Finance Minister Abdulla Jihad has expressed fear that the ballooning budget deficit will affect the government’s ability to pay civil servants.
“We can’t hold on like this for long, we must acknowledge that this is a very serious problem,” Jihad told atoll council leaders in Malé today.
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.
“Expenses keep on increasing, even as we don’t receive any revenue. We did not get the expected revenue this year either. Because of this, we are facing great difficulty in managing the budget deficit,” said Jihad.
Upon being elected last year, President Abdulla Yameen promised to prioritise reducing state expenditure, acknowledging that the Maldives was in a “deep economic pit”.
The government currently employs just under 25,000 civil servants, representing over 7 percent of the population. This high figure has long been identified as one of the causes of country’s fiscal imbalances.
Haveeru reported Jihad as saying today that his ministry was facing pressure every month when salaries are due.
“We try to make regular salary payments even if we have to take loans in order to do so. We haven’t, as of yet, received any salary issues this year. We are trying to make the salary payments through any means possible,” he was reported as saying.
Last month’s figures from the Maldives Monetary Authority (MMA) show the salary and allowances expenditure to account for 33 percent of spending, while the finance ministry has not published monthly expenditure reports since March.
The MMA’s latest figures also show the original estimated deficit of MVR1.3 billion – agreed upon last December as part of a record MVR17.96 billion budget.
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, or 19 percent of the budget.
Despite some measures – including a rise in tourism taxes – passing the Majlis in February, Jihad predicted at the time that compromises would mean the full MVR3.4 billion would not be realised.
The MMA’s 2013 Macroeconomic Development report said that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability – currently 81 percent of GDP.
The report – released in May – noted “there is a considerable amount of uncertainty surrounding the 2014 budget”.
The World Bank’s Maldives Development Update October 2013 described the country as “spending beyond its means,” risking serious damage to the economy,
Despite the government’s persistent promises to focus on the economy, subsequent policies have focused more on infrastructure development than fiscal consolidation.
More recently, the government is facing the prospect of a potentially crippling payout to infrastructure giant GMR after a Singapore court of arbitration ruled in favour of the Indian company in a dispute over the premature termination of its airport concession deal.
Economic development plans have focused largely of large infrastructure projects and special economic zones to attract foreign investment – though no major deals have as yet been signed.
An IMF delegation visiting the country in February, however, expressed surprise at the economy’s continuing resilience.
“For a long time we’ve been saying that reserves at the MMA are very low and that the fiscal deficit is quite difficult and we expect the economy to run into some problems,” said resident representative Dr Koshy Mathai.
“But somehow the economy has shown resilience, a lot of resilience, and we’ve been surprised – happily surprised but surprised nonetheless.”