Sunday 29th Jan 2023
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State Debt

India describes loan of USD 100 million as financial assistance

The Government of India described the loan of USD 100 million, given to the Maldives via subscription to a government bond as financial assistance.
The Government of India symbolically handed over the loan to Maldives at a ceremony held at the Ministry of Finance, where it was accepted by the Minister of Foreign Affairs Abdulla Shahid and the Minister of Finance Ibrahim Ameer. The document was handed over by the Indian High Commissioner for the Maldives Munu Mahawar.
In a statement released by the High Commission of India in Maldives, the embassy claimed to have “given financial assistance” of USD 100 million to the Maldives in budgetary support, however, the funds were acquired through short term treasury bills.
A treasury bill is a tool often used to acquire repayable funds at short notice, not financial assistance such as grants. Despite the descriptions, the funds cannot be characterized as anything other than a debt.
A treasury bill or t-bill, sold as budgetary support, is a short-term investment instrument issued by the government, where the longer the maturity date, the higher the interest rate climbs.
The government has not revealed the interest payment details during the repayment of this loan, nor the tenure or maturity of the loan.
According to the statement, the government of India agreed to lend the funds following discussions between the Prime Minister of India, Narendra Modi and President Ibrahim Mohamed Solih during his presidential visit to India in August, where he had asked the Indian government for support.
The statement highlighted that the Indian government had issued a sovereign guarantee to SBI to purchase the t-bills. The embassy added that the Government of Maldives was free to utilize the funds as the government saw fit, and the loan was unconditional.
SBI, being a commercial bank, offers loans at market rate. Therefore, the interest rate for this loan will likely be higher than concessional loans.