Government expenditure outstripped revenue by 20 percent between January 1 and September 8, 2011, according to the first of weekly expenditure statements made public by the Ministry of Finance and Treasury yesterday.
While government income reached Rf6.3 billion (US$408.6 million) at the end of last week, government spending however stood at Rf7.5 billion (US$486.4 million), resulting in a fiscal deficit of Rf1.3 billion (US$84 million) financed by loans and sale of Treasury bills.
In addition to Rf3.2 billion (US$207.5 million) spent on salaries and allowances for state employees – the single largest source of expenditure – Rf2.4 billion (US$155.6 million) was needed to cover recurrent expenditure or administrative costs.
Capital expenditure was meanwhile Rf1.2 billion (US$77.8 million) while spending on debt service or debt repayment reached Rf563 million (US$36.5 million).
President Nasheed announced at a ceremony held in August to unveil the government’s ‘Fiscal and Economic Reform Programme’ that the government would publicise details of expenditure on a weekly basis.
In December 2010, parliament approved a Rf12.37 billion (US$802 million) annual state budget with a projected revenue of Rf8.8 billion (US$570.7 million) and recurrent expenditure of Rf9.8 billion (US$635.6 million) – 49 percent of which was to be spent on salaries and allowances.
Recurrent expenditure was expected to be 79 percent of government spending.
An additional Rf200 million (US$12.9 million) was injected to the budget in anticipation of the local councils that came into being in February this year.
Plugging the deficit
In March this year, the International Monetary Fund (IMF) warned that “significant policy slippages” have undermined the country’s ability to address the ballooning budget deficit.
“On the expenditure side, there have been no net fiscal savings from public employment restructuring, public sector wages will be restored to their September 2009 levels earlier than expected, and the new Decentralisation and Disability Bills will lead to considerable spending increases,” the IMF noted in a statement. “Also, the Business Profit Tax will come on stream eighteen months later than planned [the tax came into force on July 18, 2011].”
The IMF warned that the Maldives economy was presently unsustainable, on the back of “expansionary fiscal policies” from 2004 which left the country especially vulnerable to the decline in tourism during the 2008-2009 recession.
The country’s fiscal deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009. On paper, the government increased average salaries from Rf3000 (US$195) to Rf11,000 (US$713) and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.
The IMF said that while it recognised “the difficult political situation facing the authorities”, “decisive and comprehensive adjustment measures” were required to stabilise the economy, allow sustainable growth and reduce poverty. In particular, it raised concern about the “lack of significant progress in public employment restructuring.”
An internal World Bank report produced for the donor conference in May 2010 meanwhile noted that increases to the salaries and allowances of government employees between 2006 and 2008 reached 66 percent, which was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”
President Nasheed told delegates at the conference that the government was “committed to financial prudence and long-term stability.”
“We have scrapped the reckless policies of the past, which saw money printed to finance a growing budget deficit,” he said, adding that the government was working with “international multilateral organisations, to ensure we do not spend more than we can afford.”
On the size of the bloated civil service, Nasheed said, “In the past, the government offered people jobs not because there was work that needed doing. The government offered people jobs as bribes; to get their allegiance to a repressive regime. Almost 10 per cent of the population works for the government – a staggering amount.
“And there are more civil servants than there is work to be done. Many government employees are under worked; chained to demoralising jobs. Our administration will therefore dramatically reduce the number of civil servants. But we must provide loans for outgoing civil servants, to help them set up businesses or acquire new skills.”
In April, the government announced a programme to incentivise voluntary redundancy in the civil service.
“Political backlash”
A UNDP paper on achieving debt sustainability in the Maldives published in December 2010 meanwhile observed that former President Maumoon Abdul Gayoom responded to growing calls for democratisation in 2004 with “a substantial fiscal stimulus programme” of increased government spending, “much of which was not related to post-tsunami reconstruction efforts.”
When the impact of the worst global recession in decades struck the Maldives in September 2008, “the Maldivian economy was already in the middle of a severe economic crisis with substantial fiscal and current account deficits, high liquidity growth, double digit inflation, pressure on the fixed exchange rate, increases in public and private sector debt, rising inequalities between the capital and the atolls, and a costly civil service.”
However the new government’s efforts to reduce government spending with pay cuts of up to 20 percent along with plans to downsize the civil service – which employs a third of the country’s workforce – was met with “a severe political backlash from parliament.”
“In March 2010, the parliament passed a 2010 budget with amendments which increased the government’s proposed budget by 7 percent (or 4.5 percent of GDP),” the paper noted, referring to parliament’s addition of Rf800 million (US$51 million) to the 2010 budget.
“Three quarters of this increase funded a reversal in civil service wage cuts implemented the previous year. Progress on redundancies has also been slower than expected and reforms in this area are unlikely to be completed until the end of 2011 at the earliest. This will have important fiscal consequences.”
