Government revenue declines in May

Government revenue declined by MVR19.2 million (US$1.2 million) in May compared to the same period last year and reached MVR1.2 billion (US$77.8 million), the central bank has revealed in its monthly economic review.

Total expenditure during the month meanwhile rose by MVR104.9 million (US$6.8 million) and amounted to MVR1.5 billion (US$97 million).

“The decline in total revenue during May 2015 was mainly due to the decline in both tax and non-tax revenue which fell by MVR9.5 million and MVR1.7 million, respectively,” the review stated.

“The fall in tax revenue was mainly contributed by the decline in revenue from business profit tax and tourism tax, while non-tax revenues declined owing to a significant fall in revenue from resort lease rent. Meanwhile, the increase in expenditure was largely due to a growth in recurrent expenditure.”

In May, the government obtained US$20 million from Saudi Arabia for budget support. Finance minister Abdulla Jihad told Minivan News at the time that the funds were to be used to “manage cash flow” as revenue was lower than expected.

A large portion of forecast revenue is expected later in the year, he said, adding that shortfalls are currently plugged through sale of treasury bills (T-bills).

According to the Maldives Monetary Authority (MMA), the total outstanding stock of government securities, including T-bills and treasury bonds (T-bonds), reached MVR18.4 billion (US$1.1 billion) at the end of May, representing an annual increase of 36 percent.

The forecast for government income in this year’s record MVR24.3 billion (US$1.5 billion) budget is MVR21.5 billion (US$1.3 billion).

The projected revenue includes MVR3.4 billion (US$220 million) anticipated from new revenue raising measures, including revisions of import duty rates, the introduction of a “green tax”, acquisition fees from investments in special economic zones (SEZs), and leasing 10 islands for resort development.

The MMA’s monthly economic review meanwhile revealed that gross international reserves increased by 65 percent in May compared to the corresponding period in 2014 and stood at US$703.7 million, “of which usable reserves amounted to US$229.7 million.”

“During the review month usable reserves also registered increases in both monthly and annual terms by 12 percent and 41 percent, respectively. As for gross reserves in terms of months of imports, it rose both in monthly and annual terms and stood at 4.2 months at the end of May 2015.

Tourism and fisheries

The economic review noted that tourist arrivals declined by three percent in April compared to the same period in 2014, reaching a total of 102,242 guests.

“The annual decline in arrivals was contributed by the significant decline in tourist arrivals from Europe,” the MMA observed.

“In April 2015, total bednights registered a decline of 7 percent in annual terms, as the average duration of stay declined from 6.2 to 5.9 days. Partly reflecting the decrease in bednights, the occupancy rate of the industry declined to 73 percent in April 2015 from 80 percent in April 2014.”

In its quarterly economic bulletin, the central bank noted that despite a three percent growth in tourist arrivals in the first quarter of 2014, tourist bednights declined by three percent “owing to the fall in average stay of tourists from 6.3 days in Q1-2014 to 6.0 in the review quarter.”

Tourism receipts also decreased by four percent in the first quarter compared to the corresponding period in 2014.

“On the supply side, the operational capacity of the tourism industry increased by 3% when compared with Q1-2014 to reach an average of 27,827 beds. Reflecting this and the decline in tourist bednights, the occupancy rate of the industry fell to 79 percent in Q1- 2015 from 84 percent in Q1-2014,” the bulletin stated.

The volume of fish purchases meanwhile decreased to 6,134.6 metric tonnes in April, registering an annual decline of 11 percent.

“In May 2015, both the volume and earnings on fish exports declined in annual terms by 35 percent and 12 percent, respectively. This was mainly owing to the decrease in the volume and earnings of frozen skipjack and yellowfin tuna exports,” the economic review revealed.

In other sectors, the MMA noted that construction activity “continued to expand and remained robust as indicated by the annual increase in construction-related imports and increased bank credit to the sector during Q1-2015.”

“Activity in the wholesale and retail trade also grew, as indicated by increased imports by the private sector (excluding tourism) and bank credit to the sector.”

The rate of inflation in Malé meanwhile accelerated to 1.7 percent in April from 1.1 percent in March.

“The pick-up in inflation during the month was mostly contributed by the growth in fish prices and prices charged for housing rent,” the central ban explained.

“The monthly percentage change in the [Consumer Price Index] increased in April 2015. This was mainly due to the rise in fish and cigarett e prices. Cigarette prices rose during the month due to the increase in the import duty levied in April 2015.”

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Maldives obtains US$20m from Saudi Arabia to manage cash flow

The Maldives has obtained a US$20 million grant from Saudi Arabia for budget support, despite official figures indicating record levels of income and the economic ministry saying it has authorised US$600 million worth of foreign investment this year.

