Finance Ministry asks to transfer MVR650 million from development budget to pay government salaries

Finance Minister Abdulla Jihad sought authorisation from parliament yesterday (April 29) to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

Appealing for approval from parliament’s Finance Committee, Jihad revealed that by the end of the first quarter of 2013, offices have exhausted the yearly budget provided for recurrent expenditure, which includes salaries, allowances and administrative costs.

Jihad warned that government offices and independent institutions might be unable to pay wages or utility and phone bills if funds were not transferred from the MVR 1.8 billion (US$117 million) Public Sector Investment Program (PSIP).

“If not we will see people gathered and queuing outside the finance ministry,” Jihad was quoted as saying by newspaper Haveeru.

Responding to Jihad’s request, Finance Committee Chair MP Ahmed Nazim reportedly said he did not believe such a significant alteration to the budget could be approved at the Majlis committee level.

Parliament broke for a one-month recess yesterday at the conclusion of the first legislative session of 2013.

The Finance Ministry meanwhile issued a circular (Dhivehi) yesterday instructing government offices to cancel all overseas trips for the rest of the year with the exception of study tours, training courses and all-expenses covered trips funded by foreign parties.

The decision was approved by the cabinet as an austerity measure to reduce government expenditure, the circular stated.

Earlier this month, the cabinet decided to delay implementation of new development projects financed out of the state budget due to shortfalls in revenue.

Jihad told Minivan News at the time that infrastructure projects that have not yet started would be postponed in an attempt to ease cashflow issues.

The move followed parliament’s rejection of government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

Other measures included hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

Jihad told local media following the defeat of the bill to raise the departure tax on outgoing foreign passengers that the revenue raising measures were necessary to manage the state budget.

He confirmed to Minivan News at the time that the government was in the process of formulating a supplementary budget to be put before parliament.

Recurrent expenditure

Jihad meanwhile told MPs on the Finance Committee yesterday that the proposed transfer of funds out of the development budget was necessary before a supplementary budget could be submitted.

“If we do not do this we will not be able to manage the budget at all in the coming days,” he said.

Jihad contended that funds under the budget code for recurrent expenditure were running so low because parliament passed the proposed budget with large cuts to that item.

The Budget Review Committee headed by MP Gasim Ibrahim of the government-aligned Jumhooree Party (JP) approved omissions to reduce the budget from MVR 16.9 billion (US$1 billion) to MVR 15.3 billion (US$992 million).

The budget items that the committee made cuts to included overtime pay (50 percent), travel expenses (50 percent), purchases for office use (30 percent), office expenditure (35 percent), purchases for service provision (30 percent), training costs (30 percent), construction, maintenance and repair work (50 percent) and purchase of assets (35 percent).

The committee also instructed the Finance Ministry to reduce an additional MVR 605.7 million (US$39.2 million) from office budgets.

However, the committee added MVR 389 million (US$25.2 million) for infrastructure projects such as harbours, sewerage and water for islands.

Executive authority

Speaking at a function yesterday to inaugurate a Health Trust Fund, President Dr Mohamed Waheed suggested that the present financial constraints on the state was the result of Majlis allegedly abrogating executive powers.

President Waheed claimed that parliament had removed funds allocated for repair work in the budget.

“It has been cut [from the budget]. But equipment still has to be repaired even by transferring [funds] from another budget line. But the finance minister does not have the flexibility to do that as much as he used to have. It is done under the supervision of the Finance Committee,” he said.

The government was consequently facing difficulties in providing essential services to the public, Dr Waheed said.

The president and his cabinet were vested with the authority to run the government by both the constitution and voting public, he observed.

The present situation was however the result of “others trying to run the government” instead of the executive, he contended.

“I think that suffices for what I have to say,” Dr Waheed said.

Meanwhile, MP Abdulla Yameen, presidential candidate of the Progressive Party of Maldives (PPM) – the largest party in Dr Waheed’s ruling coalition – reportedly said at a ceremony last night that it would be difficult to accomodate the government’s request to reallocate MVR 650 million for recurrent expenditure.

Professional opinions

In December 2012, the Auditor General’s Office and the Maldives Monetary Authority (MMA) submitted professional opinions on the US$1 billion budget proposed by the Finance Ministry.

The central bank warned that the projected deficit in the 2013 budget was likely to adversely affect the foreign exchange market and foreign currency reserves while the Auditor General’s Office expressed concern with formulating the PSIP without either a national development plan or population consolidation policy..

Auditor General Niyaz Ibrahim observed that of the estimated MVR 12 billion (US$778 million) of recurrent expenditure, MVR 7 billion (US$453.9 million) would be spent on employees, including MVR 743 million (US$48 million) as pension payments.

Consequently, 59 percent of recurrent expenditure and 42 percent of the total budget would be spent on state employees.

“We note that the yearly increase in employees hired for state posts and jobs has been at a worrying level and that sound measures are needed,” the report stated. “It is unlikely that the budget deficit issue could be resolved without making big changes to the number of state employees as well as salaries and allowances to control state expenditure.”

The Auditor General’s Office contended that “major changes” were needed to right-size the public sector and “control the salary of state employees and expenditure related to employees.”

The report observed that compared to 2012, the number of state employees was set to increase from 32,868 to 40,333 – resulting in MVR 1.3 billion (US$84.3 million) of additional expenditure in 2013.

This anticipated increase included 864 new staff to be hired by the Maldives Police Service (MPS) and Maldives National Defence Force (MNDF), the report noted.

In light of “existing inefficiencies” in the state, the Auditor General contended that hiring more staff for various independent institutions would be “a waste of public funds” as it would divert resources from service provision and development projects.

“Moreover, we note that increasing the number of employees would lead to an increase in office expenses and expenditure on employees’ retirement and pensions, decrease the number of people left to do productive work in the private sector (decrease the labour force), and slow the growth of the country’s economy,” the report stated.

Details of the state’s wage bill included in the report showed that MVR 187 million (US$12 million) was budgeted as salaries and allowances for 545 political appointees in 2012.

In addition, MVR 1.98 billion (US$128.4 million) was to be spent on 18,538 civil servants; MVR 999 million (US$64.7 million) on 6,244 police and army officers; MVR 362 million (US$23.4 million) on 1,455 elected representatives and attendant staff; MVR 485 million (US$31.4 million) on 3,372 employees of independent institutions; and MVR 345 million (US$22.3 million) on 2,714 contract staff.

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