseCoopers (PWC) Pvt. Ltd.,particularly to Mr. Ranen Banerjee and Mr. Subramanian Sriram and the Asian Development Bank forproviding an opportunity to take up this consultancy work. The Consultant would also like to thank hiscolleagues Ms. Neha Gupta, Peter Griffin and John Wetherhold and various officers of the Ministry ofFinance and Treasury, Government of the Maldives, Capital Markets Development Authority, MaldivesMonetary Authority and State Bank of India Office at Male, Maldives for valuable discussions andproviding necessary data and information . The Inception Report expresses the personal views of theauthor, which do not necessarily imply the views of the PWC Pvt. Ltd., Asian Development Bank or theGovernment of the Maldives.

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Debt Management by the Government of Maldives

Draft Inception Report

Tarun Das


CONTENTS

Items Pages

Contents 2-3

Maldives at a Glace (World Bank Fact Sheet dated Sept 2009) 4-5

1. Introduction- Scope and Objectives of the Study

1.1 Basic objectives of the study1.2 Terms of Reference (TOR) for Debt Management Specialist

1.3 Resource mobilization visit to Male during 5-16 Dec 2010

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2. Debt Profile and Debt Management Strategies and Policies

2.1 Economic context for debt management2.2 Strength Weakness Opportunities and Treats (SWOT) analysis2.3 Debt profile2.4 Debt management systems and organizations2.5 Front offices, rules and procedures for borrowing2.6 Debt management strategies and policies

2.7 Limits on public debt2.8 Contingent liabilities2.9 Transparency and reporting of public debt2.10 Auditing of debt

9-22

91112151819

20212222

3. Debt Management Performance Assessment (DeMPA)

3.1 IMF public expenditure and financial accountability (PEFA)3.2 Main conclusions of DeMPA Report by WB and COM-SEC

22-25

2223

4. Debt Sustainability Analysis (DSA)

4.1 Joint DSA by the Fund-Bank

26-27

27

5. Capacity Building Assessment and Planned Outputs andDeliverables in 2010-2011

5.1 Work Plan Matrix5.2 Questionnaires

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2828

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Items Pages

Annex-1: List of officials and experts consulted 29-30

Annex-2A: List of documents consultedAnnex-2B: List of papers by Tarun Das

31-3334-37

Annex-3: Work Plan Matrix of the Debt Management Specialist 38-40

Annex-4: Questionnaire on Debt Management for ERMD

A. Debt recording, analysis and debt statistics: Coverage, Scope andQuality

B. Recording and Reporting: TransparencyC. Guarantees and other Contingent LiabilitiesD. Legal and Institutional Arrangements: Accountability

E. External Debt Management Policies, Strategies, Practices,Methods and SystemsF. Risk Management: Capacities and SystemsG. Debt Sustainability Analysis

41-49

41

424244

45

464650

Annex-5: Country Policies and Institutional Assessment (CPIA) 50

Annex-6: Questionnaire for the Maldives Monetary Authority (MMA)

and the Capital Markets Development Authority (CMDA)

51-52

Annex-7: Basic concepts of external debt and sustainability indicators

7.1 Definition of external debt7.2 Debt Sustainability and Fiscal Deficit

7.3 Debt Sustainability and Current Account Deficit7.4 Liquidity versus Solvency7.5 Debt Sustainability Measures

7.6 World Bank Classification of External debt7.7 Stress Tests7.8 Strategies and policy framework for debt management

53-59

5354

545455565759

Selected References 60-66

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Source: Gambia at a Glance, 12 September 2009, by the World Bank

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Debt Management by the Government of Maldives:

Debt Profiles, Policies, Strategies, Systems, Techniques and

Assessment of Capacity Development Requirements

Tarun Das Ph.D.


1. Introduction- Scope and Objectives of the Study1.1 Basic Objectives of the Study

This Inception Report summarizes the basic objectives and scope of the debt managementby the government of Maldives and the major duties, responsibilities and detailedwork plan of the Debt Management Specialist Mr. Tarun Das. The Report has beenproduced on the basis of discussions held with the principal stakeholders during theResource Mobilization Visit to Male in 5-16 December 2010 and the documents,information and advice provided by them.

The task of the Debt Management Specialist forms a part of a wider project called theInstitutional Strengthening for Economic Management Program beingfunded by the Asian Development Bank and being executed by thePricewaterhouseCoopers Private Ltd. over a period of two and half years startingwith December 2010. The main objective of the Program is to deepen andinstitutionalize the process of Medium Term Fiscal Framework (MTFF) and tobuild a more strategic and performance oriented budget management system and process, while strengthening financial accountability and transparency in theformulation, execution, monitoring, review and reporting of the budget at the centerand line ministries in the government of Maldives. The overall Programencompasses four major activities viz. integrating MTEF and MTFF, performance

budgeting, improvement of sectoral budgeting, debt management and efficient cashmanagement to be executed by the respective international specialists in associationwith the national consultants.

1.2 Terms of Reference for Debt Management Specialist

The services of a Debt Management Specialist are required for the External ResourcesManagement Division ERMD) in the Ministry of Finance and Treasury (MOFT),Government of Maldives at Male for a period of five months on intermittent basis during18 months from December 2010 to May 2012. The main assignment of the DebtManagement Specialist is to provide policy advice and assist in all areas related to publicdebt management. The Specialist will also have the responsibility of building localcounterpart capacity of relevant staff through hands-on training, organizing localworkshops and through working closely with national counterparts.

The following are the indicative scope of work and terms of reference. It is natural thatother related tasks will evolve during the course of the project period. However, the DebtManagement Specialist will try his best to transfer the knowledge and engage the staff forcapacity building.

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A. In Support of Debt Management

(i) Review and assess the Maldives debt management strategy and capacityrequirements to effectively meet debt management goals and recommend changesin line with best practices.

(ii) Review recommendations of ADB-TA on Strengthening of Debt Managementand update recommendations.(iii) Assess capacity development requirements for effective debt management

including hardware and software requirements.(iv)Further to proposed organizational set-up of expanded External Resource

Management Division (ERMD) propose arrangements to effectively coordinatefront, middle and back office functions.

(v) Review state debt profile (domestic and external debt) including contingentliabilities, and recommend development of a database to include domestic andexternal debt and which can link to externally funded project monitoring database.

(vi)Develop framework for debt sustainability analysis (DSA) building on

Commonwealth Secretariat Debt Recording and Management System (CS-DRMS) and based on critical assumptions.(vii) Prepare debt sustainability study jointly with ERMS Staff and recommend

feasible options for debt restructuring, including debt servicing requirements forthe next 5 to 10 years.

(viii) In coordination with Team Leader, develop debt scenario building as a part ofregular inputs into the Macroeconomic Coordination Committee (MECC).

(ix) Propose methodology for estimating relevant debt related indicators and developeffective reporting requirements.

(x) Prepare a debt management manual to include application of debt managementtechniques based on such parameters as interest rate, maturity, currency, graceperiod, guarantees.

(xi)Create an operational toolkit for debt sustainability analysis.(xii) Identify terms of reference and work plans for national consultants/ contractual

staff and assist in selection process.

B. In Support of Training

(i) Prepare workshops and support training arrangements with dedicated institutions toenhance skills set of ERMS.

(ii) Coordinate with the training expert and the capacity development expert to preparea training program for the concerned staff and provide necessary training.

C. Expected Expertise and Reporting Arrangements

The expert will have proven experience in debt management functions and in developingdebt management policies and measures in support of a national treasury and will spend25 percent of allocated time on training. The expert will have a relevant educational background in economics and/ or finance. The expert will work alongside Head ofExternal Resource Management Section (ERMS) and Team Leader.

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1.3 Resource Mobilization Visit to Male during 5-16 December 2010

Debt Management Specialist is working in association with four other internationalconsultants viz. Fiscal Economist/ Task Manager, Budget Expert, Sector BudgetExpert, and Cash Projection and Treasury Expert in order to ensure effective

coordination among debt management and other activities and sustainability of public debt over time. Along with other consultants, the Debt ManagementSpecialist visited Male, Maldives during 5-16 December 2010 and held discussionswith various stakeholders concerned with debt management and collected relevantdata and information. This Report has been prepared on the basis of thesediscussions and documents collected during the Resource Mobilization visit.

The Resource Mobilization Mission by the PricewaterhouseCoopers Private Ltd. (PwC)consultants started with the start-up meeting held at 10=30 hours on Sunday, the 5 th

December 2010 at the office of the Ministry of Finance and Treasury (MOFT) at theAmeenee Magu, Male, chaired by the Minister of State for Finance and Treasury,

Republic of Maldives and attended, amongst others, by the Deputy Minister, PermanentSecretary, Financial Controller, Directors and senior officers of the divisions concernedwith various aspects of the Public Financial Management (PFM) Reforms including debtmanagement. The mission ended with the wrap up meeting on Thursday, the 16th

December 2010 with the heads and senior officers of the concerned divisions in theMinistry of Finance and Treasury.

Discussions and Consultations

During the intervening period, the Debt Management Specialist had the opportunities tohold detailed discussions on data base, organizational set-up, legal framework, systems,

procedures, policies and strategies for management of public debt and contingentliabilities with the External Resource Management Division (ERMD) and Asset andLiabilities Management Section (ALMS) in the Ministry of Finance and Treasury(MOFT), and other major stakeholders viz. Maldives Monetary Authority (MMA),Capital Market Development Authority (CMDA), Bank of Maldives Ltd. (BML) and theState bank of India (SBI) at Male. Meetings and discussions with the MMA, CMDA,BML and SBI were jointly held by the Debt Management Specialist and the CashProjection and Treasury Expert. Annex-1 provides the list of officials consulted by theDebt Management Specialist.