Finance minister Abdulla Jihad told Minivan News today that the Saudi funds will be used to “manage cash flow” as revenue was lower than expected.

A large portion of forecast revenue is expected later in the year, he said, adding that shortfalls are currently plugged through sale of treasury bills.

The forecast for government income in this year’s record MVR24.3 billion (US$1.5 billion) budget is MVR21.5 billion (US$1.3 billion).

The projected revenue includes MVR3.4 billion (US$220 million) anticipated from new revenue raising measures, including revisions of import duty rates, the introduction of a “green tax”, acquisition fees from investments in special economic zones (SEZs), and leasing 10 islands for resort development.

Import duties hikes came into effect on April 1. However, three weeks later, the government reversed hikes for motorcycles and garments. Jihad said revenue from custom duties will be lower than expected as a result of the policy reversal.

Jihad also said acquisition fees from SEZs are expected during the second half of the year.

Tax revenue

The Maldives Inland Revenue Authority (MIRA) said today that the revenue collected in April was 6.5 percent above forecasts and 14.9 percent higher than the same period last year.

Total revenue last month reached MVR940.3 million (US$60.9 million), with goods and services tax accounting for 70 percent of income. Total revenue collected so far this year has reached MVR4.6 billion (US$298 million).

The customs authority also collected MVR574 million (US$37 million) during the first quarter of 2015 as import duties, fees, and fines, representing a 28 percent increase from the previous year.

Further figures by the MIRA show revenue from taxes have been higher than expected in the first quarter of 2015.

The central bank, the Maldives Monetary Authority, meanwhile says business activity in the tourism, construction, wholesale, and retail sectors increased during the first quarter of 2015, and expects further improvements in the second quarter.

Foreign investment

The economic development ministry revealed today that it has authorised foreign investments worth nearly US$600 million this year, and says it is expecting US$1.8 billion worth of foreign investments in the next five years

Registrar of companies Mariyam Wisham told the press that most foreign businesses registered between January and April were investors interested in the tourism, construction, and real estate sectors. The investors were mainly from the Middle East, South Asia, and China, she said.

Economic development minister Mohamed Saeed said the number of foreign businesses registered under the current administration showed investor confidence in the Maldives.

Wisham also revealed that 5,014 new small and medium-sized enterprises have been registered so far this year following the enactment of a new company registration law last year.

But the opposition has criticised the lack of significant foreign investments despite assurances from the government following the passage of its flagship SEZ legislation in August last year.

The government signed a Memorandum of Understanding in March with Dubai Ports World to develop a commercial port and free trade zone near Malé and said a joint venture agreement will be signed in a month.

However, Saeed told the press today that an extension has been agreed upon for negotiations, citing the government’s unwillingness to compromise “national issues” as the reason for the delay.

The main opposition Maldivian Democratic Party has alleged corruption in the deal.

Saudi-Maldives relations

The Saudi Arabian government had pledged the US$20 million during president Abdulla Yameen’s state visit to the kingdom in March.

Contrary to Jihad’s statement that the Saudi funds will be used to manage cash flow, fisheries minister Dr Mohamed Shainee told Haveeru today that the US$20 million in grant aid will be “spent through the budget on various projects the government wants.”

A delegation including officials from the Saudi Fund for Development as well as Saudi contractors meanwhile visited the Maldives last week and gathered information on the various projects for which the government is seeking loan assistance.

The projects included road construction at the airport, an airport hotel, and a road network for Hulhumalé, Shainee said.

Shainee has previously said the Saudi Arabian government also assured loan assistance to develop the international airport.

During the visit, President Yameen held talks with King Salman bin Abdulaziz Al-Saud and Saudi Arabian ministers for education, defence, petroleum and mineral resources, and finance.

Then-Crown Prince Salman had visited the Maldives in March last year. During the trip, he pledged US$1.2 million to build 10 mosques across the country and donated US$1.5 million and US$1 million, respectively, to the health sector and the Islamic ministry’s waqf fund.

Prince Salman also visited the Maldives in April 2010. He ascended to the Saudi throne in January following the death of King Abdullah bin Abdulaziz.

A joint communique issued during president Yameen’s visit stated that the two sides agreed to increase “their commercial exchange while expanding and enhancing investment between the two countries and extending invitations to their respective private sectors to explore the available investment opportunities in both countries.”

“The Saudi Fund for Development will continue to finance the development projects in the Republic of Maldives and will consider participating in the expansion of Malé airport and beach preservation in Hulhumalé,” it added.

