Budget of MVR16.4 billion for 2014 submitted to parliament

An estimated budget of MVR16.4 billion (US$1 billion) for 2014 was submitted to parliament today by Finance Minister Abdulla Jihad, with a projected deficit of 2.5 percent of GDP.

Presenting the budget this morning, Jihad said the forecast for government revenue in 2014 was MVR13.9 billion (US$901 million), with income from taxation projected at MVR10.2 billion (US$661 million) and non-tax revenue of MVR3.5 billion (US$226 million).

In addition, MVR2.3 billion (US$149 million) was expected from new revenue raising measures.

As government expenditure in 2014 was estimated to be MVR14.9 billion (US$966 million), Jihad said, the resulting budget deficit would be MVR988 million (US$64 million).

The fiscal deficit would be plugged by foreign assistance, loans and domestic sources of finance, Jihad said.

The total budget reaches MVR16.4 billion including loans and foreign aid, Jihad explained, which was not included in total expenditure.

While the economy grew by 3.7 percent in 2013, economic growth is estimated to be 4.5 percent next year, he said.

Similar to previous years, Jihad observed, recurrent expenditure (MVR12 billion) accounts for 73 percent of the total budget, with almost half spent on salaries and allowances for state employees in addition to administrative costs, interest payments and subsidies.

A total of MVR2.2 billion (US$142 million) was allocated for social security and welfare spending, Jihad said, which covers the government health insurance scheme ‘Aasandha,’ electricity subsidies, pensions for the elderly and expenditure on price controls.

While MVR2.4 billion (US$155 million) was allocated for the Public Sector Investment Programme (PSIP), Jihad said MVR1.9 billion (US$123 million) of it would be spent on infrastructure projects in the atolls such as construction of harbours and establishing sewerage systems.

The finance minister revealed that government revenue was expected to reach MVR11.5 billion (US$745 million) by the end of 2013.

The original forecast in the 2013 budget was however MVR12.9 billion (US$836 million).

The 2013 fiscal deficit, projected at MVR1.4 billion (US$90 million), would stand at MVR1.7 billion (US$110 million) by the end of the year, Jihad said.

Following a budget debate next month, the proposed budget would be sent to the Budget Review Committee, consisting of all the members of the economic affairs and public finance oversight committees, for scrutiny and possible amendments.

In December 2012, the Budget Review Committee deducted more than MVR1 billion (US$64.8 million) from the MVR16.9 billion (US$1 billion) budget submitted by Finance Minister Jihad before parliament passed the a MVR15.3 billion (US$992 million) budget for 2013.

Revenue raising measures

In its latest Quarterly Economic Bulletin, the Maldives Monetary Authority (MMA) observed that government finances had “further deteriorated in the first six months of 2013” due to a sizeable shortfall in expected revenue coupled with a marked increase in recurrent expenditure.

The central bank’s economic bulletin explained that around 15 percent of total revenue budgeted for 2013 – MVR1.8 billion (US$116.7 million ) – was to be raised from new revenue measures, “which so far have not materialised.”

The revenue raising measures proposed in the 2013 budget included hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, raising airport service charge to US$30, leasing 14 islands for resort development, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

In April, parliament rejected government-sponsored legislation to raise the departure tax on outgoing passengers, prompting Finance Minister Abdulla Jihad to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

The move followed a cabinet decision to delay implementation of new development projects financed out of the budget due to shortfalls in revenue.

The economic bulletin also revealed that the total government expenditure of MVR6.7 billion (US$435 million) in the first half of 2013 was eight percent higher than the same period in 2012.

The growth of government spending was “entirely due to the 21 percent (MVR965.3 million) growth in recurrent expenditure, which was partly offffset by the 26 percent (MVR440.6 million) decline in capital expenditure during the period.”

Presenting the 2014 budget today, Jihad said the government proposes six new revenue measures to be implemented next year pending parliamentary approval,

• Hiking T-GST to 12 percent from 8 percent at present
• Revising import duties
• Delaying abolishing the tourism bed tax for one more year
• Raising airport departure charge from foreign passengers from US$18 to US$25
• Leasing 12 islands for resort development
• Introducing GST for telecommunication services (currently exempt from the tax)

Austerity

Jihad also advised implementing a raft of austerity measures, contending that the “expensive” public management model adopted in the Maldives was inappropriate for a small island state.

Almost 50 percent of government income was spent on employees, Jihad noted, advising revision of the state pension system and reduction of the numbers of island and atoll councillors as well as members of independent institutions and boards of government-owned companies.

As “the basis of increasing state expenditure is having to provide all facilities to small populations in separate islands,” Jihad said prompt implementation of a population consolidation policy was necessary for a long-term solution.

The current model of more than 1,000 elected councillors established by the Decentralisation Act passed in 2010 by the then-opposition majority parliament was branded “economic sabotage” by the ousted Maldivian Democratic Party (MDP) government, which had proposed limiting the number of councillors to “no more than 220.”

In March 2011, former chair of parliament’s Finance Committee, MP Ahmed Nazim, told Minivan News that the opposition Dhivehi Rayyithunge Party (DRP) had been too “heavy handed” in working with government.

“I was advocating that even now, we will work with the MDP to reduce the number of [island] councillors in small areas from five to three posts.  There is simply not enough work for all of them to do. Some opposition took a heavy handed approach meaning there was no need for compromise,” the current Progressive Party of Maldives (PPM) MP said, despite having voted for the bill framed by the opposition.

Meanwhile, in its professional opinion on the 2013 budget, the Auditor General’s Office stated that a policy of population consolidation together with effective measures to reduce the public sector wage bill was necessary to rein in the continuing fiscal deficits.

Moreover, in November 2012, a team from the International Monetary Fund (IMF) advised that strengthening government finances was “the most pressing macroeconomic priority for Maldives”.

Jihad said today that a National Pay Review Board had begun reviewing the pay scale of state employees, which was among the recommendation’s of the IMF mission.

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