“In 2017, we had the lowest fiscal deficit in 10 years, at 2% of GDP”

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The Maldives has been financing a “public sector investment boom,” Minister of Finance and Treasury Ahmed Munawar tells The Business Report, in a bid to set the building blocks for a stronger economy and, at once, join together a greater capital region. In our interview in Malé, Munawar told us about his outlook for the future in Hulhumalé, where the Ministry of Finance will be relocated to shortly following the country’s plan to establish an International Finance Center on the large reclaimed island.

Which of the current infrastructure projects will most redefine the Maldives?
Our government embarked upon an economic transformation agenda from day one, which we have reached by leading a public sector investment boom. Today, our number one priority is the airport expansion. From external financing, we have already secured close to $800 million, which covers the runway expansion, largely financed by Chinese concessions, as well as the passenger terminal expansion, which has received funds from GCC countries, including sovereign funds from Abu Dhabi, Saudi Arabia, Kuwait and OPEC. The Maldives owns the largest seaplane fleet in the world, which will also benefit from a new terminal.

Has there been interest in the new port project yet?
GCC investors are discussing the port relocation, another important project. We want to move the port from Malé to Thilafushi because the port in Malé is very congested and we can’t expand it further. The Maldives is an ideal location for sea traffic so Thilafushi will become a very important hub in the future. The government wants to join Hulhumalé, Malé, Thilafushi, and Hulhulé and develop a Greater Malé region. The Greater Malé region concept will make Thilafushi a very viable option for investment.

What fiscal targets best define the Maldives’ financial performance today?
In 2017, we had the lowest fiscal deficit for the first time in 10 years, estimated at 2% of GDP. It’s a huge achievement. This year, we’re trying to aim for less than 3.2%. It’s going to be election year, so the deficit will be a bit higher than last year, but still, we are trying to maintain it around 2% to 3%. We have also established a Shariah-compliant sovereign development fund. Our goal for the next two to three years is to have at least around $300 million in this development fund. This sum will be way over our usable reserves, which were $206.4 million at end-2017.

What is the vision for the new International Finance Center on Hulhumalé?
The first project of the International Finance Center will be the new 25-story Ministry of Finance building. Once some of the government offices move, the area will have the population to cater to more business. At the same time, we are discussing with the Malaysian government, EXIM bank and the Islamic Development Bank to finance more activity, and we will have Islamic instruments introduced there to keep finance Shariah compliant. There is also space already earmarked for the relocation of the central bank and commercial banks, which are all now in Malé, which is considered one of the most densely populated cities in the world.

What are your plans to develop the Maldives’ global Islamic finance footprint?
Last year, we issued a 5-year conventional bond in Singapore. This year, we will issue our first-ever domestic sukuk. Moreover, we have started discussing with the Islamic Corporation for the Development of the Private Sector, part of the Islamic Development Bank, and engaging with the Abu Dhabi Fund. We are going to present a bond investment to Abu Dhabi this year. Today, all of our bonds are short-term, which makes cash flow very difficult. But now we’re looking to launch a first-ever 10-year sukuk, which we plan to issue later this year. We want to show to the market that we can refinance our debt, and promote that our debt is much lower than before. We could become a very important center for Islamic financing.

Are there any unique factors that support this plan?
One of the important things about the Maldives is we earn much of our revenues in dollars. We are a very highly dollarized economy. Close to 50% of our money supply is in dollars because we collect our tax revenue directly in dollars. That means any investor who is willing to invest in a dollar bond will receive 100% assurance that we can repay in dollars. Today, our economy is about 30% to 40% directly based from tourism sector. Indirectly, almost 80% of our GDP comes from tourism. If we can move 10% of this to a service sector like finance, it could greatly diversify our economy.