IMF will work with us to reduce expenditure, says President’s Office

Government spokesman Abbas Adil Riza said today that the IMF is willing to work closely with the government, after a delegation from the organisation arrived in Male’.

Abbas said that as the government’s current policy is to reduce expenditure, it will require assistance from the IMF.

“The IMF wants to re-engage with the Maldives. The main reason the Maldives was suspended from receiving the funds that were destined for the country was because the former administration could not meet the requirements of the IMF,” Abbas was reported as saying in local media.

“The result of the discussions held with the IMF and this government would be an acquirement of extra $20 million from the IMF. It will be settled in a month or so,” he said.

Abbas denied that the meeting was initiated by the government: “Given that the Maldives is a member of the IMF meetings may be held at any time, so they’re not here due to an initiative taken by the government.”

The previous government’s discussions with the IMF became deadlocked after the government was unable to comply with the group’s borrowing requirements conditions concerning deficit reduction.

During his recent inaugural address to the People’s Majlis, President Dr Mohamed Waheed Hassan commented on the current state of the economy.

“Estimates for 2012 indicate that the debt component of the current account in our Balance of Payments will increase by 11 per cent as compared to 2011,” stated the president. “With respect to GDP, debt of our current account will go up to 28 per cent. This figure in 2011 was 26 per cent. The main reason for this rise is the expectation that imports will increase, resulting in an increase in expenditure for these imports.”

Government expenditure outstripped revenue  by 20 percent between January and September last year, claimed the Ministry of Finance and Treasury.

The budget deficit, which stood at just 1.9 percent of the economy in 2004, expanded to 7.3 percent in 2006 and ballooned to 23.9 percent in 2007, according to the IMF.

The 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 to Rf11,000 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.

In a 2010 World Bank report headed ‘How did the Maldives get into this situation?’, it was noted that “the origin of the crisis is very clear… the wage bill for public sector employees grew dramatically in a very short time.”

According to the World Bank, a 66 percent increase in salaries and allowances for government employees between 2006 and 2008 was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”

After declaring “significant policy slippages”, in particular the government’s failure to curtail spending,the IMF felt it necessary to delay some the Maldives’ funding in 2010.

After the Nasheed government struggled to reduce expenditure due to political constraints, in particular the Civil Service Commission, it introduced a tourism goods and services tax (TGST) in order for the local economy to benefit from the lucrative but often removed tourism economy.

The World Bank’s annual ‘Doing Business’ report for 2010 saw the Maldives’ ‘ease of doing business’ ranking fall from 71 to 87, and identified no ‘business-friendly’ reforms.

The Ministry of Education has recently announced a freeze on all Public Private Partnership (PPP), which were originally intended to remove financial burdens from the government, after raising questions over the legality of the tender processes.

Following the recent inaugural speech of President Waheed, his spokesman Abbas Adil Riza told Minivan News that the current government would not be looking to increase the Tourism Goods and Services Tax (TGST) but pledged that the government would seek to “live within in its own means.”

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