With Chinese grants and loans Malé-Hulhulé bridge inches closer to reality

The Chinese government has pledged to provide US$100 million as free grant aid to finance the construction of a US$300million bridge between capital Malé and airport island Hulhulé.

The Chinese and Maldivian governments today signed Memoranda of Understanding (MoUs) related to financing the project and the construction stage.

Speaking at the signing ceremony, finance minister Abdulla Jihad said that the Chinese government will provide a US$170 million loan at an interest rate of two percent. The remaining US$30 million will be spent from the Maldivian state budget.

“This is an important step to make the bridge viable,” Jihad said.

The MoUs were signed following discussions between the cabinet’s economic council and a delegation from the Chinese government about finalising the design and other matters.

The director general of the department of foreign assistance at the Chinese commerce ministry, Wong Yong Puk, signed the MoUs on behalf of China.

Jihad said official agreements on finance will be signed within the next three months.

The economic council has previously said the six-mile bridge will have six lanes and will span from Malé’s eastern edge to the western corner of Hulhulé, where the airport is located.

According to the housing and infrastructure ministry, the bridge will be completed in two years.

Under the second MoU, the Chinese government agreed to find a contractor for the project and to help the government operate the finished bridge.

During a historic state visit in September, Chinese President Xi Jinping said he hoped the bridge will be called “the China-Maldives friendship bridge” and would ‘favorably consider financing’ the bridge if the design proves feasible.

An agreement was meanwhile penned during President Abdulla Yameen’s state visit to China last month for carrying out the ongoing feasibility survey of the Malé-Hulhulé bridge project with Chinese grant aid.

In May, a team of Chinese technicians began drilling bore holes on the ocean floor to gather information for the feasibility survey.

The feasibility study has since been completed and handed over to the Maldivian government.

In a keynote address delivered at the opening ceremony of the 10th China-South Asia Business Forum on June 12, President Abdulla Yameen declared that Sino-Maldives relations are at an “all-time high” with the establishment of a cooperative partnership between the countries last year.

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Maldives secures US$50m loan for water and waste projects

The Maldives has obtained a US$50million loan from the OPEC Fund for Development to provide access to water and solid waste management on 49 islands.

Finance minister Abdulla Jihad signed the agreement in Vienna on Thursday. The loan is to be repaid within 18 years, including a grace period of four years.

The interest rate on the loan is 4.6percent.

Under the “Provision of water supply, sanitation and solid waste management project,” sewerage systems will be established on southern Addu Atoll’s Maradhoo, Maradhoofeydhoo, Feydhoo, Hulhudhoo and Meedhoo islands.

Water supply networks will be established in ten islands and water supply systems with desalination and storage facilities will be established in 14 islands.

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Government proposes import duty hike for oil, staple foodstuffs

The government has proposed raising import duties for staple foodstuffs and oil to 10 percent to raise additional revenue anticipated in the record MVR24.3 billion (US$1.5 billion) state budget for 2015.

Amendments (Dhivehi) submitted to the Export-Import Act on behalf of the government by Maldives Development Alliance MP Mohamed Ismail proposes raising import duties from the current zero rate to 10 percent for rice, flour, wheat, and sugar as well as oil or petroleum products.

Additionally, the bill proposes raising custom duties for tobacco from 150 to 200 percent and raising the duty for a single cigarette to MVR1.25.

The government has also proposed imposing a 20 percent custom duty for luxury cosmetics and perfume and a 200 percent custom duty for land vehicles such as cars, jeeps, and vans.

However, the bill proposes scrapping import duty for luxury yachts imported for tourism businesses.

The stated purpose of the amendment is revising import duty rates in light of “price changes in the global market”.

The latest monthly economic review from the Maldives Monetary Authority noted that “the International Monetary Fund (IMF) commodity price index fell in both monthly and annual terms in September 2014, by 4 percent and 9 percent, respectively.”

