“Dire economic outlook” as budget deficit estimated to reach 27 percent of GDP

Parliament’s Financial Committee has projected that the Maldives budget deficit will reach  27 percent of the GDP by the end of year 2012, a 175 percent increase on earlier forecasts.

While the 2012 budget put the deficit at less than 9.8 percent of Gross Domestic Product (GDP),  the figures revealed by the committee last week shows that the amount will increase up to a staggering 27 percent.

These figures confirm the International Monetary Fund (IMF)’s earlier warnings that the Maldives had “substantially understated” its budget deficit, by underestimating its spending and “probably” overestimating tax revenues.

Head of the Majlis’s Financial Committee, Deputy Speaker and People’s Alliance (PA) MP Ahmed Nazim, revealed to the reporters that government revenue for 2012 will be Rf2.6 billion (US$168.6 million) less than the projected amount of Rf10.87 billion (US$704 million) – a 23 percent plunge.

Meanwhile, government spending in 2012 is expected to increase by almost 24 percent, reaching Rf17.45 billion (US$1.13 billion) at the end of the 2012.

With the shortfall of revenue and increased government spending, Nazim observed that the budget deficit will exceed from Rf 3.9 billion (US$ 252 million) to Rf9.1 billion this year (US$590 million), amounting to 27 percent of the country’s GDP.

“The information shared by the Finance Minister Abdullah Jihad shows a dire economic outlook for the Maldives,” he warned, echoing the IMF’s recent predictions on the Maldives’ economic frailty.

Chief of the IMF mission in the Maldives, Jonathan Dunn, warned parliament in April  that if the country does not reduce its expenditure, it risks running out of reserves and miring the country in poverty.

Although 2012 budget put the deficit at less than 10 percent of GDP, Dunn told Minivan News that “the IMF team sees the figure as more likely to be 17.5 percent of GDP, and perhaps larger than this.”

As a result of this, he warned that the economic growth and stability in the Maldives were unlikely to be maintained “in the medium term” unless the government substantially cut spending.

Dunn emphasised that the only sustainable solution was for relevant parties to rationalise the budget by boosting revenues and cutting expenditure, despite the political difficulties.

“These may be politically difficult measures, but the consequences of not reducing the budget deficit are likely to be even more difficult,” he warned.

New government increases spending

Despite urgent calls to reduce spending to curb widening deficits, parliament’s finance committee projects the government spending will have to be increased to cover additional costs which were not included in 2012 projections.

These expenses include food subsidies worth Rf270 million (US$17.5 million), electricity subsidies worth Rf250 million (US$16.2 million), capital expenditure by government institutions Rf735 million (US$47.6 million) and an allocation of Rf200 million (US$12.9) to the Aasandha Health Insurance  scheme’s budget, according to Nazim.

Visiting Hirimaradhoo island last weekend, President Waheed said he would allocate Rf 30 million (US$1.9 million) in the 2013 state budget for development.

A total of Rf3.4 million (US$220,500) is also said to be allocated as benefits to former President Mohamed Nasheed of Maldivian Democratic Party (MDP) which alleges that Nasheed was ousted in a coup on February 7.

However, committee member and MDP MP for Kulhudhufushi, Abdul Ghafoor Moosa, told reporters that unplanned spending on police and military personnel and  planned reimbursement of civil servants pay cuts  in 2010, are both significant causes for rising costs to the government.

He observed that the largest shortfall in revenue is a direct result of the US$135 million pulled out from the budget with new government’s recently revised policy on lease extension payments for resort islands.

Maldives Inland Revenue Authority (MIRA) anticipated receiving a total of Rf375 million (US$ 24 million) for lease extensions, however the income received dropped to Rf23 million (US$1.5 million) as a result of the decision to accept the lease extension fees in an annual installment instead of a lump sum as decided by former  administration.

The loss of concession fees from Ibrahim Nasir International Airport (INIA), the result of a successful Civil Court case to block the Airport Development Charge (ADC) filed by the Dhivehi Qaumee Party (DQP) while it was in opposition, also saw the government receive only US$525,355 from the airport for the quarter, compared to the US$8.7 million it was expecting.