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World Bank reiterates concern over unsustainable spending

The Maldives is spending beyond its means with government expenditure outstripping revenue for years, the World Bank has warned.

Contrary to the government’s estimate of 3.4 percent of GDP for the fiscal deficit in 2014, the World Bank said the deficit has been on “an upward trajectory since 2011″ and reached an estimated 11.6 percent last year.

“Despite high revenue of 32.4 percent of GDP, Maldives is spending beyond its means reaching 44 percent of GDP, leading to persistent fiscal imbalances,” reads the South Asia Economic Focus 2015 report released last week.

“Subsidies, transfers and social welfare payments contributed substantially to the expansive spending,” the report stated.

The spike in expenditure resulted from President Abdulla Yameen’s decision to increase wages and an allowance to senior citizens from MVR 2300 to MVR 5000.

The World Bank meanwhile said the country’s risk of external debt distress has been reduced from high to moderate due to revised estimates of a lower current account deficit.

However, overall public debt is high at 74.6 percent of GDP in 2014, the report noted.

“Although the level of external public and publicly guaranteed debt remains below the policy-dependent thresholds under the baseline, a shock to tourism exports could make it difficult for the country to service its external debt,” the World Bank cautioned.

While imports and tourism receipts nearly balance each other out, the report explained that  “substantial outflows through interest payments, dividends and remittances keep the current account in a deficit at 8.0 percent of GDP.”

“The current account is more than fully financed by Foreign Direct Investment (FDI), and gross international reserves are estimated to have increased. Net FDI inflows are estimated at 13.3 percent of GDP,” it added.

Usable reserves are estimated at US$120 million, enough for less than half a months imports, but “the private sector is able to supply sufficient quantities of foreign exchange.”

“Faced with limited investment opportunities in the private sector, banks are parking their assets elsewhere; meanwhile financial soundness indicators have been improving,” it added.

Challenges

While the government’s forecast for economic growth in 2015 is 10.5 percent, the World Bank said growth is projected at five percent and warned of a negative impact from spending cuts.

The International Monetary Fund has also welcomed the government’s cost-cutting and revenue raising measures for 2015, including imposing a green tax, acquiring fees from Special Economic Zones, raising import duties, a public employment freeze, and better targeting of subsidies.

The World Bank meanwhile suggested that state-owned enterprises may pose risks as “most are loss-making and depend on government support”.

Only nine companies have contributed dividends in the past four years, it noted.

“The immediate macroeconomic challenge is the fiscal and external imbalances driven by high and rising public spending,” the report advised.

“However, the economy also remains undiversified and sources of growth and employment remain misaligned. Besides, Maldives’ form of tourism- led growth has followed an enclave model, reliant on imported goods, labor and finance.”

Balancing the budget in two years is a campaign pledge of president Yameen, who said last year that the record MVR24.3 billion (US$1.5 billion) state budget for 2015 has a “primary balance surplus.”

The projected fiscal deficit for 2015 is MVR1.3 billion (US$84 million) or 2.5 percent of GDP, which president Yameen said was allocated for arrears or unpaid bills from recent years.

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Parliament approves state budget for 2015 with 60 votes in favour

The People’s Majlis today approved the record MVR24.3 billion (US$1.5 billion) state budget for 2015 submitted by the government without significant changes to either spending plans or revenue forecasts.

None of the 19 amendments submitted by opposition Maldivian Democratic Party (MDP) MPs and Jumhooree Party (JP) MPs to revise the budget passed as pro-government MPs voted against all the proposals.

The ruling Progressive Party of Maldives (PPM) along with coalition partner Maldives Development Alliance (MDA) controls a combined 48 seats in the 85-member house.

The budget passed with 60 votes in favour and 19 against.

The MDP parliamentary group had issued a three-line whip for its MPs to vote against the budget if none of the proposed revisions are passed. All JP MPs, however, voted to approve the budget.

While the budget review committee completed its review process without significant revisions, pro-government MPs recommended several constitutional amendments to reduce recurrent expenditure.

During the budget debate last month, opposition MPs criticised higher taxes, deficit spending and alleged discrimination in the allocation of funds, whilst pro-government MPs praised planned capital investments and contended that the budget was balanced.

In his budget speech, Finance Minister Abdulla Jihad noted that recurrent expenditure in 2015 is expected to be MVR15.8 billion (US$1 billion) or 65 percent of the budget while the forecast for government income or revenue is MVR21.5 billion (US$1.3 billion).

Capital expenditure meanwhile accounts for 30 percent of the budget, Jihad said, which includes MVR6.3 billion (US$408 million) for the Public Sector Investment Programme (PSIP).