“The monthly and annual decline in commodity prices was attributed to the decline in petroleum, metal and food prices. The price of crude oil fell by 4 percent in monthly terms and by 12 percent in annual terms and stood at US$95.9 per barrel at the end of September 2014,” the review stated.

About 30 percent of the Maldives’ GDP is spent on importing fossil fuels. In 2012, US$ 486 million was spent on oil imports, and the figure is estimated to rise to US$700 million by 2020.

According to the Maldives Customs Service, of the MVR7.2 billion (US$466.9 million) worth of goods imported in the first quarter of 2014, one-third was spent on petroleum products.

Finance Minister Abdulla Jihad meanwhile told parliament’s budget review committee last week that the government was considering increasing custom duties “mostly for luxury items, or items that are harmful to the environment or health.”

Jihad had said the items under consideration were tobacco, perfume, and vehicles.

Other revenue raising measures

In his budget speech to parliament, Jihad also revealed plans to revise the electricity subsidy, which he said currently benefits the affluent more than the needy.

Targeting the electricity subsidy to low-income families or households would save 40 percent of the government’s expenditure on the subsidy, Jihad explained.

Jihad told the budget review committee that the government anticipates MVR533 million (US$34.5 million) in additional revenue from revising import duties, which was among five revenue raising measures proposed with next year’s budget.

The forecast for additional revenue from the new measures is MVR3.4 billion (US$220 million), including US$100 million expected as acquisition fees for investments in special economic zones and MVR400 million (US$25.9 million) from the sale and lease of state-owned land.

The other measures were introducing a green tax of US$6 per night in November 2015 and leasing 10 islands for new resort development.

An amendment (Dhivehi) to the Tourism Act has been submitted by Progressive Party of Maldives MP Abdulla Khaleel on behalf of the government for introducing the green tax.

The government has also decided to waive import duties for construction material and capital goods imported for resort development and provide sovereign guarantees for loans.

Meanwhile, at the ongoing budget debate, opposition Maldivian Democratic Party MPs have criticised plans to hike import duties while providing concessions to wealthy resort owners.

The burden of higher prices due to higher tariffs would be borne by the public, the MPs argued, contending that the government’s economic policies would benefit the rich at the expense of the poor.

“Our question is why shouldn’t an income tax be introduced? When MDP submitted an income tax bill to parliament it wasn’t passed. But we are telling this government to introduce an income tax and [tax] the affluent as well,” said MDP MP Eva Abdulla last week.



Related to this story

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

US$6 green tax to be introduced from November 2015, says tourism minister

Government submits revenue raising bills to parliament

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Government submits revenue raising bills to parliament

The government has submitted two bills to parliament for introducing a green tax and revising import duties to raise additional revenue anticipated in the 2015 state budget.

The President’s Office explained in a press statement on Thursday (November 13) that the government submitted amendments to the Tourism Act to introduce a US$6 per day ‘green tax’ on tourist establishments with the exception of guesthouses.

“The government decided to introduce this tax, as the Maldives is a tourist destination and the lack of a safe waste management system is adversely affecting tourism industry, to pave the way for the establishment of an adequate environment-friendly waste management system, to make Maldivian tourism an environment-friendly industry, and to provide an environment-friendly service to tourists,” the statement read.

The amendment also specifies the powers of the Maldives Inland Revenue Authority to collect the green tax, the statement added.

Tourism Minister Ahmed Adeeb told the press last week that the green tax would be levied in November 2015 – 11 months after the abolition of the bed-tax, which will continue to be charged at US$8 a night until the end of this month.

Adeeb insisted that the green tax would not hinder the demand from tourists – especially from Europe – who would become “champions” of the Maldivian environment by paying the tax.

While some resort owners have suggested that the combination of the bed tax with the rise in Tourism Goods and Services Tax (T-GST) to 12 percent this month has affected bookings, Adeeb vowed there would be no further hikes in T-GST during the current administration’s five-year term.

