The Ministry of Finance and Treasury has shut down all state expenditure except for salaries.
A circular sent to all government offices yesterday said the annual budget for 2013 has been “shut down” starting today.
“However, once all the expenses for staff salaries are arranged for, and if the budget allows for it, we will settle absolutely necessary expenses through the 2013 budget,” Minister of Finance and Treasury Abdulla Jihad said.
The parliament had passed a MVR 15.3 billion (US$ 992 million) state budget for 2013. According to the MMA, despite a higher than expected increase in income from taxation, the deficit for 2013 is expected to rise to MVR 1.7 billion (US$ 107 million) or 5 percent of GDP.
The government has faced serious cash flows during this year after the parliament failed to approve new revenue raising measures which comprise about 15 percent of projected income or MVR1.8 billion (US$116.7 million).
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 the government to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.
The move followed a cabinet decision to delay implementation of new development projects financed out of the budget due to shortfalls in revenue.
According to the World Bank, the Finance Ministry turned to monetization, build up of arrears and short term T-bill sales to finance the budget deficit. These methods pose “macro risks,” the World Bank said.
On December 16, the Majlis passed a US$ 29 million loan from the Bank of Ceylon for budget support. The loan carries an interest rate of 8 percent and has a grace period of one year. The monthly repayment amount is $490,000.
Opposition MPs have criticized the government’s borrowing from commercial banks at high interest rates, but Jihad has said the Maldives has no choice.
At present, public debt stands at an “unsustainable” 81 percent of GDP, the World Bank has said, projecting debt to rise further to about 96 percent by 2015.
Meanwhile, the People’s Majlis has extended the deadline for MPs to submit amendments to the proposed budget for 2014 until 4 pm today.