Jihad noted that MVR3.4 billion (US$220 million) was anticipated from new revenue raising measures, which includes revisions of import duty rates from July onward, the introduction of a ‘green tax’, acquisition fees from investments to special economic zones, income from the home ownership programme, and leasing 10 islands for resort development.

The government has since decided to reduce the green tax from the initially proposed US$10 per day to US$6 per day and exempt guest houses from the tax.

Additionally, the cabinet’s economic council yesterday decided not to impose a planned 10 percent import duty on staple foodstuff.

However, in its professional opinion on the budget, the Maldives Monetary Authority (MMA) advised against making ad hoc changes to policies that could affect projected revenue and expenditure.

“If policies are changed the budget deficit would increase and become difficult to finance,” the central bank cautioned.

The MMA also advised against launching infrastructure projects without securing financing.

Following its annual Article IV consultation, the International Monetary Fund (IMF) advised that “large capital investments should only be embarked upon when full financing is secured at affordable costs and the growth benefits clearly outweigh the costs.”

The IMF also recommended addressing the fiscal deficit by reducing public expenditure and reigning in public debt.

During the final debate at today’s sitting of parliament on the report compiled by the budget committee following its review, MPs suggested allocating funds in the 2015 state budget to ensure a permanent solution to the ongoing water crisis in the capital.

While opposition MDP MP Ibrahim Mohamed Solih recommended returning the budget to the committee for revisions, several MPs stressed the importance of establishing a backup mechanism to supply water.

MDP MP Ibrahim Mohamed Didi contended that the crisis could have been averted if the fire and rescue service of the Maldives National Defence Force (MNDF) properly carried out its responsibilities.

The MNDF could have conducted a ‘fire audit’ of the Malé Water and Sewerage Company (MWSC) at least once a month in the interest of national security, the retired brigadier general said.


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President Yameen’s anniversary – The economy in review

President Abdulla Yameen’s election campaign was focused heavily on the economy. The Progressive Party of Maldives’ (PPM) candidate was sold to the public as the “foremost economist in the country,” a no-nonsense leader with a plan and the expertise to rescue the Maldives from its “deep economic pit.”

Indeed, during the Progressive Party of Maldives’ ‘Successful 365 Days’ event in Malé last week, fisheries minister Dr Mohamed Shainee noted that the secret of the economic policy’s successes was President Yameen’s intellect and background in economics.

Yameen had vowed to eliminate the persisting fiscal deficit, achieve a surplus in his third year in office, and double per capita income by the end of his five-year term.

At the launching ceremony of the PPM’s manifesto, Yameen pledged to save MVR4 billion (US$259 million) from the state budget, claiming the 2013 budget had included up to MVR2 billion (US$129 million) in unnecessary expenditure.

Despite these pledges, however, the incoming administration in December 2013 submitted a record MVR17.5 billion (US$ 1.1 billion) state budget for 2014 for parliamentary approval, including MVR1.1 billion (US$71 million) more in recurrent expenditure.

Moreover, proposed streamlining amendments to the Decentralisation Act were not submitted ahead of the second local council elections held on January 18.

After pledging to slash wages of political appointees by 30-50 percent, President Yameen instead imposed a pay cut of 12.5 percent for state ministers and deputy ministers in December, as well as taking only half of his own MVR100,000 (US$6500) salary.

The Yameen administration currently has five ministerial rank appointees – including two ministers at the President’s Office –  36 state minister rank appointees, and 72 deputy minister rank appointees.

Last week, former PPM MP Ahmed Shareef Adam became the 10th deputy minister at the education ministry.

Economic policy

While the government fulfilled a pledge to raise the monthly allowance for the elderly to MVR5,000 – reliant on a MVR1 billion investment scheme outside the budget – Finance Minister Abdulla Jihad admitted in August that the government had been forced to rely on the state budget for the handouts.

The government also planned to fulfil a pledge to provide MVR10,000 (US$650) a month for fishermen “regardless of catch” during lean months through a similar insurance scheme with a monthly premium of MVR500.

However, only one fishing vessel has reportedly registered in the scheme so far.

Meanwhile, in contrast to the intransigence faced by former President Dr Mohamed Waheed in obtaining parliamentary approval for his policies, the new administration was able to vote through numerous revenue raising measures in the outgoing 16th People’s Majlis.

The measures included raising the airport service charge from departing foreign passengers to US$25, hiking import duties, reintroducing the tourism bed tax until the end of November, raising the Tourism Goods and Services Tax (T-GST) to 12 percent, and introducing GST for telecommunications services from May 1.

The legislative successes came as the central bank warned that shortfalls in revenue or overruns in expenditure in 2014 “will undermine medium-term debt sustainability and will have adverse implications for exchange rate and prices.”