In July, the Finance Ministry publicised details of expenditure on state employees, showing that Rf1.6 billion (US$103 million) had to be spent on salaries and allowances for 20,476 civil servants.
| State wage expenditure | Annual expenditure on salaries and allowances | Percentage of total wage bill or expenditure on employees |
| Civil servants or employees under the executive (excluding political appointees and councillors) | Rf1,596,029,007 | 39 % |
| Uniformed bodies | Rf1,001,489,486 | 24 % |
| Political appointees in the executive branch | Rf99,178,980 | 2 % |
| Administrative staff at the President’s Office | Rf27,326,730 | 1 % |
| Councils | Rf717,250,030 | 17 % |
| Judiciary | Rf210,282,463 | 5 % |
| People’s Majlis or legislative branch | Rf79,210,718 | 2 % |
| Institutions dependent on state budgets | Rf393,620,943 | 10 % |
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So we have inherited expenditures from previous government. Our honorable members of the parliament are making baseless accusation that the present government is spending unnecessarily on political appointees.
This is a sad day.
When no self-respecting Maldivian would comment on issues such as this.
The problem lies in the article appearing on a government propaganda site which displays a blatant bias.
Also, the comments section is now filled with LCD comments generated by paid persons. Hassan Ahmed, I salute you. However, please try and learn the art of propaganda before you try to dabble in it.
Also, the financial statement is a light and interesting read.
However, the whole thing seems in poor taste. It lacks fine detail. A lot of the line items in the expenditure report are not justified. The potential for politicization is great. If that is the objective, then bravo.
Also, please take note of the receipts from customs duties. The figure indicates that abolishing customs duties altogether is a silly and baseless dream. The reduction will bring things down to an equilibrium - at best - and will not, I repeat, NOT fulfill any crazy dreams of super-low prices and bargain buys.
It's clear as broad daylight that the government is stuck between a rock and a hard place. This will be true of any future government, regardless of their colour.
No politician will survive the aftermath of a large scale reduction in the Civil Service or a reduction in uniformed bodies or their salaries.
Politicians also have to tread a fine line on raising taxes. It will be interesting to see how current and future governments juggle these opposing forces.
There's no doubt that we need to carry on with austerity programmes. I'm not aware there are ANY running at the moment. You only have to look at Greece to see what fate lies when you spend way beyond your means. That's a large European country at the brink of economic collapse.
Institutions dependent on state budgets - almost Rf400million. A large part of this is actually on political appointees. This is just a smart way of fudging the numbers. C'mon thoise doing nothin corporations to which Anni appointed high paying board members, MDs, chairpersons etc. Who are these people trying to fool?
@tsk tsk, maybe its your bias that is hampering your ability to read this fact based article and accept it. You have internet, you can just google all the reports mentioned in the article, and check for yourself from the Finance ministry website if the figures mentioned are also correct. Its amazing how against overwhelming evidence some people still continue to reject the fact that the past government messed up our economy big time. There is no magic want this government can wave to clear up the mess overnight, but i believe atleast on economic policy its heading the right way. Or else IMF would have blasted it.
- Housing Aslam: 64,453. June alone 23,362.74
- Youth Hassan latheef: 51,782
- Health Amn Jameel:48,227 (amazing for someone who doesn't answer calls.
- Foreign Naseem: 46,713
- Education Shifa: 14,960
- Finance Enaz APR-JUL: 9,594
- Tourism Zulfa FEB-JUL: 7,808
- Islamic Majeed: 7,000
- Economic Razee: does not take.
- Home Afeef: not aware and not interested to check.
- Attorney Mueez: Not aware, wants allowance.
No one is denying the fact the tsunami disaster, political mishandling of the opposition movement and construction boom derailed our economy during the past government's tenure.
It is perhaps your bias that led you to misunderstand my comments. I just reread them and nowhere in those sentences do I find a single word about the financial statement being false. I feel it lacks fine detail, that is all.
True the current government is not an evil organization hell-bent on destroying us. I just feel that it lacks the capacity, and I feel anyone would back me on this, to continue to run our economy.
Mismanagement plagues just about every institution across all sectors. Trust me, I have personal experience of this fact. The IMF cares only about loan recovery and adjustment of the economy to facilitate foreign investment - once again NOT because it is evil but simply because that IS its job.
I support a change of government. Hence the bias. 😀
For all interested parties, the IMF is first and foremost a bank.
It is neither a girl scout, nor a fairy godmother or Santa Claus for that matter.
We all know how banks operate don't we?
Almost 100 million rufiyaa spend on political appointees , what a waste ......@Hassan Ahmed...I'm surprised by your inability to analyze information...this government is rotten to the core and these figures confirms it....taxing our hard earned money to pay millions to a few rich political appointees....this is robbery.
I got a fabulous idea!
Lets just cut the salary of any majlis member every time they act like a baboon!
Given the fact that these uneducated, neanderthals get paid so much to act like baboons attacking, spitting and arguing like housewife on crack. They seem like the ideal choice! All they seem to do is that or come up with genius ideas like to change the name of some age old building or island. I think its a great place to make some cuts to save some money!