Background Papers and Data Base

During the period under review, the Debt Management Specialist gathered variousbackground papers prepared by the MOFT, ADB, World Bank, IMF, Com-Sec andCrown Agents in London and prepared up-to-date data base on public debt, macro-fiscalparameters, Treasury bill yield and maturities. Debt Management Specialist also sharedsome of his own publications and reports on debt management with others. Annex-2provides a list of all documents and reports either collected by the Debt Management

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Specialist from MOFT or downloaded from the ADB/ World Bank/ IMF/ Com-Secwebsites or his selected publications shared with the concerned officials in the ERMD.

Questionnaires

For formulation of strategies, policies and systems, and conducting the debt sustainabilityanalysis for effective debt management, the Debt Management Specialist needs tohave additional data, information and views from the concerned nationalauthorities. For this purpose, a detailed Questionnaire is presented in the Appendix.The Questionnaire deals with the Profiles of Public Debt, Debt ManagementPolicies, Strategies, Legal and Institutional Systems, Techniques and an assessmentof the Capacity Building Requirements in Maldives. It was not possible to gatherall these information during the short first visit (5-16 December 2010). As the workwill be done on intermittent basis, the External Resources Management Division(ERMD) of the MOFT, which is the nodal body in charge of debt management, has been requested to collect the relevant information from various concernedauthorities in the intermittent period before the second visit of the DebtManagement Specialist.

2. Debt Profile and Debt Management Systems and Policies in Maldives

Annex-7 provides basic concepts on debt management and debt sustainability indicatorsand international best practices for debt management. In this section we discuss theexisting rules, regulations, procedures, and practices, institutional and legal systems fordebt management in Maldives.

2.1 Economic Context of Debt Management

A stable macroeconomic environment supported by sound macroeconomic policies is thefirst line of defense against any debt crisis. In recent years, Maldives recorded sustainedhigh growth rates averaging 5.5 percent per annum during 1998-2010 with moderateinflation around 5 percent and comfortable balance of payments position until 2004. Butthe economy was adversely affected by the 2004 Tsunami and subsequently by the globaleconomic slowdown and financial crisis during 2008-2009.

After the December 2004 tsunami disaster, the economy rebounded aided by significantincrease in tourism-related investment and government expenditure. The fiscal expansionwas, however, excessive, including large increases in public sector wages, employmentand subsidies. Budget expenditure increased to 63.1% of GDP and overall deficit to16.9% of GDP in 2008. Given high import dependency, large fiscal expansion led to amarked deterioration in balance-of-payments. The situation was exacerbated further by adrop in tourism income as a result of global financial crisis in 2008, leading to seriousdomestic and external imbalances and an overall macroeconomic stability.

Real GDP declined by 2.3% in 2009 (Table-2.1), due primarily to contractions intourism, fisheries, manufacturing and construction by 5.2%, 12.3%, 4% and 29.2%respectively. Annual point-to-point consumer inflation peaked at 17.3% in July 2008, but

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the high price hikes were quickly moderated, and the average inflation rate was moderateat 4.5% in 2009, down from 12% in 2008, mainly due to drop in food prices.

Based on the tourism rebound, real GDP growth is expected to be 4.8 percent in 2010.The governments policy efforts to redress macroeconomic imbalances and external

financing have helped to regain macroeconomic stability. Looking beyond stabilization,the government has costed and prioritized its medium-term development plan viz. theStrategic Action Plan. Donors showed strong support for the governments plan withpledges amounting to more than 80% of the required funding.

Downside key risks for growth and stabilization include the challenges for raisinggovernment revenues and implementing fiscal austerity measures for curtailingexpenditure, and the consequences of widening current account deficit and risingconsumer price inflation, if international food and fuel prices continue to rise.

Table-2.1: Macroeconomic Performance during 2000-2010Growth Rate 2000-2005 2006 2007 2008 2009 2010

GDP 4.7 18.0 7.2 6.2 -2.3 4.8

Primary 6.1 -0.3 -14.9 -4.5 -7.6 -2.9

--Fisheries 7.8 -0.9 -21.8 -7.6 -12.3 -5.8

Secondary 7.4 15.8 10.1 8.4 -11.2 2.4

--Manufacturing 3.8 14.6 3.4 2.8 -4.0 1.3

--Construction 10.9 20.5 20.0 16.3 -29.2 2.6

Tertiary 4.0 21.3 9.1 6.6 -0.0 5.9

Tourism -0.2 42.3 9.4 3.0 -5.2 14.4

Transport 9.4 18.5 8.3 9.4 1.9 3.9

Govt-Administration 10.2 13.8 15.7 13.7 7.1 -1.7

(% of GDP) 2000 2006 2007 2008 2009 2010

Primary 9.4 9.1 7.2 6.5 6.1 5.7

--Fisheries 6.0 6.3 4.6 4.0 3.6 3.2

Secondary 14.4 17.0 17.5 17.9 16.2 15.9

--Manuf 8.0 7.3 7.0 6.8 6.7 6.5

--Const 3.2 5.4 6.0 6.6 4.8 4.7

Tertiary 80.1 77.9 79.3 79.6 81.5 82.4

Tourism 33.0 27.4 27.9 27.1 26.3 28.7

Transport 14.5 18.5 18.6 19.2 20.0 19.8

Govt-Admn 11.8 14.8 15.9 17.0 18.7 17.5

Memorandum items:

GDP (Mln.Rf) 6,935.0 11,717.4 13,496.1 16,130.9 16,879.0 18,941.2

GDP (Mln.US$) 589.2 915.4 1,054.4 1,260.2 1,318.7 1,479.8

GDP Inflation 1.7 3.5 7.4 13.0 7.1 7.1

CPI-Inflation 3.0 2.7 6.8 12.0 4.5 4.0

Source: MMA

2.2 Strengths, Weakness, Opportunities and Threats (SWOT)

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A SWOT analysis of the Maldives economy is presented in Table-2.2. It is evidenced bythe table that Maldives has many weaknesses and threats to achieve higher growth. Thecountry needs to continue with strict fiscal prudence, to bring the public financial andgovernance reforms for private sector development to their logical ends, and to tackle the

risks due to variations of international prices of its major exports and major imports.

Table-2.2 SWOT Analysis of the Maldives Macro-economy

InternalEnviro

nment

Strengths

Democratic system with a multi-party system.

Dominant role of government through state-owned enterprises(SOEs) in virtually every sector except tourism.

Robust growth averaging 5.5% per annum in 1998-2010, despite theadverse impact of 2004 tsunami; and global recession in 2008-2009.

Annual average inflation rate remained moderate around 5% in2004-2010 except for 12.3% in 2008 due to high food and fuelprices.

Weaknesses

Small economy with a narrow economic base.

Geographic isolation, lack of arable land and small and dispersedpopulation are major constraints on diversification of the economy.

Weak institutions and human resource deficiencies are major

constraints, including the fragmented structure of govt.

Widening income disparities between Mal and the atolls.

Following the 2004 tsunami (fiscal deficit jumped to an average of8.7% of GDP in 2005-08, and 12.7% in 2008 compared to 3.8% in1999-2004.

The country is vulnerable to climate change (none of the islands ismore than 1.8 meters above sea level), and beach erosion.

Ext

ernalEnvironment

Opportunities

Highly open economy with fewer barriers for trade.

High potentials for fisheries exports and tourism income.

Donors have supported the governance reforms and the strategicdevelopment plans approved by the government and have pledgedmore than 80 percent of funding needs.

Threats

Being a small and open economy the Maldives is vulnerable toexternal environment including geopolitics, global economicdevelopments, and global climate change.

Heavy dependence on imports (90% of GDP in recent years);

Highly dependent on tourism and fishing contributing more thanone-third of national income

The country is highly dependent on imports of food and fuelproducts which make up almost 60% of total imports and comprise40% of the CPI basket.

Hardening of international food and fuel prices may have adverseimpact on the current account deficit, terms of trade, foreignexchange reserves and consumer price inflation.

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2.3 Debt Profile

It may be mentioned at the very beginning that there is no uniformityof reporting and estimation of the debt stock by the government ofMaldives and different multilateral organizations such as International

Monetary Fund (IMF), World Bank and Asian Development Bank (ADB).These differences may be due to different concepts and exchangerates used by different authorities and needs to be reconciled.

(a) Debt Portfolio as Estimated by IMF/World Bank Joint Study

As per the Joint IMF/World Bank Debt Sustainability Analysis (DSA) forMaldives2 under the Debt Sustainability Framework for Low IncomeCountries, conducted in November 2009, the total debt (total of publicexternal and domestic debt and private external debt) to GDP ratioincreased at a faster rate following the 2004 tsunami, and reached 110

percent of GDP in 2008. Growth in private external debt, used tofinance a rapidly expanding tourism sector, was particularly fast. Anincreasing fiscal deficit in 2007-2008 led to a build up of public debt,mostly in the form domestic debt. With limited recourse to externalfinancing in 2009 and a fiscal deficit at around 30 percent of GDP, totaldebt-to-GDP ratio was projected to reach 129 percent in 2009.

(b) Debt Portfolio as Estimated by World Bank GlobalDevelopment Finance

As per the World Bank estimates (see the Table reproduced below from

the World Bank Little Book on External Debt), the long term debt stockincreased significantly from US$71.2 million (amounting to 57 percentof the Gross National Income) in 2007 to US$109.4 million (amountingto 82 percent of the Gross National Income) in 2008. The debt stock aspercentage of exports of goods and services increased from 64 percentto 94 percent, while debt service ratio as percent of gross exports ofgoods and services remained unchanged at 6 percent over the period.