Subsequently, the parliamentary elections in March saw the PPM and coalition partner the Maldives Development Alliance secure a comfortable majority in the 17th People’s Majlis.

In the aftermath of the polls, four independent MPs, three opposition MDP MPs, and three Jumhooree Party MPs signed for the PPM, sealing a 43-seat simple majority for the ruling party.

The parliamentary majority subsequently allowed the government to fast-track its flagship special economic zone (SEZ) legislation - the cornerstone of President Yameen’s economic policy – in the face of vehement protests from opposition MPs.

The MDP contended that that the law would pave the way for money laundering and other criminal enterprises, undermine local councils, and authorise the president to “openly sell off the country” without parliamentary oversight.

Former President Mohamed Nasheed dubbed the legislation the ‘Artur Brothers bill’, referring to an infamous pair of Armenians linked with money laundering and drug trafficking who made headlines last year after they were photographed with cabinet ministers.

The government, however, maintained that SEZs with relaxed regulations and tax concessions were necessary to attract foreign investors.

President Yameen declared in April that the SEZ bill would become “a landmark law” that would strengthen the country’s foreign investment regime.

Attracting foreign investment

Hailing the passage of the bill in August, President Yameen said his administration has “created the legal environment required to attract major investments.”

At an investor forum held in Singapore in April – where the government sought investors for five ‘mega projects’ - Yameen committed to “exploring openings for increasing foreign investment flows to non-traditional sectors to lift Maldives beyond the image of a picturesque postcard.”

The mega projects include iHavan or ‘Ihavandhippolhu Integrated Development Project,’ – which envisions a transhipment port to capitalise on trade and commercial opportunities in the South Indian Ocean – a ‘youth city’ in Hulhumalé, the expansion of the Ibrahim Nasir International Airport (INIA), relocation and expansion of the central port to Thilafushi, and exploration for oil and gas.

Tourism Minister Ahmed Adeeb – also chairman of the SEZ investment board, who was implicated in a US$6 million dollar corruption scandal last month –  has suggested that even if one project such as iHavan “takes off” with US$1.3 billion worth of investment, the economy would be “transformed.”

Meanwhile, following the historic visit of Chinese President Xi Jinping in September, China announced it would “favorably consider” financing the iconic Malé-Hulhulé bridge should it prove feasible.

President Yameen recently announced that further land reclamation the second phase of the Hulhumalé development project would begin before the end of November.

During last week’s anniversary celebrations, Dr Shainee noted that 19 foreign investors have registered in the country, with a commitment of investing over US$600 million, although no further details were revealed.

While the government appears to be counting on large investments from China – with President Yameen recently slamming  “western colonialists” - the fate of foreign investments made during former President Mohamed Nasheed’s tenure is likely to make potential investors wary.

While the Tatva waste management deal terminated was in September, the GulhiFalhu Global Green City project was recently stalled.

More worringly, a Singapore arbitration tribunal in June found the government of Maldives and state-owned Maldives Airports Company Pvt Ltd (MACL) “jointly and severally liable in damages”to GMR for the termination of a “valid and binding” concession agreement.

The Indian infrastructure giant is currently claiming US$803 million in damages for the abrupt and wrongful termination of the airport development contract.



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Parliamentary budget debate concludes

Parliament’s budget debate concluded at yesterday’s sitting after 79 out of 85 MPs shared their thoughts on the record MVR24.3 billion (US$1.5 billion) state budget for 2015.

While opposition MPs criticised higher taxes, deficit spending and alleged discrimination in the allocation of funds, pro-government MPs praised planned capital investments and contended that the budget was balanced.

Speaking at yesterday’s sitting, Majority Leader Ahmed Nihan insisted that funds and development projects in the budget were fairly allocated and denied discriminating against constituencies represented by opposition MPs.

“We won’t see the colour pink in any part of this page,” the parliamentary group leader of the ruling Progressive Party of Maldives (PPM) said, referring to the party’s colour.

The MVR6.3 billion (US$408 million) allocated for the Public Sector Investment Programme (PSIP) – 24 percent of the budget – would see an unprecedented number of infrastructure projects launched in 2015, he said.

All MPs were invited to request infrastructure projects for their constituencies before the budget was submitted, Nihan noted.

The budget was formulated to fulfil campaign pledges of the PPM, he continued, and President Abdulla Yameen’s administration would deliver during the next four years.

He noted that President Yameen has launched a MVR200 million (US$12.9 million) loan scheme for young entrepreneurs and small and medium-sized businesses.