Opposition MPs have meanwhile sought assurances from the government that proceeds from the green tax would be used to finance environmentally sustainable infrastructure projects such as sewerage and coastal protection in the islands and not for the state’s wage bill.

In his budget speech to parliament earlier this month, Finance Minister Abdulla Jihad noted that MVR3.4 billion (US$220million) was forecast from new revenue raising measures, which also includes acquisition fees from investments to special economic zones (SEZs), income from the home ownership programme, and leasing 10 islands for resort development.

Import duties

The government also submitted amendments to the Export-Import Act to revise customs duties or tariffs to reflect “changes in the price of import goods in the global market,” the President’s Office stated.

The latest monthly economic review from the Maldives Monetary Authority noted that “the International Monetary Fund (IMF) commodity price index fell in both monthly and annual terms in September 2014, by 4 percent and 9 percent, respectively.”

“The monthly and annual decline in commodity prices was attributed to the decline in petroleum, metal and food prices. The price of crude oil fell by 4 percent in monthly terms and by 12 percent in annual terms and stood at US$95.9 per barrel at the end of September 2014,” the review stated.

In April, parliament approved import duty hikes for a range of goods proposed by the government as a revenue raising measure.

Jihad meanwhile told the budget committee last week that the government was considering increasing custom duties “mostly for luxury items, or items that are harmful to the environment or health.”

The cabinet’s economic council has not yet finalised the import duty or tariff revisions, Jihad noted, though he did reveal that the items under consideration include tobacco, perfume, and vehicles.

Tariffs for tobacco would be raised from the current 150 percent to 300 percent, 100 to 150 percent for cars, and zero to 10 percent for perfume, Jihad said.

Asked if higher custom duties would lead to higher prices, Jihad said the impact on the inflation rate would have to be studied for a proper assessment, which would take time to complete.

At parliament’s budget debate last week, Maldivian Democratic Party (MDP) MP Eva Abdulla criticised the proposed import duty hikes, noting that the government has decided to waive tariffs for construction material or capital goods for new resorts with development stalled due to financial constraints.

The burden of higher prices of goods due to higher custom duties would be borne by the public, she argued.

Eva noted that Jihad told the budget committee of plans to increase import duty for foodstuff and petroleum products.

“Our question is why shouldn’t an income tax be introduced? When MDP submitted an income tax bill to parliament it wasn’t passed. But we are telling this government to introduce an tax and [tax] the affluent as well,” she said.

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MPs quiz finance minister about revenue raising measures

MPs on the budget review committee quizzed Finance Minister Abdulla Jihad yesterday about revenue raising measures proposed within the record MVR24.3 billion (US$1.5 billion) state budget for 2015.

Briefing the committee yesterday (November 10), Jihad explained that MVR3.4 billion (US$220 million) in additional revenue is anticipated from raising import duty rates from July onward and introducing a ‘green tax’ for tourists.

Additionally, acquisition fees from investments to special economic zones (SEZs), income from the home ownership programme, and leasing 10 islands for resort development would help raise the forecast revenue.

The minister also told the committee that domestic debt had reached about MVR20 billion (US$1.2 billion)- 39 percent of GDP -making the rolling over of T-bills “a nightmare”.

The government was considering increasing custom duties “mostly for luxury items, or items that are harmful to the environment or health,” he said.

The cabinet’s economic council has not yet finalised the import duty or tariff revisions, Jihad noted, though he did reveal that the items under consideration include tobacco, perfume, and vehicles.

Tariffs for tobacco would be raised from the current 150 percent to 300 percent while duty would be raised from 100 to 150 percent for cars, and zero to 10 percent for perfume, Jihad said.

Asked if higher custom duties would lead to higher prices, Jihad said the impact on the inflation rate would have to be studied, which would take time to complete.

Jihad stressed that the government has ceased deficit monetisation – borrowing money from the central bank to finance the deficit – in May, as a result of which the inflation rate was reduced to 1.4 percent.