(c) Debt Portfolio as Estimated by Asian Development Bank

As per the ADB estimates, the debt stock as percentage of the Gross

Domestic Product (GDP) increased from 65 percent in 2007 to 98percent in 2008 and the debt stock as percentage of exports of goods

2Prepared jointly by the staffs of the IMF and the IDA in November 2009 inconsultation with ADB and approved by Kalpana Kochhar and Aasim Husain (IMF) andCarlos Braga and Ernesto May (IDA). The basic data were provided by the Maldivianauthorities.

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and services increased from 55 to 78, while debt service ratio aspercent of gross exports of goods and services increased marginallyfrom 5.6 to 6.2 percent over the period (details given in Table-2.3).

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Table-2.3-A: Maldives: Trends of Debt (in million US$)Items 1995 2000 2005 2006 2007 2008 2009

Total Debt stock (EDT) 78.0 206.1 389.6 484.2 576.3 986.8 1093.Long term debt 64.0 184.7 327.4 379.9 439.8 499.0 589.0

Public & guaranteed 64.0 184.7 327.4 379.9 439.8 499.0 589.0Private non-guaranteed 0 0 0 0 0 0 0

Short-term debt 14.0 21.4 56.3 98.2 130.0 483.8 500.0Use of IMF credit 0 0 5.9 6.2 6.5 3.9 3.9

Total debt service TDS)(US$Mln) 8.8 19.8 35.3 38.8 50.1 62.1 99.5Repayment of long term debt 6 13.9 24.4 23.6 30.7 41.2 79.7Interest on Long term debt 1.3 4.7 9 10.2 12.4 13.9 12.7Interest on Short term debt 1.5 1.2 2.0 5.0 7.0 7.0 7.0

Gross Domestic Product (GDP) 399.0 600.3 749.8 915.4 1054.4 1260.2 1473.0Exp.of goods and services (XGS) 183 471 490 787 893 1009 1100

International reserves (RES) 24.4 122.8 186.3 231.4 308.3 240.6 261.0Debt Sustainability Indicators (in per cent)

Total Debt stock (EDT)/ XGS (%) 42.5 43.7 79.5 61.5 64.6 97.8 99.4Long term debt/ XGS (%) 34.9 39.2 66.8 48.3 49.3 49.5 53.5

Public & guaranteed/ XGS (%) 34.9 39.2 66.8 48.3 49.3 49.5 53.5Private non-guaranteed/ XGS (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Short-term debt/ XGS (%) 7.6 4.5 11.5 12.5 14.6 48.0 45.5Use of IMF credit/ XGS (%) 0.0 0.0 1.2 0.8 0.7 0.4 0.4TDS/ XGS (%) 4.8 4.2 7.2 4.9 5.6 6.2 9.0Amortization/XGS (%) 3.3 2.9 5.0 3.0 3.4 4.1 7.2Interest on LTD/ XGS (%) 0.7 1.0 1.8 1.3 1.4 1.4 1.2Interest on STD/ XGS (%) 0.8 0.3 0.4 0.6 0.8 0.7 0.6Total Debt stock (EDT)/ GDP (%) 19.5 34.3 52.0 52.9 54.7 78.3 74.2Long term debt/ GDP (%) 16.0 30.8 43.7 41.5 41.7 39.6 40.0Public & guaranteed/ GDP (%) 16.0 30.8 43.7 41.5 41.7 39.6 40.0Private non-guaranteed/ GDP (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Short-term debt/ GDP (%) 3.5 3.6 7.5 10.7 12.3 38.4 33.9Use of IMF credit/ GDP (%) 0.0 0.0 0.8 0.7 0.6 0.3 0.3TDS/ GDP (%) 2.2 3.3 4.7 4.2 4.8 4.9 6.8Amortization / GDP (%) 1.5 2.3 3.3 2.6 2.9 3.3 5.4Interest on LTD (%) 0.3 0.8 1.2 1.1 1.2 1.1 0.9Interest on STD (%) 0.4 0.2 0.3 0.5 0.7 0.6 0.5Long term debt to total debt (%) 82.1 89.6 84.0 78.4 76.3 50.6 53.9Short-term/ Total debt (%) 17.9 10.4 14.5 20.3 22.6 49.0 45.7

Table-2.3-B: Maldives-External Debt: Average Terms of New Commitment

Items 1995 2000 2005 2006 2007 2008

Interest (% per annum) 3.2 3.7 3.7 4.2 5.8 0.9

Maturity (years) 31.3 26.9 19.6 18.1 12.8 12.9Grace period (years) 9.1 6.9 4.6 4.1 3.1 4.0Grant element (%) 56.1 47.9 42.2 35.8 21.1 36.4Source: Data for Maldives from the Key Indicators for Asia and the Pacific 2010, published bythe Asian Development Bank,www.adb.org/statistics

(d) Debt Situation Reported in DeMPA Report

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As per the Debt Management Performance Assessment (DeMPA) Report conductedjointly by the World Bank and the Commonwealth Secretariat in October 2009, thepublic debt stock rose sharply to 54 per cent of GDP by 2008 from 43 per cent in 2004. Interms of the debt portfolio, domestic debt constituted 42 percent of total debt. Domesticdebt and was overwhelmingly (more than 85 per cent) short-term. At the end of 2008, the

outstanding balance of Ways and Means Advances (WMA) from the Maldives MonetaryAuthority (MMA) accounted for 60 per cent of total domestic debt with another 20 percent contributed by Treasury bills. With regard to external debt, 54.5 percent wasmultilateral loans, 21.7 percent commercial/ supplier credit, 11.4 percent bilateral and12.4 percent other loans. Special Drawing Rights (SDR) accounted for 37.1 percent of thecurrency composition of external debt, while the US dollar and Euro accounted for 31.5and 22.2 percent, respectively.

(e) Debt Portfolio as Estimated by MOFT and MMA

Yet another set of debt estimates (details given in Table-2.4) are

available from the Ministry of Finance and Treasury, Government ofMaldives and the Maldives Monetary Authority (MMA). As per theseestimates, the total public debt stock as percentage of the GrossDomestic Product (GDP) increased from 52 percent at the 2007 to 69percent in 2008 and increased further to 100 percent in 2009 and isexpected to increase to 120 percent at the end of 2010.

Table-2.4: Fiscal Situation and Outstanding Debt

(As percentage of GDP at current market prices)Item Revenue Exp Balance Forgn-Fin Dom-Fin Total debt Foreign Domestic

1997 30.5 31.9 -1.4 2.9 -1.5 39.7 25.0 14.7

1998 30.4 32.3 -1.9 2.0 -0.1 41.0 25.6 15.4

1999 32.1 36.1 -4.1 0.8 3.2 40.1 24.3 15.9

2000 32.3 36.7 -4.4 0.0 4.3 40.9 22.9 17.9

2001 33.0 37.7 -4.7 1.9 2.8 43.5 23.9 19.5

2002 33.1 38.0 -4.9 4.5 0.4 47.0 26.9 20.2

2003 34.8 38.2 -3.4 4.7 -1.3 46.1 29.6 16.5

2004 34.5 36.0 -1.6 4.1 -2.5 43.1 30.5 12.6

2005 48.1 59.0 -10.9 2.4 8.4 52.6 34.0 18.7

2006 52.5 59.3 -6.8 4.5 2.3 50.9 32.4 18.5

2007 56.1 60.8 -4.7 4.6 0.1 51.7 32.7 19.0

2008 46.2 63.1 -16.9 4.6 12.2 68.7 37.4 31.2

2009 35.6 65.0 -29.4 4.7 24.8 99.5 43.5 56.0

2010 38.0 58.8 -20.9 0.6 20.3 120.0 43.8 76.2

Source: MOFT and MMA

2.4 Debt Management Systems and Organization

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The two main entities responsible for the management of external and domestic debt arethe External Resources Management Division (ERMD) at the MOFT and the Public DebtDepartment at the MMA. The responsibilities are distributed as follows:

1. ERMD has the following 3 Sections responsible for inter alia, negotiating,

contracting, recording and repayment for all external debt. Table-2.5 indicates thedetailed functional responsibilities of these sections.(a) Financial Institution Section(b) Debt Policy and Mobilization Section(c) Aid Coordination Section

2. In addition, the Assets and Liabilities Section under the Financial ControllersOffice has the responsibility of recording all government guarantees given forboth domestic and external debt.

3. MMA as the fiscal agent for the government, and responsible for domestic

management along with the Budget Division in the MOFT, issues governmenttreasury bills (TBs) and government securities (G-Secs) and offers advice to theGRM on all aspects of issuance of TBs and G-Secs. Although there exists aCommittee comprising members from the MOFT and MMA to decide on thefinancing needs of the government, in practice the MMA makes the decisions onissuance strategy regarding the frequency, amount, timing and method ofissuance, and type and duration of instruments given the manner of operations ofthe Ways and Means Advances (WMA) to the MOFT, and then obtains approvalfrom the Financial Controller at MOFT.

4. The Public Debt Department at the MMA is responsible for the issuance ofTreasury bills and recording and repayments, and sends the required reports andinformation to the Financial Controller at the MOFT.