Other PPM MPs claimed that the budget would bring “revolutionary” changes to the economy and spur growth, noting that recurrent expenditure of MVR15.8 billion (US$1 billion) would be covered by government income or revenue of MVR21.5 billion (US$1.3 billion).

Minority opinion

At Monday’s sitting, however, Minority Leader Ibrahim Mohamed Solih questioned whether the MVR21.5 billion revenue forecast in the budget could be realised in full.

The parliamentary group leader of the opposition Maldivian Democratic Party (MDP) predicted that revenue in 2015 would not exceed MVR16.4 billion (US$1 billion), which would be 16 or 18 percent higher than total revenue collected this year.

However, state expenditure was projected to rise by 40 percent, Solih said, adding that the revenue would not be sufficient to cover recurrent expenditure of MVR15.8 billion and MVR1.3 billion (US$84.3 million) for loan repayment – leading to a deficit of about MVR600 million (US$38.9 million).

While MVR340 million (US$22 million) was forecast in the budget as revenue from introducing a US$10 ‘green tax’ in the last quarter of 2015, Solih noted that the government has decided to lower the amount to US$6 per day and delay implementation to November, which would lead to a revenue shortfall of about MVR300 million (US$19.4 million).

Public debt

Solih further contended that PPM MPs had falsely claimed that the MDP government inherited a national debt of MVR4 billion (US$259 million) from the previous administration in 2008.

“That was domestic debt. The state’s total debt was MVR10 billion [US$648 million] at the time,” he said.

Moreover, the MDP government spent MVR2 billion (US$129.7 million) in 2009 and MVR1.5 billion (US$97 million) in 2010 to settle unpaid bills from the previous government, Solih said.

When the MDP government was ousted in February 2012, Solih said debt had reached MVR21 billion – about MVR3.6 billion a year for three years – which grew to about MVR25 billion (US$1.3 billion) during President Dr Mohamed Waheed’s two years in office.

However, state debt would reach about MVR32 billion (US$2 billion) – 67 percent of GDP – at the end of 2014, Solih noted, which means MVR7 billion (US$453.9 million) has been accumulated in debt during the current administration’s first year in office.

“So instead of pointing fingers at each other let’s all work together to solve this,” he said.

Solih also accused the government of spending millions in excess of the budget approved by parliament for 2014, which was done in violation of public finance laws.

Nihan, however, disputed the figures yesterday and claimed that a national debt of MVR24,000 per capita at the end of former President Maumoon Abdul Gayoom’s 30-year reign had risen to MVR100,000 at the end of former President Mohamed Nasheed’s three years in power.

The state’s expenditure rose dramatically in the aftermath of the December 2004 tsunami, Nihan said, which included repairing damage caused to infrastructure and assist displaced persons.

Instead of apportioning blame for driving up the state’s debt, Nihan said the responsibility of MPs and the government was saving the nation from debt.



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Finance minister presents record MVR24.3 billion state budget to parliament

Finance Minister Abdulla Jihad submitted an estimated 2015 state budget of MVR24.3 billion (US$1.5 billion) for parliamentary approval today – 35 percent higher than this year’s record MVR17.96 billion (US$1.16 billion) budget.

“The estimated budget deficit for 2015 is MVR1.3 billion [US$84 million],” Jihad said in his budget speech at today’s sitting of parliament.

“This is 2.5 percent of GDP. The deficit is to be financed by MVR1.1 billion [US$71 million] estimated from foreign parties and MVR223 million [US$14 million] estimated from domestic finance.”

After expressing fears in August that the deficit for this year would spiral to MVR4 billion – or 10 percent of GDP, Jihad told MPs today that the 2014 deficit was expected to be just MVR1.6 billion (US$103 million) as a result of compromises by parliament to the government’s revenue raising measures.

Recurrent expenditure in 2015 is expected to be MVR15.8 billion (US$1 billion) or 65 percent of the budget, he explained.

Salaries and allowances for state employees accounts for 26 percent of the total budget, Jihad noted, followed by social security and welfare (13 percent) and administrative costs (8 percent).

Capital expenditure meanwhile accounts for 30 percent of the budget, Jihad continued, which includes MVR6.3 billion (US$408 million) for the Public Sector Investment Programme (PSIP) and loan repayment.

The forecast for government income or revenue is MVR21.5 billion (US$1.3 billion), Jihad said, including MVR13 billion (US$843 million) in tax revenue, MVR6.8 billion (US$440 million) in non-tax revenue, and MVR1.7 billion (US$110 million) in free aid.

Jihad noted that MVR3.4 billion (US$220 million) is anticipated from new revenue raising measures, which includes revisions of import duty rates from July onward, the introduction of a ‘green tax’, fees from investments to special economic zones, income from the home ownership programme, and leasing 10 islands for resort development.

