Government announces expenditure cuts to curb ballooning budget deficit

The Finance Ministry has cut back on planned development projects and reduced recurrent expenditure by 20 percent in an effort to curb a ballooning budget deficit.

A circular issued by the ministry on September 28, and publicised today, has assured that wages and allowances will not be affected.

The initially projected MVR1.3 billion deficit in this year’s record budget is now expected to rise to over MVR4 billion due to shortfalls in revenue and increases in unplanned expenditure – in particular the raising of pensions from MVR2300 to MVR5000.

Tourism Minister Ahmed Adeeb had pledged to raise revenue for elderly pensions through T-bill sales, but Finance Minister Abdulla Jihad admitted in August that the government had been forced to rely on the state budget for the handouts.

In the same month, Jihad also warned that the deficit may affect the government’s ability to pay civil servants.

“We try to make regular salary payments even if we have to take loans in order to do so,” he said.

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.

According to Maldives Monetary Authority figures, while the government had spent MVR10.1 billion by June 2014, it only raised MVR6.3 billion in revenue during the same period. Meanwhile, government spending in June rose 58 percent compared to the same period in 2013.

Opposition leader and former President Mohamed Nasheed in a rally last night contended the deficit was plugged with the public’s savings at banks, and expressed concern over the impact on the financial sector should the government find itself unable to pay back treasury bills.

Meanwhile, the government is also 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.

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.

President Abdulla Yameen’s economic development plans have focused almost solely on attracting foreign investment for large infrastructure projects and special economic zones (SEZs).

The recently passed SEZ Act is a “landmark law” that will “transform” the economy through diversification and mitigate the reliance on the tourism industry, Yameen has said.

The government maintained that SEZs with relaxed regulations and tax concessions were necessary to attract foreign investors and launch ‘mega projects’ for economic diversification, which would create jobs and elevate the economy to a “new production frontier.”

Meanwhile, Nasheed has noted that attempts to attract investment in the government’s 11 months in power have failed. Nasheed last night claimed foreign multi-national companies were reluctant to invest in the Maldives.

“We are saying the [Progressive Party of Maldives’] government has failed because they are not practicing what they preach at all,” he said during a speech in Fuvahmulah.

Nasheed also criticised the PPM’s failure to provide a pledged MVR10,000 a month to fishermen during lean periods and the failure to provide MVR8000 to farmers.

Both the outgoing and incoming governors of the MMA have this year called on the state to reduce expenditure alongside increases in revenue.

Successive governments have imposed similar spending cuts, while an IMF delegation visiting the country in February 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.”


5 thoughts on “Government announces expenditure cuts to curb ballooning budget deficit”

  1. The opposition demands more welfare spending while criticizing the government for spending too much. The government announces record budgets promising development and spend it all on recurrent expenditure. Same story since 2008. Difference is the Nasheed administration focused on mid-market tourism for economic expansion while the Yameen administration is counting on the development of a seaport in the North.

  2. Maybe Jidah and Abeed could supplement the budget with some of the dough they make on the side? Maybe the government could stop spending on keeping the members of the mega coalition happy?
    It would help the budget to get rid of the heavy top layers of the civil authorities - who by their function should be paid for out of the Plezzy's (or his wife's??) own pocket.

  3. I did say months ago that the compensation payout to GMR will bankrupt you. This has now come to pass.

    Why don't you guys invest in 'high value' agriculture by growing cannabis, coca and poppies in the atolls?
    Not only will there be a ready local market for the produce, you will also cut your import costs by half.

  4. Ideal situation is to allow people to get filthy rich & tax them so that govt can spend spend spend!!

  5. When more borrowing has to be done to plug in recurrent expenditure, its all doom and gloom....


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