5. There are also a few important Committees responsible for debt management.These include the following:

(i) External Resources Coordination Committee that meets every Tuesday with theVice President as the Chairman. The focus of this Committee is more onimplementation of externally-funded projects (color codes assigned dependingon implementation status);

(ii) Macro Economic Coordination Committee (MECC) which comprises two sub-committees the policy and technical sub-committees. The members

comprise MMA, MOFT, FC, and for the policy sub-committee,representatives from the ADB and the WB. The MECC deals with, amongother matters, fiscal numbers, balance of payments, national planning,fisheries, and tourism. It does not meet regularly, although there is acommitment now to the ADB to meet on quarterly basis.

(iii) There is a Liquidity Management Committee(iv) which determines the amount of roll over of the existing treasury bills and

issuance of new TBs.

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(v) In addition there was anAid Management Coordination Committee which had theimportant mandate of deciding on the funding of projects with direction fromthe National Planning Council and coordination with ERMD. This is not inoperation now.

Table-2.5: Functions of the External Resource Management Division

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The above discussion indicates that the traditional functions of front, middle and debtoffices are not clearly structured and focused. The managerial structure for debtmanagement in GRM lacks an integrated approach towards the management of totalcentral government debt as there is no single entity responsible for the same.

There is also lack of coordination among MOFT and MMA and among variousCommittees regarding their activities. The two main entities ERMD and MMA do notexchange debt information regularly. None of the Committees cited above is entrustedwith the functional responsibility or terms of reference for coordinating activities inrelation to debt management or exchanging information on total central government debt.

However, the authorities are aware of these problems and presently engaged inreorganizing the divisions and sections in the MOFT for strengthening the PublicFinancial Management (PFM) systems and the debt management. It is understood that theprocess has been initiated and is evolving in the right directions. Once the reorganizedstructure becomes fully operational and cash management arrangements become more

effective, the decision making for debt management will be with the MOFT.

2.5 Front Office, Rules and Procedures for Borrowing

The ERMD compiles a pipeline of projects that is identified by line ministries, the WorldBank Country Assistance Strategy and a three year program of the Asian DevelopmentBank and approved by the National Planning Council (NPC) and included in the Budgetfor a particular year. An assessment of the cost-effective and most beneficial terms andconditions that can be obtained from potential creditors and markets is identified and presented to the Minister. These are then evaluated within the framework for theunderlying assumptions with regard to the forecast on external debt service; the costs arediscussed with the Minister of Finance and the NPC. Ministerial approval is obtained forthe assumptions as that forms the basis of the external borrowing plan. Concessionalfinancing is proposed for those projects that fall within the priority areas identified fordevelopment by the NPC. Commercial funding is proposed for those projects fallingoutside this priority area, such as maintenance of buildings. The borrowing assumptionsare updated at least twice per year (with IMF Article IV consultations) and also beforeany new loan is undertaken.

There are internal documented procedures for all external borrowing. A term sheet isprepared for negotiations and after the signing of a loan agreement. Currently, due to staffshortages, no time is specified for capturing the terms sheet on the CS-DRMS. In additionas per the Law on Public Finances, the ERMD has 30 days to report the details of theloan agreement (amount, purpose and authorizations) to the Majlis.

Legal advisors are involved before the negotiation of a loan is concluded. When loannegotiation takes place in the Maldives, legal advisors are involved for a more substantialpart of the negotiations, this is however not the case if negotiations are conducted outsidethe Maldives.

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2.6 Debt Management Strategies and Policies

There is no formal debt management strategy and policy in place and there is no singleunit that oversees the total central government (including domestic and external) debtportfolio. There are no specific benchmarks regarding the mix between domestic and

external debt for financing fiscal deficit. There are no benchmarks on borrowing rate,maturity mix of public debt currency mix of external debt.

An ad hoc decision making process determines the extent of public debt every year whileformulating the budget. The external financing choice is driven by the projects on the onehand, and availability of lenders, on the other hand. Capital expenditures are matchedwith the projected disbursements from pipeline external loans. For new projects, requestsfrom line ministries are examined, taking into account their consistency with the priorityprojects determined by the National Development Council. Often, line ministries sign amemorandum of understanding with the lender, effectively committing the government tothe loan, although it is the Finance Minister who signs the loans and there have been

occasions when the loans were not accepted on the basis of the MOFT recommendations.

As regards financing fiscal deficit, the current practice is to maximize the inflows of aidand to finance the residual by external debt. Most of the borrowing is financed byconcessional loans from multilateral and bilateral lenders. Under agreement with theIMF, there is a minimum requirement of concessional debt at 45 percent of total debt.There is also a cap on the total amount that the government can borrow in commercialterms. The agreement with the IMF established limits on commercial borrowing of $70million for 2009 and cumulatively to $120 million till 2010. To the extent that aid andconcessional debt is maximized, the implicit strategy has been on cost minimization.

However, the IMF guidelines on concessional loan are not not exactly followed inMaldives nor is there an established target of the minimum grant element that must beachieved. Commercial loans are sought for priority projects that donors will not finance,for example to construct government buildings. The residual that is not financedexternally is borrowed domestically. In the past, the government relied heavily on theoverdraft facility extended by the MMA through the Ways and Means Advances (WMA)Account. When the residual deficit financing needs exceeded the limits set for the WMA,Treasury bills were issued to the MMA.

The government stopped receiving direct credit from the Maldives Monetary Authority(MMA) from September 2009 and domestic financing is now made up of T-bills andbond issues. In December 2009, the Ministry of Finance, in conjunction with the MMAintroduced formal treasury auctions for 28-day and 91-day T-bills to market participants(largely state-owned enterprises (SOEs) and commercial banks).

In August 2009, the MMA fully securitized outstanding balances in the Ways and Means(WAM) account to medium- and long-term treasury bonds. These instruments are beingused to carry out open-market operations (OMOs) with the commercial banks in an effortto mop up excessive rufiyaa currency liquidity. The objective now is to maintain zerodomestic financing at the end of the year. This effectively means that the balance in the

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WMA Account will be zero at the end of the year, and that the overdraft facility will notbe available for budget financing. In addition to Treasury bills, there is a plan to issue a2-year US dollar denominated bond in the domestic market. There is no stated strategyfor developing the domestic debt market and the secondary market for governmentsecurities.

Under the current project, the government has committed to the Asian DevelopmentBank to develop a debt management strategy by June 2011. ERMD in the MOFT hasbeen sensitized and is fully committed to the need to develop the debt managementstrategy and policies.

2.7 Limits on Public Debt

Under the Memorandum of Economic and Financial Policies signed with the IMF, thereis a ceiling on the stock of non-concessional debt3 of any maturity contracted orguaranteed by the public sector with non-residents, regardless of the timing of

disbursements. The public sector is defined as the central government, the MMA, andother agencies acting on behalf of the central government.

Excluded from the ceiling are (i) the use of Fund resources; (ii) lending from the WorldBank, the Asian Development Bank, and the International Fund for AgriculturalDevelopment; (iii) debts incurred to restructure, refinance, roll over, or prepay existingdebts, to the extent that such debt is incurred on terms at least as favorable as the terms ofthe existing debt; (iv) concessional debts; (v) any rufiyaa-denominated treasury bills andgovernment bonds, and MMA bills held by nonresidents; (vi) debts classified asinternational reserve liabilities of the MMA; (vii) the rollover of existing guarantees; and(viii) normal import financing. A financing arrangement for imports is considered to benormal when the credit is self-liquidating.

For program purposes, the guarantee of a debt arises from any explicit legal obligation ofthe central government, the MMA, or other agencies on behalf of the central governmentto service a loan in the event of nonpayment by the recipient (involving payments in cashor in kind), or indirectly through any other obligation of the central government, theMMA, or other agencies on behalf of the central government to finance a shortfallincurred by the loan recipient.

For program purposes, a debt is concessional if it includes a grant element of at least 35percent. The grant element of a debt is the difference between the net present value

3 Debt is defined as a current, not contingent, liability, created under a contractual arrangement throughthe provision of value in the form of assets (including currency) or services, and which requires the obligorto make one or more payments in the form of assets (including currency) or services, in future point(s) intime; these payments will discharge the principal and/or interest liabilities incurred under the contract.Debts can take a number of forms, such as (i) loans (including deposits, bonds, debentures, commercialloans, buyers credits, collateralized loans, repurchase agreements and official swap arrangements); (ii)suppliers credits, (iii) leases, and (iv) arrears, penalties, and judicially awarded damages arising from thefailure to make payment under a contractual obligation that constitutes debt are debt.

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(NPV)4 of debt and its nominal value, expressed as a percentage of the nominal value ofthe debt. Loans provided by a private entity will not be considered concessional unlessaccompanied by a grant or grant element provided by a foreign official entity, such asboth components constitute an integrated financing package with a combined grantelement equal to at least 35 percent.

2.8 Contingent Liabilities

Regarding the preparation and issuance of loan guarantees, ERMD, Asset and LiabilitiesSection and the Public Enterprises Monitoring and Evaluation Board (PEMEB) under theMOFT, are responsible for the preparation, issuance and monitoring of all loanguarantees. All loan guarantees are issued with approval of the Minister of Finance; theanalysis note for approval is prepared by ERMD/PEMEB. ERMD records and monitorsall external loan guarantees while PEMEB do so for all domestic loan guarantees.

However, it appears that there is no comprehensive contingent liability management and

policy paper indicating the definition, identification and measurement of contingentliabilities, policies for approval and deciding sectors eligible for guarantees,determination of guarantee fees, contingent liability fund or guarantee redemption fund.