Fund allocations

The MVR2.9 billion (US$188 million) allocated for the education sector is 32 percent higher than 2014, Jihad continued, which includes higher expenditure on scholarships, student loans, training programmes, financial assistance for pre-schools, and the cost of implementing the new national education curriculum.

The MVR2.1 billion (US$136 million) allocated for the health sector is 21 percent higher than 2014, Jihad noted, while MVR3.2 billion (US$207 million) was allocated for social security and subsidies provided by the National Social Protection Agency, including MVR1 billion (US$65 million) earmarked for the MVR5,000 (US$324) a month pension for the elderly and MVR750 million (US$48 million) for the unlimited Aasandha health insurance programme.

Some 52 programmes would be conducted to upgrade three hospitals to tertiary level and develop infrastructure in regional hospitals and island health centres, he noted.

While MVR90 million (US$5.8 million) was allocated for fisheries and agriculture, Jihad said MVR50 million (US$3.2 million) was allocated for providing financial assistance for small and medium-sized enterprises.

“As development of Maldivian youth is one of the most important pledges of this government, MVR300 million [US$19.4 million] has been budgeted to conduct different programmes aimed at youth,” Jihad said, which was 55 percent higher than 2014.

Funds have also been earmarked for the celebration of the 50th anniversary of independence, Jihad noted.

Notable PSIP projects include the development of the Ibrahim Nasir International Airport (INIA), the Malé-Hulhulé bridge project, the Indira Gandhi Memorial Hospital (IGMH) renovation project, water and sewerage projects for 66 islands, coastal protection for 22 islands, 23 new harbour construction projects and 38 ongoing harbour projects, and waste management projects in 105 islands.

Funds have also been allocated in the budget for a renewable energy project expected to commence next year, he added.

A total of MVR695 million (US$45 million) was earmarked for housing programmes, Jihad continued, which includes the construction 1,985 housing units in Hulhumalé.

In addition to a project to resolve flooding in the capital, Jihad said 15 road construction projects in other islands were included in the budget.

2014

While the projected deficit for 2014 was MVR1.3 billion, Jihad said the deficit at the end of the year would be MVR1.6 billion (US$103 million) as a result of compromises by parliament to the government’s revenue raising measures.

A proposed Tourism Goods and Services Tax hike was delayed from July to November while the reintroduction of the US$8 bed tax was delayed by a month.

While the finance ministry anticipated payments for resort lease extension fees in full, parliament revised the budget for the fees to be paid in instalments over 18 months.

Jihad meanwhile noted that the International Monetary Fund’s (IMF) global economic outlook released in October predicted economic growth in 2014 and 2015 after the recovering from the global financial crisis and recession of 2007 to 2012.

Accordingly, domestic economic growth in 2014 was expected to be 8.5 percent, Jihad said, while the forecast for 2015 is 10.5 percent – driven by tourism, telecommunications, and transport.

The tourism industry is expected to grow by 8 percent with 1.5 million tourist arrivals, he added, while the inflation rate has meanwhile remained steady at 1.4 percent as of September.

On the balance of payments, Jihad revealed that the current account deficit would reach US$290 million or 10 percent of GDP, although it is projected to decrease to US$215 in 2015.

The official reserve at the end of 2014 is expected to be US$445 million – projected to rise to US$460 million next year.

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Finance Minister sends 2015 estimated budget to parliament for approval

Finance Minister Abdulla Jihad has sent the 2015 projected  annual state budget to the People’s Majlis for approval.

While speaking to local media outlet Sun Online, Jihad said that the budget was sent to the parliament last Thursday and that it would be higher than the budget for the year 2013.

The estimated budget for the current year was set at a record MVR 19.95 billion (US$ 1.16 billion). At the time the budget deficit stood at MVR 1.3 billion (US$ 84.3 million).

Jihad revealed in August that the government’s spiralling deficit could leave it unable to pay the salaries of civil servants.

The World Bank warned the government in late 2013 that it was spending well beyond its means noting that some of the biggest expenses were high civil service wages bill, healthcare, and electricity subsidies and transfers to state owned enterprises.

A report released by the World Bank stated that the budget deficit at the time at 81 percent of the GDP was unsustainable and predicted that the deficit could rise to about 96 percent by the year 2015.

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Slippages in revenue or expenditure will undermine debt sustainability: MMA macroeconomic report

Shortfalls in revenue or overruns in expenditure in 2014 “will undermine medium-term debt sustainability” and adversely affect the exchange rate and prices, the Maldives Monetary Authority (MMA) has cautioned in a report on macroeconomic developments in 2013.