The government-aligned PA’s Deputy Leader Nazim however contended that the the 23 percent drop in government income was caused by unrealised revenue from privatisation schemes and a shortfall of Rf 166.7 million and Rf435 million (US$28 million) from the projected dividends of Dhiraagu and import duties respectively.

He noted that the committee has decided to increase the treasury bond limit up to Rf1 billion following a request by the  Finance Ministry to increase the limit from Rf727 million to Rf 1.5 billion. The ministry says that all monetary transactions will be halted if the limit is not extended, according to Nazim.

The IMF’s Dunn has however stated that further domestic borrowing “will be difficult to achieve, as it is unclear whether the banks have much more appetite for buying treasury bills.”

Meanwhile,  in a bid to address spiraling costs, the committee is reviewing the Aasandha universal health scheme to block the Rf200 million extension of its budget, cut the budget of all institutions by 10 percent to save nearly Rf 1.5 billion, and save a further Rf300 million by issuing a moratorium of the further employment of staff.  These measures will reduce state costs by Rf 2.2 billion (US$142 million), Nazim estimated.

However, recently released figures from Finance Ministry show that between January 1 to April 26, state expenditure exceeded over Rf 4 billion (US$259 million) while the income remained at Rf 2.10 billion (US$136 million), a deficit of Rf 1.5 billion (US$100 million).


20 thoughts on ““Dire economic outlook” as budget deficit estimated to reach 27 percent of GDP”

  1. So, after clearing the huge debt of the DRP and paying for the vulgar yacht and palace, cars, cronies etc.... They have now retuned and taken all the money for themselves and avoided the taxes and helped themselves. The old regime is back and ruined the economy, AGAIN!

  2. From 7th Feb 2012, the rich get richer and the poor get poorer !!!

  3. This is the cost of the coup: Waheed has screwed the tourism industry and is giving what's left of the treasury to the police, military and resort owners to thank them for placing his puff-pantied posterior in the seat of the Presidency.

    Maldivians suffer but, hey, at least Waheed can play president for a while. After all, it is his life's ambition.

  4. An economic default may be the best thing for the Maldives - there is no other humanly possible way to make the great ploticals egos of the country like Yameen, Qasim, Maummon, Thasmeen to listen. Nasheed is also in the catagory except that he is wealthy.

    The sooner the bankrupt, the better.

  5. note:
    plotical and political can be used interchangerbly.

  6. They talk about selling Treasury Bonds as if they were sweets that kids are desperate to buy. Are there any banks that are willing to lend more money to a bankrupt government?

    I do not think so; afterall, those institutions that lend the money have almost no guarantee of getting their money back. The Maldives will declare bankruptcy pretty soon...

  7. and to get rid of our fiscal problems, the government is creating more ministries and more political posts. Well done.

  8. Thanks to Nasheed creating this situation.. this expected from a corrupt dictator

  9. Petty distractions from the crucial issues we face as a nation.

    The Ayatu'llah Khomeini, may his name ever be praised, teaches us that economics is for donkeys, and that piety and virtue are more important than the price of melons.

    The deficiencies and immodesty of our harlot women must be fixed prior to engaging with frivoulous economic issues that are of no concern to the God-fearing.

  10. Can the govt come out of this swirling financial quagmire? Don't think so. Future is black...even the'intelligent blind' on Male streets can see...

  11. Bring back all that money stacked in foreign accounts by "Maumoons Family Wealth Organisation"...and share it with each Maldivian. Maldives will have the best per-ca-pita Income.

  12. It is simple maths>>you can not spend more than you earn,,followed by >banks will not lend money if you can't pay it back.Most of Europe is in the same situation,only they have a chance to build their economy's..What,if any way is there for the Maldives to increase[substantially]their total income,considering that you only have fishing and tourism,of which neither is guaranteed to increase..If tourism in the Maldives goes out of fashion,or becomes too expensive,I'm afraid its all over, for all of your dreams..

  13. Get all the Sheiks to gather at Raalugandu area and pray for a week nonstop to obtain Almighty's blessing for the fishing to improve in Maldives. That will assist the Government of Maldives to earn enough foreign exchange. But please do not allow our Religious Minister to bring his sister in law as he would be tempted for other activities.

