Fiscal deficit in 2011 expected to fall to single digit, says President

The government expects the fiscal deficit to have fallen to a single digit at the end of the year, below the previous forecast of 11 percent of GDP, President Mohamed Nasheed said in his weekly radio address on Friday.

“The budget deficit as a percentage of GDP or national productivity has been estimated for next year at [budget] meetings with ministers and heads of government offices,” he said. “From that estimate we know that government expenditure has been substantially reduced in a number of different areas. For this year, we forecast a budget deficit of 11 percent. We have noted now that it has been reduced by three or four points.”

The government hoped that the fiscal deficit would be below 10 or “a single digit figure” when it is calculated at the end of the year, he said.

The budget deficit, which stood at just 1.9 percent of the economy in 2004, expanded to 7.3 percent in 2006 and ballooned to 23.9 percent in 2007, according to the International Monetary Fund (IMF).

The fiscal deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009. On paper, the government increased average salaries from Rf3000 to Rf11,000 and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF noted in March this year.

“We see bringing the fiscal deficit down as the key macroeconomic priority for the Maldives,” the IMF’s Mission Chief to the Maldives, Rodrigo Cubero, told Minivan News at the time. “A large fiscal deficit pushes up interest rates, thereby undermining private investment and growth, and also drives up imports, putting pressure on the exchange rate and inflation, all of which hurts the Maldivian people, particularly the poor.”

“Further efforts are still needed to reduce the fiscal deficit. Those efforts should comprise further tax reforms as well as measures to reduce expenditure and to improve the channelling of social expenditures to the needy.”

Meanwhile in a booklet issued to media titled “the DRP’s response to the government’s economic nuisance package,” the main opposition Dhivehi Rayyithunge Party (DRP) strongly objected to a bill on fiscal responsibility currently before parliament.

The bill was “a plot” devised to wrest financial control from local councils and negate parliament’s contentious amendments to the Public Finance Act, the DRP argued.

The DRP also noted that provisions on imposing limits to government spending would only come into force after 2013.

“In the past three years, the MDP [Maldivian Democratic Party] government earned billions of rufiya by selling off state assets, facilitating business opportunities for their friends and introducing new taxes,” the DRP said. “Nonetheless, while the health sector, the education and overall standard of living has gone from bad to worse, it is unclear how the government spent the billions and billions of rufiya it received.”

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