In April, parliament approved import duty hikes for a range of goods proposed by the government as a revenue raising measure.

Meanwhile, the forecast for income from SEZ acquisition fees is US$100 million, Jihad revealed, which is expected by August 2015.

A further MVR400 million (US$25.9 million) is forecast from leasing and sale of land from across the country, Jihad said – in particular, plots from unused reclaimed land in various islands.

The state-owned land designated for leasing or sale falls under three categories, he explained, which were residential, commercial, and industrial.

Moreover, 10 new islands would be leased next year for resort development, he continued, which would generate income for the government in the form of acquisition costs.

As an incentive or relief for new resorts with development stalled due to financial constraints, Jihad said the government would waive import duties for construction material or capital goods next year.

Tourism Minister Ahmed Adeeb revealed yesterday that a green tax of US$6 per night would be introduced in November 2015 and guest houses would be exempt from the tax.

Jihad said the income from the green tax would be used for water, sewerage, and coastal protection projects.

Of the proposed revenue raising measures, import duty revisions and introduction of a green tax would be subject to parliamentary approval, which the finance minister hoped would be granted as the budget was passed.

Legislative compromises to new revenue measures led Jihad to express fears in August that the predicted state deficit for 2014 would more than double in 2014.

State debt

The outstanding stock of treasury bills (T-bills) is currently MVR10 billion (US$648.5 million), said the finance minister.

In his budget speech last week, Jihad observed that the state’s debt would reach MVR31 billion (US$2 billion) or 67 percent of GDP by the end of 2014.

Expenditure on state employees in 2014 would reach MVR15.8 billion (US$1 billion), Jihad observed, while MVR3.2 billion (US$207 million) would have been spent on subsidies and social security benefits.

Consequently, the government was facing serious difficulties in “managing the state’s cash flow and financing the budget” as well as securing loans for budget support, Jihad said.

According to the central bank, the total outstanding stock of government securities was MVR13.6 billion (US$881 million) at the end of September.

Spiralling debt is threatening “the economy’s health”, Jihad said yesterday, with the rolling over T-bills proving to be difficult as the ministry has to plead with banks for extension of repayment periods.

“For example, if MVR600 million matures this week and there is MVR700 million in the public bank account, if the MVR600 million is rolled over there’ll be MVR100 million. How can we run the state with that? It can’t be done,” he explained.

The solution was raising additional revenue by utilising resources such as uninhabited islands, he continued, and appealed for cooperation from parliament. Additionally, the government was trying to extend the periods for repayment of debt.

The interest rate for T-bills is currently 7.5 percent, Jihad said, down from 10 percent before the current administration took office.

“This year we estimate that MVR1.2 billion worth of T-bills have been used by the state for finances. In 2015, it will be MVR440 million,” he noted.

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Public debt to reach MVR31 billion by end of 2014, reveals finance minister

Public debt is expected to reach MVR31 billion (US$2 billion) or 67 percent of GDP at the end of 2014, Finance Minister Abdulla Jihad has revealed.

“Despite achieving economic progress, the Maldivian economy is fragile and the Maldives’ financial situation is not in the most appropriate state at present,” Jihad cautioned in his budget speech at parliament today.

“The main reason for this is the year on year increase of the budget deficit and the state’s debt because of expenditure being higher than state revenue in recent years,” he explained.

The country’s balance of payments worsened and foreign currency reserves dwindled as a result of both the persisting fiscal deficit as well as outflow of foreign currency, Jihad added.

He noted that the dramatic increase of expenditure on public sector wages, subsidies, and social security programmes was also responsible for the fiscal imbalances.

Expenditure on state employees in 2014 would reach MVR15.8 billion (US$1 billion), Jihad observed, while MVR3.2 billion (US$207 million) would have been spent on subsidies and social security benefits.

Out of every MVR100 collected as revenue or income, Jihad explained that MVR40 was spent on employees and MVR22 on social protection and subsidies.