On the outlook for the economy in 2014, the report released this week noted that the fiscal deficit was projected to decline to 3.2 percent this year from 4.7 percent in 2013 on the back of higher revenue from tourism-related taxes and payments for resort lease extensions as well as rationalisation of subsidies.

Despite this positive outlook, there is a considerable amount of uncertainty surrounding the 2014 budget. Overruns in current expenditure will most likely lead to financing difficulties for the government or further crowding out of the private sector,” the central bank warned.

“Any setback to fiscal consolidation either due to slippages in revenue or current expenditure will undermine medium-term debt sustainability and will have adverse implications for exchange rate and prices.”

Outlook for 2014

Economic growth in 2014 is projected at 4.5 percent, an increase of 0.8 percent from the previous year.

Growth will be driven by the continued expansion of tourism activity which is to be mainly supported by the robust growth of Chinese tourists,” the report explained.

“In 2014, growth is also expected to benefit from the recovery of construction sector which registered declines in the past two years. Activity in the construction sector is expected to recover due to the easing of material shortages and the continued expansion of residential construction projects amid improved bank credit to the sector.”

While the transport and communication sectors are expected to grow “in tandem with better prospects for the tourism industry,” the report noted that primary fishing activity is projected to decline slightly.

Inflation is expected to “remain moderate” in 2014, which “largely reflects the weaker outlook for global commodity prices”.

However, lower commodity prices were expected to “offset the upward impact of one-off factors such as the introduction of GST on communication services and reversal of import duty for certain goods during the year.”

The current account deficit is expected to widen by 16 percent to US$269.9 million this year as “improved receipts from tourism is insufficient to off set the increase in imports, interest payments and remittance outflows.”

While imports are expected to grow “in line with the projected increase in economic activity from tourism, construction and government sectors,” exports are expected to decline on account of a projected decrease in fish catch and global tuna prices.

Meanwhile, gross international reserves are projected to improve in 2014 mainly due to inflows from the planned new revenue measures stemming from the tourism sector. In line with this improvement, reserves in terms of months of imports, are also projected to increase slightly,” the report stated.

Revenue and expenditure

While total revenue excluding grants reached MVR11.5 billion (US$745 million) last year – an increase of 18 percent from the previous year – revenue collection was lower than anticipated “owing to delays in the implementation of the planned new revenue raising measures as envisaged under the budget.”

Tax revenue accounted for 75 percent of total revenue in 2013 while non-tax revenue “declined marginally” to MVR2.8 billion (US$181 million).

Total government expenditure in 2013 was MVR13.5 billion (US$875 million), which was four percent below the target.

The report explained that capital expenditure was significantly lower than expect, “which offset sizeable overruns in current expenditure.”

Meanwhile, although the government repaid some of the unpaid bills from previous years, a further build-up of arrears took place in 2013 as well and if these are considered total expenditure for 2013 will be much higher than estimated,” the report stated.

Current expenditure accounted for 84 percent of total government spending in 2013, reaching MVR11.4 billion (US$739 million), which was 11 percent in excess of the budgeted amount.

Salaries and allowances contributed the largest share at 48 percent of current expenditure, “reflecting the bulky public sector,” followed by subsidies and social welfare contributions at 18 percent, administrative costs at 13 percent, and interest payments at eight percent.

As large debt repayments were made between December 2012 and February 2013, interest payments in 2013 declined by 19 percent compared to the previous year and stood at MVR893.6 million (US$57.9 million).

Debt and deficit

As a result of “slippages in both revenue and expenditure” in 2013, the fiscal deficit is currently estimated at 4.7 percent of GDP, down from 9.2 percent in 2012.

The budgeted target for 2013 was however 3.6 percent.

The report noted that total debt of the government reached 78 percent of GDP at the end of 2013 as a consequence of “the sustained high budget deficit” over the past years.

Domestic debt accounted for 58 percent of total public and publicly-guaranteed debt.

In 2013, the financing requirement of the government was met almost entirely through domestic sources: mainly through the issuance of Treasury bills (T-bills) to the domestic market and monetisation,” the report explained.

Net credit to the government by the MMA “increased from MVR4.7 billion at the end of 2012 to MVR6.0 billion at the end of 2013,” the report revealed.

The total outstanding stock of T-bills meanwhile reached MVR8.2 billion by the end of 2013.

“A large part of this increase was attributable to the increase in investments by other financial corporations and public non-financial corporations, which can be seen from the increase in their share of holdings (as a percent of total outstanding T-bills) from 28% at the end of 2012 to 44% at the end of 2013,” the report stated.

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