When a state owned enterprise (SOE) needs a guarantee to borrow, a request is submittedto the MOFT together with the required documents that provide information on thesoundness of the SOE and information with regard to the guarantee. This is anestablished procedure and the list of documents is available to all borrowing entities. TheMOFT (PEMEB or ERMD) then assesses the possible exposure under the guarantee.This task is however not done consistently (because of staff shortages). A notice to issuea guarantee is submitted for the recommendation of the Minister of Finance; the Presidentgives final approval. As per estimates by the DeMPA Report, the government currentguarantees include 15 loans (5 external and 10 domestic) with an outstanding value ofUS$98 million. Currently no guarantee fee is charged. There are polices regarding theactivities to be guaranteed these are in accordance with the national development policiesas part of the developmental agenda of the country12. These policies and procedures aswell as the required information by the SOE is documented and therefore meets theminimum requirement for dimension one.

Domestic guarantees are managed and monitored by the Public Enterprises Monitoringand Evaluation Board (PEMEB), while external guarantees are managed by the ERMD.

4 The NPV of debt at the time of its contracting is calculated by discounting the future stream of paymentsof debt service due on this debt. The discount rates used for this purpose are the currency specificcommercial interest reference rates (CIRRs), published by the Organization for Economic CooperationDevelopment (OECD). For debt with a maturity of at least 15 years, the ten-year-average CIRR will beused to calculate the NPV of debt and, hence, its grant element. For debt with a maturity of less than 15years, the six-month average CIRR will be used. To both the ten-year and six-month averages, the samemargins for differing repayment periods as those used by the OECD would continue to be added (0.75percent for repayment periods of less than 15 years, 1 percent for 15 to 19 years, 1.15 percent for 20 to 29years, and 1.25 percent for 30 years or more).

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The servicing of the domestic guaranteed loan is however not monitored. Dimension onecould be scored a B if a credit assessment were done consistently for all guarantees.

The government receives loans in foreign currency and on-lends these loans in localcurrency. The loans are usually on-lent at the same maturity which therefore eliminates

maturity mismatches. There is, however, exchange rate risk since the government needsto obtain the foreign currency at the buy price while it is provided at the selling price tothe SOE, this costs the government the difference between the buy and sell price. TheMRF however floats against the euro and SDR, and on-lending in these currencies (indomestic currency) poses an exchange rate risk to government. The interest rate chargedfor on-lending is the prevailing Treasury bill rate (usually 91-day).

2.9 Transparency and Reporting on Public Debt

The Law on Public Finances requires that the government submit an Annual Report to thePeoples Majlis. Accordingly, an annual report is prepared and submitted. The annual

report describes the new mandate, functions and activities of the ERMD, and presentstotal external debt outstanding and disbursed, organized by creditors, on-going projects,debt service payments, new borrowings, the terms and amounts of the loans, subsidiaryagreements (for on-lending), and guarantees. It also describes the training and TA carriedout, and missions that were received. However, evaluation of the total debt managementsituation is not facilitated as domestic and external are presented in different reports.

2.10 Auditing of Debt

Under the Audit Act, 2007 an independent4 Auditor Generals (AG) Department was setup in 2008. Under this Act the Auditor General at any time may conduct a performanceaudit of any ministry or department of the GRM. In the past, external audits wereprimarily compliance audits with some degree of a performance assessment. Now theAGs Department is undertaking combined audits, both financial and performance. Theaudit of the MOFT was completed in the past year, and ERMD was included in that, butthis was not an audit of the activities, policies and operations of ERMD. The financialaudit of MMA was undertaken on April 30, 2009; internal audit of MMA is undertakenand can be a random check. There has, however, been no internal audit of the ERMD.Also there has been no external audit of the activities, policies and operations of theERMD and the Public Debt Department of the MMA undertaken within the past 5 years.

3. Debt Management Performance Assessment (DeMPA)By the World Bank and COMSEC

From October 19 to 27, 2009, a World Bank team in collaboration with theCommonwealth Secretariat (COMSEC) undertook a Debt Management PerformanceAssessment (DeMPA) of the Government of Maldives (GRM). At that time the debtlevel of Maldives was moderately high around 55 per cent of GDP with vulnerablesustainability indicators.

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The DeMPA comprises a set of 15 debt performance indicators (DPIs), which aim toencompass the complete spectrum of government debt management (DeM) operationsand the overall environment in which these operations are conducted. While the DeMPAdoes not specify recommendations on reforms and capacity and institution building, the performance indicators do stipulate a minimum level that should be met under all

conditions. Consequently, if the assessment shows that the minimum requirements arenot met, this will clearly indicate an area requiring attention or priority reform.

The scope of the DeMPA is central government debt management activities and closelyrelated functions such as issuance of loan guarantees, on-lending, cash flow forecastingand cash balance management. Thus, the DeMPA does not assess the ability to managethe wider public debt, including implicit contingent liabilities (such as liabilities of the pension system) and the debt of state-owned enterprises (SOEs), if these are notguaranteed by the central government.

The scoring methodology assesses each dimension and assigns a score of either A, B or C

based on the criteria listed. The evaluation starts by checking whether the minimumrequirement for that dimension has been met, corresponding to a score of C. A minimumrequirement is the necessary condition for effective performance under the particulardimension being measured. If the minimum requirements set out in C are not met, then aD score is assigned. In the cases where a dimension cannot be assessed, an N/R (not ratedor assessed) score is assigned. The A score reflects sound practice for that particulardimension of the indicator. The B score is an in-between score lying between theminimum requirements and sound practice.

3.1 The IMF Public Expenditure and Financial Accountability (PEFA)

The Public Expenditure and Financial Accountability (PEFA) conducted by the IMFhighlighted need for improvement relating to budget execution and credibility, audit andlegislative oversight, cash management and the treasury single account (TSA), andmonitoring and managing fiscal risks. The governments gross financing needs to meetdevelopment and growth priorities, including rollover of short term debt, were estimatedto be 12-13 per cent of GDP per year for the next 5 years. This requires prudent debtmanagement to avoid debtrelated vulnerabilities.

Although improvements are underway in many areas, the recent PEFA assessment by theIMF indicates significant weaknesses in public financial management. Budget credibilityis low, although the budget formulation is comprehensive. Budget execution, control, procurement, accounting and reporting are weak. External and internal audit andlegislative oversight have also been weak.

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3.2 Main Conclusions of the DeMPA Report

The main findings of the DEMPA mission of October 2009 are summarized below:

(a) 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, and specifythe requirements for reporting and audits. Pre-authorization for specifiedborrowings is a pre-condition for borrowing. However, the law does not specifythe objectives for debt management.

There is no written debt management strategy no entity is given the responsibilityto coordinate the formulation of debt management strategies and policies in thegovernment. There is a lack of focus on total sovereign debt or public debt(including both domestic and external debt) which is a priority area for debt

management reforms.

In fact, there is no description of measures to develop the domestic debt market, bond market and the capital markets. There are only primary dealers of thetreasury bills and no secondary markets. The maximum maturity of treasury billsis only 182 days, and the MMA does not issue one year treasury bills orgovernment bonds with longer maturity.

(b) Coordination with Macroeconomic Policies

Coordination among the debt management entities, the fiscal advisors and

monetary authorities is weak with infrequent exchange of relevant data andinformation. The Macro Economic Coordination Committee (comprisingmembers from the MOFT, MMA, and Financial Controllers office) provides thedesired structure but there is no clear agenda for the Committee and it does notmeet regularly.

External debt service projections are provided by the External ResourceManagement Division (ERMD) of the MOFT to the Budget Division, but a debtsustainability analysis is not undertaken by them. Although the latest Fund-BankDSA was conducted in association with the ERMD and an officer has beentrained recently by the World Bank for running the DSA, significant efforts are

necessary to upgrade the capacity of the ERMD to execute the DSA templates inthe Fund-Bank framework.

A credible macrofiscal modeling is a pre-requisite for making the next 20 yearsprojections of major macroeconomic variables for the national accounts, balanceof payments and government finance, which form the basic inputs for DSA. Sosuch projections are done in the government and the MMA. Although a medium

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term projection for the three-year rolling budget and MTEF is done for thepreparation of the budget, it is not sufficient for conducting the DSA.

(c) External Borrowing

On the external borrowing side, annual borrowing plans with a detailedassessment of the most beneficial terms (lowest cost) from creditors are prepared.Due diligence through a formal organizational structure and proceduralrequirements is exercised while issuing loan guarantees and on-lending funds.However, there does not exist a written contingent liability policy indicatingpriority sectors and eligibility criteria for providing guarantees. In addition, due tostaff shortages, credit risk assessments prior to issuing loan guarantees are notalways done in a consistent and regular manner for all loan guarantees.

(d) Domestic Debt

There is no advance borrowing calendar available for accessing the domesticmarkets. The reliance on Ways and Means Advances (WMA) from the centralbank constrains the development of the domestic market. The market participants,however, informed that they are satisfied by transparency and disclosure practiceson the part of the government and the MMA, and the disclosure of information onthe MMA website on regular basis.

(e) Debt Records and Reporting

Recording of external debt data in the ERMD is complete. The recording ofdomestic debt by the MMA is also complete within reasonable time. The MMA inassociation with the Budget Division of MOFT now provides information on totalcentral government debt (combining domestic and external debt).

(f) Cash Balance Management and Cash Forecasting

Steps have been taken by the MOFT and MMA to improve cash management forthe entire government, and there exists a liquidity forecasting model and cashmanagement group. The model needs to be improved significantly to forecastgovernment revenues and expenditure on monthly basis. The government had alarge number of bank accounts that are not reconciled on a daily/weekly basis.