Consequently, the government was facing serious difficulties in “managing the state’s cash flow and financing the budget” as well as securing loans for budget support, Jihad said.

The budget was mainly financed by selling and rolling over treasury bills (T-bills), he said, which involves repayment at high interest rates.

According to the central bank, the total outstanding stock of government securities was MVR13.6 billion (US$881 million) at the end of September.

The growth in government securities was contributed by the increase in the amount of T-bills issued by the government to manage its cash flow requirements,” reads the Maldives Monetary Authority’s (MMA) latest monthly economic review.

Targeting subsidies

In May, Jihad continued, the government ceased obtaining funds from the central bank to finance the budget and the inflation rate has remained low as a result.

The government has also decided to freeze hiring new employees in 2015 in favour of conducting training programmes and optimising productivity. The defence minister last week criticised civil servants, saying they were providing “poor service” to the public.

Parliament needed to pass legislation on the state’s wage policy for a lasting solution to discrepancies in pay among state institutions, Jihad suggested.

He also revealed plans to revise the electricity subsidy, which he said currently benefits the affluent more than the needy.

Targeting the electricity subsidy to low-income families or households would save 40 percent of the government’s expenditure on the subsidy, Jihad explained.

The government was also working on revising the Aasandha health insurance programme – expanded by the current government - to ensure sustainability, he added, in addition to plans to target food subsidies in 2015.

In May, MMA Governor Dr Azeema Adam called for “bold decisions” to ensure macroeconomic stability by reducing expenditure – “especially the un-targeted subsidies” – and increasing revenue.

The MMA had previously warned that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability.

The International Monetary Fund (IMF) has also recommended targeting subsidies to the poor.

“The electricity subsidy is one that goes to even the richest strata of society. Basic food subsidies are being enjoyed now by the resorts, and never mind the resorts, are being enjoyed by wealthy foreign visitors who stay at the resorts,” Dr Koshy Mathai, resident representative to Sri Lanka and Maldives, told MPs on the public accounts committee in February.

“That to us seems like a totally unnecessary policy.”

He added that “substantial savings” could be made from the budget by targeting subsidies to those most in need of assistance.

Despite the cost-cutting measures, Jihad cautioned today that the government’s recurrent expenditure could not be reduced while people reside in 188 geographically dispersed islands.

Providing services to small populations was difficult and costly, he observed, stressing the importance of formulating and implementing a population consolidation policy.

On plans to tackle the high rate of unemployment, Jihad noted that MVR332 million (US$20 million) was allocated in the 2015 budget for higher education programmes, with special emphasis on training doctors and health sector professionals.

The implementation of the government’s economic policy – with the introduction of special economic zones – would spur job creation and attract foreign investment, he added.

Jihad appealed for support from MPs for the government’s proposed revenue raising measures, warning that public services could be disrupted if anticipated revenue is not realised.

“The estimated budget for 2015 is a budget that lays the foundation to build the future of the current generation and future generations,” he said.

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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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Government to freeze hiring in 2015

The state will not be hiring any new employees in 2015 in a bid to reduce recurrent expenditure, Finance Minister Abdulla Jihad told parliament’s public accounts committee last night (October 22).

Jihad told MPs that government ministries and various state institutions have proposed creating more than 5,000 posts next year.

However, President Abdulla Yameen has decided to “freeze employment” during 2015, Jihad revealed.

All state institutions should consider reducing expenditure as domestic debt has reached MVR16 billion (US$1 billion), he added.

Jihad noted that the government’s economic council was currently reviewing the estimated annual state budget for 2015 ahead of submission to the People’s Majlis for approval.

President Yameen’s campaign pledge to create 94,000 new jobs would be fulfilled through spurring job creation in the private sector, he added.

In August, Jihad warned that the ballooning fiscal deficit could affect the government’s ability to pay civil servants.

Jihad explained that shortfalls in revenue of MVR1.5 billion would see the deficit increase to MVR4 billion – equal to 10.6 percent of GDP.