  14. Hallelujah, Create more ministries tailor made for people like Dhiyana Saeed, appoint all the Waheeds of Silverseen, and Javahir Vadhy brothers and sisters to the board of directors of public companies, purchase expensive gears for them on state budget-Economy will prosper!

  15. Whenever new goverment come to the power in Maldives, new Ministries, new companies and new posts were created in oder to give money to so called 'activists'. For the goverment and ignorant Maldivans boistorous street thugs are most capable people.Without spending money on long term beneficial projects such as population consolidation they spend money on economicaly unviable projects. So most of the money spend go waste and corruption.Either Maldivian politician lack clear visions for the future or they are deliberatly doing this for their ulterior motives. As a result of goverment over spending buget defecit and inflation increases. Because of this dumb policy people who are working in private sector sufered most since their incomes are low compare to goverment employees.

  16. Get Yamin and Gayyoom to give back the hundred of millions they stole from us, every single cent!

  17. Revenue = US$ 536M
    Expenditure = US$ 1126M
    Shortfall = US$ -590M

    Am I the only one getting panicked by this?? The article clouds the issue by saying its 27% of GDP which doesn't sound too bad but the fact is the government spends over 210% of what it earns... how on earth are we going to plug that gap?

    Lets face facts here - there will be no foreign donor to put up that kind of money and additional loans are unlikely to materialize (forget any more loans from IMF), nor will there be major restructuring of the existing debts which are starting to come due. So what does this mean for us:

    Government default on debt payments -> total loss of credibility of in the financial markets and inability to raise ANY future loans at reasonable interest rates. Note that a large chuck of government debt is held by the local banks and the pension fund and any default will directly impact their ability to lend to local businesses.

    Government default on existing development contracts (flats, harbors, reclamations) -> will screw up local and international contractors

    Large scale redundancy / pay cuts across all government department and cancellation of public works projects, subsidies, services, perks to civil servants/ military / police -> the new government will not do any of these if they are to keep any chance of staying in power after the next election.

    Printing of additional Ruffiya to pay government employees and contracts -> inflation and dollar shortage -> devaluation

    Higher taxes across the board (increase GST, business tax, tourism tax, import duties, new taxes) - taxes and employment costs have already shot up under the last government and made may foreign investors think twice about coming here. This is going to be real kick in the guts.
    -> higher unemployment, especially among the youth.

    All of the above will do wonders for the political and social stability of the country - we are already on the brink, this will take us over the edge.

    Face it people, this country has been screwed royally by all our current politicians, be it Gayoom, Nasheed, Waheed or would be rulers like Yameen, Thasneem or Hassan Saeed.

  18. this problem is created by Anni and his cabinet. MDP have no clue on our economy and for the last three years our expenditure had gone rocket high due to influx of taxes that was introduced. Since Anni does not know how economics works and he even does not want to people who know how it works, the dictator dictates the terms and rest of his hangs had to follow only his orders.

    Maumoon might have also robbed the country but we need to understand that millions of dollars additional income through introduction of new taxes have been able to enjoyed by Nasheed government our income had gone three fold high but our population had not gone so much . So i can not understand why the government expenditure can not be controlled and why they had to dump millions of dollars on Gulhifalhu, and some harbors and reclaiming Island if we can not afford to do.

  19. Dear Mode

    1. The resort owners have defaulted on paying their rent,instead of paying up fron, Dr Wahed has allowed them to pay in instalments

    3. GMR has not paid up, thanks to Hassan Saeed,

    3. income tax hasn't come in yet,

    4. many businesss have yet to pay GST to government,

    ....... and since the coup, Dr Waheed has had to

    1. pay out the army and police baagees and

    2. increase the wages of the rest of the police and the army so they dont do a counter coup,

    3.have recruited hundreds more into the police force

    4. created two new ministries,

    5. filled all political positions created by Nasheed. (Oh yes, a lot of crying then about soooooo many political appointees, but not one of those positions taken out except for those deleted with the government offices hey cme with eg the Provincial Office).

    6. budgetted to pay civl servants what had been promised to them by Nasheed once we balanced the books.

    Have I missed out anything? feel free to add, readers!!

    Dr Waheed should ask his UN friends to send him a good economist

  20. You forgot all the new IPads and Gadgets they need to pay for.

    Azimas tickets to London cos Dunya backed out.

    rudder Finn payments


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