(g) Operational Risk Management

There are accessible manuals on rules and procedures for contracting, recordingand servicing debt. However, business continuity and disaster recovery plans arenot in place. Management of systems failures and data security practices (offsitestorage, etc) are weak. There is no established procedure in the case of anemergency situation. Key personnel risk is also high with high level of turn outs,

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lack of succession plan for crucial positions and delay in the recruitment andextension of skilled staff.

(h) Contingent Liabilities

The Assets and Liabilities Section in the Financial Controllers Office is in chargeof consolidating the information on guarantees and other contingent liabilities.However, domestic guaranteed loans are not reported and a debt statisticalbulletin giving debt sustainability and risk indicators is not published. As regardsquality and comprehensiveness, debt data records are accurate and complete forall external loans, albeit with a lag for external guarantees and on-lent funds. Datafor domestic debt (specially the recent securitized advances with the MMA) arebeing uploaded onto the Book Entry System.

4. Debt Sustainability Analysis (DSA)

The ERMD within the MOFT provides three year forecasts for the servicing of existingexternal debt and future disbursements based on a pipeline of projects for budgetarypurposes. The currency composition of external debt is also presented. Although the bulkof the borrowing is done at fixed rates, variable rate debt comprises 15 percent of theexternal debt portfolio. As a prudent measure, a five percent buffer for movements ininterest and exchange rates is included in the debt service projections. There is, however,no formal sensitivity analysis done to determine if this buffer is sufficient or not. Aninvestigation into the national budget by the DeMPA Report shows that for 2007, the 5percent buffer was almost apt, as the actual amount for interest payments on external debtwas MRF 341.7 million against the budgeted MRF 325.4 million (nominally higher thanthe 5 percent). The estimates for 2008 show that external debt interest payments will be16 percent higher at MRF 396.9 million than the budgeted figure of MRF 339.3 million6.This can mainly be attributed to higher borrowing rates during the global financial crisiswhich also resulted in higher refixing rates with regard to the 15 percent of variable rateloans in the debt portfolio.

The technical sub-committee of the MECC discusses movements in macroeconomic andother fiscal variables and makes recommendations for the budget to the policy sub-committee. The policy sub-committee in turn, approves the recommendations that arethen included in the Budget. The ERMD provides information on disbursements, debtservice and the status of projects. This technical sub-committee, however, does not meetregularly and so is not an efficient vehicle to share fiscal information. The ERMD doesnot have access to key fiscal variables for planning purposes. No debt sustainabilityanalysis (DSA) is undertaken (staff had recently been trained and it is expected that aDSA group will be formed soon in the MOFT).

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4.1 Joint IMF/World Bank Debt Sustainability Analysis(DSA)

Joint IMF/World Bank Debt Sustainability Analysis (DSA) for Maldives5

under the Debt Sustainability Framework for Low Income Countries,

conducted in November 2009, concluded that Maldives is rated to be at amoderate risk of debt distress. Vulnerabilities for total public debt are higher, andaddressing them will require timely implementation of the authorities strong fiscal

adjustment program. The borrowing space in the short and medium terms has shrunk

after the recent accumulation of large fiscal and external deficits. The build-up of privateexternal debt prior to the onset of the global financial crisis and of public domestic debt

(mainly owed to the Maldives Monetary Authority, MMA) in the last two years has

intensified the debt burden. Key risks for debt sustainability are large future shocks toexports or fiscal policy slippages. Satisfactory implementation of the fiscal adjustment

proposed under the program would lead to a sustained downward path in the public and

external debt stocks.

It may be mentioned here that vulnerabilities were judged on the basis of the Maldivesoverall policies and institutions, as measured by the World Banks Country Policy andInstitutional Assessment (CPIA), averaging 3.53 over the past three years (2006-2008),making Maldives as a medium performer. The relevant indicative thresholds for thiscategory of countries are summarized in Table-4.1. These thresholds are applicable topublic and publicly guaranteed (PPG) external debt.

Table-4.1: Indicative Thresholds for Maldives

Indicators Thresholds

1. Net Present Value (NPV) of debt to GDP ratio (%) 40

2. Net Present Value (NPV) of debt to Exports ratio (%) 150

3. Net Present Value (NPV) of debt to Revenue ratio (%) 250

4. Debt Service to Exports of Goods and Services ratio (%) 20

5. Debt Service to Revenue ratio (%) 30

5Prepared jointly by the staffs of the IMF and the IDA in November 2009 inconsultation with ADB and approved by Kalpana Kochhar and Aasim Husain (IMF) andCarlos Braga and Ernesto May (IDA). The basic data were provided by the Maldivianauthorities.

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Annex-1List of Officials Consulted by the Debt Management Specialist

During the First Visit to Male, Maldives from the 5 th to 16th December 2010

Name Designation Contact Number e-mail id

Ministry of Finance and Treasury, Ameenee Magu, Male 20379, Maldiveswebsite: http://www.finance.gov.mv

Ahmed As-ad Minister of Statefor Finance &Treasury

Tel: 3349208 [email protected]

Ismail Shafeeq PermanentSecretary

Tel: 3341997Mob: 7783850

[email protected]

MohamedAhmed

FinancialController

Tel: 3314869Mob: 7771372

[email protected]

Fathmath

Nuzuha

Deputy Minister Tel: 3349284 [email protected]

Hassan Waheed Funds Executive Tel: 3349182Mob: 7781250

[email protected]

FathimathRazeena

Public AccountsExecutive

Tel: 3349178Mob: 7791696

[email protected]

Aminath Sudha AssistantDirector

Mob: 7676224 [email protected]

MariyamFazleenaMusthafa

Senior AccountsOfficer (ADBDesk)

Tel: 3349290Mob: 7836311

Ali Rashid Budget Division Mob: 7913023 [email protected]

FathimathRazeena

Public Acc.Executive

Tel: (960)334-9178Mob: (960)779-1696

[email protected]

Aminath Manik Director GeneralExternalResourcesManagementDivision (ERMD)

Tel: (960)334-9223Mob: (960)778-6906

[email protected]

Ahmed Salah Senior AdministrativeOfficer, ERMD

Tel: (960)334-9245Mob: (960)771-8391

[email protected]

Abdulla Hassan ERMD [email protected]

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Capital Markets Development Authority, 4th Floor, MTCC Tower,Boduthakurufaanu Magu, Male, Maldives

FathimathShafeega

Chief ExecutiveOfficer

Tel: 3336621 [email protected]

Maldives Monetary Authority, Capital Markets Development Authority, 4th Floor, MTCCTower, Boduthakurufaanu Magu, Male, Maldives,

website: http://www.bankofmaldives.com.mv

Ahmed Munawar Manager,Monetary Section,EconomicResearch andStatistics Division

Tel: 3312343Mob: 7944169

[email protected]

Mariyam Rashfa Manager,Research andPublicationsSection, MonetaryPolicy andResearch Division

Tel: 3322268Mob: 7591089

[email protected]

State Bank of India, Boduthakurufaanu, Magu, Male, Maldives

B.N. Jha Senior VicePresident (Accountand Admin)

Tel: 3328619Mob: 7796922

[email protected]

Bank of Maldives PLC Head Office, 11 Boduthakurufaanu Magu, Male 20094, Maldives

LasanthaThennakoon

Chief FinancialOfficer

Tel: (960)333-0243Mob: (960)799-0479

[email protected]

MohamedAhmed

Head ofDevelopmentBanking Cell

Tel: (960)333-0162Mob: (960)777-4187

[email protected]

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Annex-2-A

List of Documents

Either Received from ERMD, MOFT

Or Downloaded from websites of ADB, IMF, WB, COMSEC, Crown Agents

And Ministry of Finance, India

Asian Development Bank (2007) Maldives: Borrowing Capacity Assessment, pp.1-9,ADB, Manila, September 2007.

Asian Development Bank (2009) Proposed Program Loan, Technical Assistance Loan,and Technical Assistance Grant, Republic of the Maldives: Economic RecoveryProgram- Project Number: 39658 - Report and Recommendation of the President to theBoard of Directors, pp.1-73, November 2009.

Asian Development Bank (2010a) Asian Development Outlook 2010, Country Report

on Maldives, pp.177-179, ADB, Manila.

Asian Development Bank (2010b) Asian Development Outlook 2010 Update, pp.172-177, ADB, Manila.

Asian Development Bank (2010c) Maldives, Key Indicators for Asia and the Pacific,pp.1-7, ADB, Manila.

Canada- Department of Finance (2010) Debt Management Strategy 2010-2011, pp.1-12, March 2010.

Crown Agents (2005) Final Report- Republic of Maldives, Strengthening of DebtManagement, submitted to Asian Development Bank, Contract reference No:TA 4196,Crown Agents reference No.T22821, June 2005.

Government of Maldives (2009) Aneh Dhivehi Raajje- The Strategic Action Plan,National Framework for Development 2009 2013, pp.1-528., November 2009.0 00 E71 00 E 72 00 E 73 00 E 74 00 E 75 00 E 76 00 EIan Storkey (2003) Government cash and treasury management reform, pp.1-4, TheGovernance Brief, Asian Development Bank, Manila.

India, Government of (2010a)Indias External Debt at End-December 2009,pp.1-27, Ministryof Finance, New Delhi, March 2010, www.finmin.nic.in.

.India, Government of (2010b)Fiscal Policy Strategy Statement for the Indias Budget for 2010-2011,1-8, Ministry of Finance, New Delhi, March 2010, www.finmin.nic.in.

.India, Government of (2010c) Indias External Debt- A Status Report 2009-2010, pp.1-102,Ministry of Finance, New Delhi, August 2010,www.finmin.nic.in.