The government currently employs just under 25,000 civil servants, representing over seven percent of the population.

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Government expenditure rose 58 percent in June, reveals MMA

Government spending in June rose 58 percent compared to the same period in 2013, the Maldives Monetary Authority’s (MMA) monthly economic review for July 2014 has revealed.

Total expenditure, excluding net lending, “amounted to MVR1.6 billion (US$103 million) in June 2014,” stated the report released on Sunday (August 31).

Total government revenue, excluding grants, meanwhile rose four percent in annual terms and reached MVR0.9 billion (US$58 million).

“The increase in total revenue during June 2014 was largely due to the 57 percent growth in import duty and the 9 percent increase in total goods and services tax,” the central bank explained.

“Meanwhile, non-tax revenue registered a decline owing to the 18 percent decline in resort lease rent. As for the increase in expenditure, it was mainly due to the 30 percent increase in current expenditure.”

Budget deficit

In early August, Finance Minister Abdulla Jihad revealed that the government was facing “great difficulty in managing the budget deficit” due to shortfalls in revenue.

The ballooning budget deficit – which Jihad warned could reach MVR4 billion (US$260 million) or 10.6 percent of GDP – could affect the government’s ability to pay civil servants, he said.

A fiscal deficit of MVR1.3 million (US$84,306) had been projected in the record MVR17.96 billion (US$1.1 billion) budget approved by parliament.

The budget was inclusive of proposed revenue raising measures – many of which had failed to materialise during the previous administration – amounting to MVR3.4 billion (US$220 million), or 19 percent of the budget.

“Expenses keep on increasing, even as we don’t receive any revenue. We did not get the expected revenue this year either,” Jihad said last month.

Despite parliament passing the measures in February – including tax and import duty hikes – Jihad predicted at the time that the anticipated revenue might not be realised in full due to compromises.

“We try to make regular salary payments even if we have to take loans in order to do so,” Jihad said.

The monthly review revealed that the total outstanding stock of government securities – treasury bills and bonds – increased 18 percent in July compared to the corresponding period last year, reaching MVR13.7 billion (US$888 million).

“The annual growth in government securities was contributed by the increase in the amount of T-bills issued by the government to manage its growing cash flow requirements,” the review explained.

The MMA had previously warned that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability.

In May, MMA Governor Dr Azeema Adam called for “bold decisions” to ensure macroeconomic stability by reducing expenditure – “especially the untargeted subsidies” – and increasing revenue.

Tourism, fisheries and inflation

Tourist arrivals in July increased 20 percent from the previous month and 14 percent compared to July 2013, reaching 100,191 visitors, the review noted.

While bednights rose by nine percent in annual terms, the report noted that average duration of stay declined from 6.0 days in July last year to 5.7 days this year.

“With the increase in bednights, the occupancy rate also rose to 69 percent in July 2014 from 66 percent in the same period last year,” the review stated.

Fish purchases meanwhile declined by 44 percent to 2,124.7 metric tonnes compared to July 2013, the report revealed.

While the volume of fish exports fell by 54 percent, earnings on fish exports declined by 41 percent, which was “contributed mainly by the fall in export of frozen yellow fin tuna.”

The rate of inflation in the capital decreased to 2.4 percent from 3.5 percent in July 2013 and 3.6 percent the previous year, the review found, which was due to “the slower growth of food prices, especially fish, and the moderation in the growth in prices charged for rent and health services.”

The review noted that the trade deficit widened by 38 percent in July compared to the same period last year “due to the 27 percent increase in imports and the 34 percent decline in exports.”

Gross international reserves rose four percent from the previous month and 42 percent in annual terms, the review stated, amounting to US$497.6 million at the end of July.

“This mainly reflects the temporary increase in foreign currency transfers by the commercial banks in the review period,” the central bank explained.

“As for reserves in terms of months of imports, it also increased in both monthly and annual terms and stood at 3.2 months during the review month.”

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