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http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/


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India, Government of (2010d) Public Debt Management Quarterly Report July-September2010,pp.1-32, Ministry of Finance, New Delhi, November 2010, www.finmin.nic.in.

India, Government of (2010e) Government Debt Status and Road Ahead,pp.1-52, Ministry ofFinance, New Delhi, November 2010,www.finmin.nic.in.

International Monetary Fund (2003) External Debt Statistics- Guide for Compilersand Users, 2003, IMF,Washington D.C.

International Monetary Fund (2008a) Republic of Uzbekistan: Poverty Reduction

Strategy Paper, pp.1-143, IMF Country Report No. 08/34, IMF, Washington D.C.,January 2008.

International Monetary Fund (2009a) IMF Executive Board Discusses ManagingPublic Debt: Formulating Strategies and Strengthening Institutional Capacity, pp.1-3,Public Information Notice (PIN) No. 09/45, April 6, 2009.

International Monetary Fund (2009b) Debt limits in Fund-Supported Programs:Proposed New Guidelines, pp.1-36, Prepared by the Strategy, Policy, and ReviewDepartment (in consultation with other departments), Approved by Reza Moghadam,August 5, 2009.

International Monetary Fund (2009c) MaldivesAssessment Letter for the AsianDevelopment Bank and World Bank, pp.1-2, November 24, 2009.

International Monetary Fund (2010a) Maldives: Letter of Intent, Memorandum ofEconomic and Financial Policies, and Technical Memorandum of Understanding, pp.1-15, March 16, 2010.

International Monetary Fund (2010b) Maldives: Action Plan for PFM Reforms Basedon PEFA Assessment, pp.1-23, IMF Country Report No. 10/138, May 2010.

International Monetary Fund (2010c) Maldives: Public Financial ManagementPerformance Report, pp.1-67,IMF Country Report No. 10/137, May 2010.

International Monetary Fund (2010d) Maldives: First Review Under the Stand-ByArrangement and the 24-Month Arrangement Under the Exogenous Shocks Facility andRequests for Waivers of Nonobservance of Performance Criteria and Modification ofPerformance Criterion Staff Report; Press Release on the Executive Board Discussion;

and Statement by the Executive Director for Maldives, pp.1-40, IMF Country Report No.10/167, June 2010.

International Monetary Fund (2010e) Statement at the Conclusion of the IMF StaffMission to Maldives, pp.1-2, Press Release No. 10/421, November 8, 2010.

International Monetary Fund (IMF) and International Development Association

(IDA) (2009) Maldives, Joint IMF/World Bank Debt Sustainability Analysis under the

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http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/http://www.finmin.nic.in/


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Debt Sustainability Framework for Low Income Countries, approved by KalpanaKochhar and Aasim Husain (IMF) and Carlos Braga and Ernesto May (IDA), pp.1-15,November 25, 2009.

International Monetary Fund and the World Bank (2003) Guidelines for Public Debt

Management: Accompanying Document and Selected Case Studies, 2003, Washington.International Monetary Fund and the World Bank (2008) Medium Term DebtManagement Strategy (MTDS) Analytical Tool User Guide, pp.1-13, October 9, 2008.Macroeconomic and Financial Management Institute of Eastern and Southern

Africa (MEFMI) (2005) Public Debt Management Procedures Manual, pp.1-73.Magnusson, Tomas; Abha Prasad and Ian Storkey (2010) Guidance for OperationalRisk Management in Government Debt Management, pp.1-18, Economic Policy andDebt Department, World Bank, March 2010.Melecky, Martin (2007) A Cross-Country Analysis of Public Debt ManagementStrategies, pp.1-42, Policy Research Working Paper 4287, Banking and DebtManagement Department, The World Bank, July 2007.

PricewaterhouseCoopers (2010) Steering the Economy- TA7424-MLD, InstitutionalStrengthening for Economic Management, Government of Maldives- Technical Proposal,for the Asian Development Bank, pp.1-59, Government Reforms and InfrastructureDevelopment (GRID), Public Finance Division.World Bank (2000) Sovereign Debt Management Forum: Compilation of Presentations,

November 2000, World Bank, Washington D.C.World Bank (2003a) Republic of Uzbekistan Country Economic Report, ReportNo.25625-UZ, Europe and Central Asia Region, April 30, 2003, Washington D.C.World Bank (2003b) Off budget risks and their management, Chapter-3, Philippines

Improving Government Performance: Discipline, Efficiency and Equity in Managing

Public Resources- A Public Expenditure, Procurement and Financial Management

Review (PEPFMR), Report No. 24256-PH, A Joint Document of The Government of thePhilippines, the World Bank and the Asian Development Bank, Poverty Reduction andEconomic Management Unit, World Bank Philippines Country Office, April 30, 2003.World Bank (2007)Promoting Growth and Higher Living Standards- Some DiagnosticTools and Project Options, pp.1-27, Power Point Presentation, World Bank, Europe andCentral Asia Region, March 12, 2007.World Bank (2009a) Maldives at a Glance, pp.1-2, September 2009.World Bank (2009b) Maldives- Debt Management Performance Assessment (DeMPA),pp.1-28, Economic Policy and Debt Department, October 2009.World Bank (2010a) Maldives Economic Update, pp.1-11, April 2010.World Bank (2010b) The Little Data Book- World Development Indicators, pp.1-246,World Bank, Washington D.C., 2010.World Bank (2010c) The Little Data Book on External Debt- from Global DevelopmentFinance, pp.1-156, World Bank, Washington D.C., 2010.

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UN-ESCAP and the Ministry of Finance, Government of Samoa, at Apia, 20-22August 2005.

11. Das, Tarun (2005c) Management of External Debt in India and Lessons forOther Developing Countries, pp.1-35,UN Economic and Social Commission for

Asia and Pacific, Bangkok.

12. Das, Tarun (2005d) Management of External Debt and Medium Term FiscalFramework for the Government of Indonesia, presented at the Multi-stakeholdersConsultation on the External Debt and Fiscal Responsibility Law, organizedjointly by the United Nations Institute for Training and Research (UNITAR), theAustralian Agency for International Development (AusAID) and the Ministry ofFinance, Government of Indonesia, at Jakarta, 28 November- 2 December 2005.

13. Das, Tarun (2006c) Management of External Debt and Medium Term FiscalPolicy Framework for the Government of Cambodia, presented at the National

Workshop on External Debt Management, organized jointly by UN-ESCAP andthe Ministry of Finance, Government of Cambodia, at Phnom Penh, 21-22February 2006.

14. Das, Tarun (2006d) Management of External Debt and Medium Term Fiscal PolicyFramework for the Government of Lao PDR, presented at the National Workshop onExternal Debt Management, organized jointly by UN-ESCAP and the Ministry ofFinance, Government of Lao PDR, at Vientiane, 23-25 February 2006.

15. Das, Tarun (2006e) Management of External Debt and Medium Term Fiscal Policy Framework for the Government of Nepal, presented at the NationalWorkshop on External Debt Management, organized jointly by UN-ESCAP and

the Ministry of Finance, Government of Nepal, at Katmandu, 24-28 May 2006.

16. Das, Tarun (2006f) Management of External Debt and Medium Term FiscalPolicy Framework for the Government of Malaysia, presented at the InternationalConference on Global Economic Prospects,, organized by organized by theMalaysian Institute of Economic Research (MIER), at Kuala Lumpur, 5-7 Dec2006.

17. Das, Tarun (2008e) Medium Term Macroeconomic Framework and the DebtSustainability Analysis for the Government of Gambia, presented at the NationalWorkshop on Debt Sustainability Analysis, organized jointly by the

Commonwealth Secretariat, and the Ministry of Finance, Government of Gambia,at Banjul, 18-21 August 2008.

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B. Tarun Das Selected Papers on Medium Term Budgeting/ Program Budgeting

18. Tarun Das (2008a) Guidelines on Medium Term Budgeting, pp.1-33, ADB-CBPGR, MOF, Mongolia, January 2008.

19. Tarun Das (2008b) An Introduction to Program Budgeting and ProgramEvaluation Review Technique (PERT), pp.1-36, ADB-CBPGR, MOF,Mongolia, June 2008.

20. Tarun Das (2008c) Budget Performance Evaluation- Methodology, Systems andManagement, pp.1-55, ADB-CBPGR, MOF, Mongolia, May 2008.

21. Tarun Das (2007a) Preparation of Strategic Business Plans- StructuralFramework and Guidelines to Line Ministries, pp.1-74, ADB CBPGR, MOF,Mongolia, July 2007.

22. Tarun Das (2007b) Performance based program budget for Ministry ofEducation, ADB-CBPGR, MOF, Mongolia, December 2007.

23. Tarun Das (2007c) Performance based program budget for Ministry of SocialWelfare, ADB-CBPGR, MOF, Mongolia, December 2007.

24. Tarun Das (2007d) Performance based program budget for Ministry ofAgriculture, ADB-CBPGR, MOF, Mongolia, December 2007.

25. Das, Tarun (2008b) Financial Planning - Part-1: Methodology, pp.1-34, andFinancial Planning Methodology and Policies- Part-2: Policies, pp.1-32, ADB

Capacity Building Project on Governance Reforms, Ministry of Finance,Government of Mongolia, Ulaanbaatar, Jan 2008.

C. Tarun Das Selected Papers on Macro-Fiscal Modeling and Projections

26. Das, Tarun (2010a) Upgraded Nepal Macroeconomic Model- Main Conclusions,Vol.1. pp.1-50, Asian Development Bank Capacity Building Project onGovernance Reforms,Nepal Rastra Bank, 30 May 2010.

27. Das, Tarun (2010b) Upgraded Nepal Macroeconomic Model- Analyticalframework, model structure, data base, test and calibration techniques, computeralgorithms, projections and simulations, Volume-2, pp.1-80, Asian DevelopmentBank Capacity Building Project on Governance Reforms,Nepal Rastra Bank, 30May 2010.

28. Das, Tarun (2010c) Best Fitted Econometric Relations, Volume-3, pp.1-70,Asian Development Bank Capacity Building Project on Governance Reforms,Nepal Rastra Bank, 30 May 2010.

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29. Das, Tarun (2010d) An Operational Consistent Macroeconomic AccountingForecasting Model for Gambia- Analytical framework, Model Structure andSpecifications, Data Base, Test and Calibration Techniques, ComputerAlgorithms, and Base Line Projections, pp.1-71, African Development Bank

Institutional Support Project on Economic and Financial Governance (ISPEFG),the Gambia, Banjul, 31 July 2010.

D. Tarun Das Lectures on National Accounts, BOP, GFS and MFS

30. Official Economic statistics- Part-1 on Government Finance Statistics (GFS) andBalance of Payments (BOP) Statistics, pp.1-70, UN Statistical Institute for Asiaand Pacific, Chiba, Japan, Aug 2007.

31. Official Economic statistics- Part-2 on Monetary and Financial statistics (MFS)and MultiFactor Productivity Measures (MFP), UN Statistical Institute for

Asia and Pacific, Chiba, Japan, Aug 2007.

32. Official Economic statistics- Part-3 on National Accounts and Input Outputanalysis, UN Statistical Institute for Asia and Pacific, Chiba, Japan, August2007.

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Annex-3-BWork Plan Matrix Of Tarun Das, Debt Management Specialist

During Dec 2010- Dec 2011

Terms of reference 5 Dec-16 Dec2010-

1st Visit2 Weeks

15 Jan-15 Feb2011-

2nd Visit4 weeks

April2011-

3rd Visit4 weeks

Aug2011-

4th Visit4 weeks

Dec2011-

5th Visit3 weeks

Outputs andComments

Visit for resourcemobilization and backgroundstudy

Finalization of workplan and draft outlineof the InceptionReport inconsultation with theTeam leader and DG(ERMS) during firstvisit

Preparation of the InceptionReport

Inception Reportduring 2nd visit

A. In Support of Debt Management

(xii i) Review and assessthe Maldives debtmanagement strategy

and capacityrequirements toeffectively meet debtmanagement goals andrecommend changes inline with best practices.

Report on DebtManagementStrategy during the

3rd visit (Draftoutline during the2nd Visit)

(xiv) Reviewrecommendations of ADBTA on Strengthening ofDebt Management andupdaterecommendations.

Review Report onADB-TA DebtManagement Reportduring 2nd Visit

(xv)Assess capacitydevelopmentrequirements for effectivedebt management

including hardware andsoftware requirements.

Report on capacitydevelopmentrequirementsincluding technical

manpower and ICTUpgradation duringthe third visit

(xvi) Further to proposedorganizational set-up ofexpanded ExternalResource ManagementDivision (ERMD) proposearrangements toeffectively coordinatefront, middle and backoffice functions.

Report on structuralreorganization ofERMD &coordination of front,middle, back andhead offices, andother organizationsdealing with debtmanagement duringthe 4th visit

(xvii) Review state debtprofile (domestic andexternal debt) includingcontingent liabilities, and

recommend developmentof a database to includedomestic and externaldebt and which can linkto externally fundedproject monitoringdatabase

Report on databaseon domestic andexternal debt andcontingent liabilities,

and linkages withproject monitoringdatabase during thefifth visit (draftoutline during thethird visit)

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Annex-3-BWork Plan Matrix Of Tarun Das, Debt Management Specialist


Terms of reference 5 Dec-16 Dec

2010-1st Visit2 Weeks

15 Jan-15 Feb

2011-2nd Visit4 weeks

April2011-

3rd Visit4 weeks

Aug2011-

4th Visit4 weeks

Dec2011-

5th Visit3 weeks

Output andComments

(xviii) Develop framework fordebt sustainability analysis(DSA) building on theCommonwealth SecretariatDebt Recording andManagement System (CS-DRMS) and based on criticalassumptions.

Report on theDevelopment of DSAframework andHands-on training inthe fourth visit(draftreport and beginningof hands on training inthe third visit)

(xix) Prepare debtsustainability study jointly

with ERMS Staff andrecommend feasible optionsfor debt restructuring,including debt servicingrequirements for the next 5to 10 years

Report on debtrestructuring during

the fifth visit.

(xx) In coordination with TeamLeader, develop debtscenario building as a part ofregular inputs into theMacroeconomicCoordination Committee(MECC).

Report on Debtscenario building asinputs for the MECCduring the fifth visit(draft outline duringthe fourth visit).

(xxi) Propose methodology

for estimating relevant debtrelated indicators anddevelop effective reportingrequirements.

Report on Debtsustainabilityindicators & reportingarrangements in thefifth visit.

(xxii)Prepare a debtmanagement manual toinclude application of debtmanagement techniquesbased on such parametersas interest rate, maturity,currency, grace period,guarantees.

Debt ManagementManual in the fifthvisit (dealing withdebt managementtechniques andbenchmarks forvarious parameters tominimize cost / risk)

(xxiii) Create an operationaltoolkit for debt sustainabilityanalysis.

DSA Toolkit in thefourth visit

(xxiv) Identify terms ofreference and work plans fornational consultants/contractual staff and assist inselection process.

TOR, desiredexperience and Workplan for nationalconsultants will beincluded in theInception Report tobe submitted in thesecond visit.

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Annex-3-CWork Plan Matrix of Tarun Das, Debt Management Specialist


Terms of reference 5 Dec-16 Dec

2010-1st Visit2 Weeks

15 Jan-15 Feb

2011-2nd Visit4 weeks

April2011-

3rd Visit4 weeks

Aug2011-

4th Visit4 weeks

Dec2011-

5th Visit3 weeks

Output andComments

b. In Support of Training

(i) Prepare workshops andsupport trainingarrangements withdedicated institutions toenhance skills set of ERMS.

Identification ofsupport institutions,conducting workshopsand EvaluationReports of trainingduring therespective visits

(ii) Coordinate with the trainingexpert and the capacitydevelopment expert toprepare a training programfor the concerned staff andprovide necessary training.

Final report ontraining needs andtraining programs inthe fifth visit.

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Work-shoponDom.Debt inassociationwithCS,London

Work-shoponDSA

Work-shoponDSA

Work-shopondebtrestructuring

Preparation oftrainingprogram

Reportontrainingprogram


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B. Recording and Reporting: Transparency

B.1 For each of the components of external debt indicated in the table, which institutionsare responsible for recording and reporting the information?B.2 Which institutions can instantaneously retrieve from their databases up-to-dateinformation for the items listed below? Which documents report such figures? What is

the time lag in reporting?(a) Outstanding external debt by creditor and debtor classifications(b) External debt by sectors(c) Guaranteed external debt by sectors(d) Total debt services- classified by amortization and interest payments

B.3 Which types of external debt, in your view, notreported to the following authoritiesand why? Give reasons for not reporting. Reasons could be not available, in publicinterest, official secrecy, national security etc.

(a) Ministry of finance(b) Cabinet

(c) Central bank(d) Parliament(e) Foreign investors(f) Public

C. Guarantees and other Contingent Liabilities

C.1 Contingent liabilities include government guarantees, and financial losses ofinstitutions that are covered by some type of government guarantee, state insurance andsocial security programs, and all government commitments to spend or intervene or bailout financial or other strategic institutions financially in the future. Contingent liabilitiescan be broadly groups under two heads: explicit(defined by a law or contract) orimplicit(broadly predetermined by public expectations and pressures by interest groups).

(a) Which Ministry/ Department is responsible for deciding on governmentguarantees and other contingent liabilities?

(b) Are there written documents on the scope and various aspects (such as eligibility,limits, guarantee fees etc.) relating to government guarantees and other contingentliabilities? If yes, give details and provide copies of such documents.

C.2 Is the government legally required to explain the amounts of government contingentliabilities? If yes, specify the Act and Legislation. Also specify to whom these arereported- to the Parliament, to the public, and others (please specify).

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C.3 Tick () the types of contingent liabilities borne by the government.1. Government guarantees given to loans taken by:

(a) Sub-national governments (i.e. provinces and local governments)

(b) Government operated or controlled corporations,

(c) Public sector banks and financial institutions

(d) Entities under public-private partnership(e) Private sector entities

2. Umbrella government guarantees for various types of loans in priority sectors(mortgage loans, student loans, and loans to agriculture, housing, microenterprises, and other priority sectors)

3. Exchange rate guarantees issued by the government for external loans or foreigncurrency denominated non-residents or residents deposits with banks

4. Government guarantees on various types of risks (including market, currency,regulatory, political etc) in BOT contracts in infrastructure

5. State insurance and social security schemes such as deposits insurance, healthinsurance, private pension funds, crop insurance, natural calamity insurance,war-risk insurance etc., Funds for old age, children, women, unemploymentallowances etc.

6. Guarantees on benefits (unfunded liabilities) of the social security system(public pension and provident funds)

7. Others, if any, please specify

C.4 Describe the following in details:(a) Government guarantees: the requirements for their design (the type of risks that

can be covered, the extent of required risk sharing), issuance authority (is onlythe ministry of finance a