IMF urges parliament to expedite fiscal responsibility legislation

A delegation from the International Monetary Fund (IMF) has urged MPs to expedite legislation on fiscal responsibility, at a meeting with parliament’s Finance Committee and Economic Affairs Committee on Wednesday.

According to the parliament secretariat, the IMF team told MPs that passage of the fiscal responsibility bill currently being reviewed by the Economic Affairs Committee was the most important measure the People’s Majlis could take to improve the country’s economic outlook.

A fiscal responsibility bill to impose limits on government spending and ensure public debt sustainability was submitted to parliament in 2011 by the administration of former President Mohamed Nasheed as part of an economic reform package.

Presenting the bill in August 2011, MP Ahmed Easa of the formerly ruling Maldivian Democratic Party (MDP) said a lot of effort was needed to “change the inherited, outdated and indebted economic system.”

As measures to legally mandate fiscal responsibility, the legislation proposed setting limits on government spending and public debt based on proportion of GDP (Gross Domestic Product).

Borrowing from the central bank or Maldives Monetary Authority (MMA) should not exceed seven percent of the projected revenue for the year, according to the bill, while such loans would have to be paid back in a six-month period.

Moreover, the bill proposed that a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

Meanwhile, according to parliament, members of the IMF mission currently in the Maldives are Overall Coordinator Dr Koshy Mathai, Dr Fazurin Jamaludin, Nicholas Million, Dr Nandaka Molagoda, and Jules Tapsoba.

Ahmed Munawwar, Manager of the Monetary Policy Section of the MMA also attended yesterday’s meeting.

According to the latest figures from the Finance Ministry the fiscal deficit as of November 4 stands at MVR 2.4 billion (US$155.6 million), with government spending of MVR 10.4 billion (US$674.4 million) outstripping revenues of MVR 8 billion (US$518.8 million) so far this year.

Of the MVR 10 billion in expenditure, MVR 7.6 billion (US$492.8 million) was on recurrent expenditure – salaries and allowances for government employees and administrative costs – while MVR 1.5 billion (US$103.7 million) was spent on repaying loans and interest payments.

Fiscal imbalance

In April 2012, Jonathan Dunn, chief of the IMF mission to the Maldives, told Minivan News that the country’s fiscal deficit was “substantially understated.”

The remarks followed the IMF warning of dire consequences if expenditure was not curbed to rein in the ballooning budget deficit.

Speaking in parliament on behalf of the former government in August 2011, MP Easa meanwhile noted that according to the World Bank, a 66 percent increase in salaries and allowances for government employees between 2006 and 2008 was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”

“We are seeing the bitter consequences today of spending out of the budget without any control or limit,” MP Easa had said.

Dunn had meanwhile emphasised in April 2012 that “fiscal imbalances in the Maldives have been present for many years” and that “fiscal adjustment remains necessary”.

Faced with increasing pressure from the IMF to lower expenditure after failed attempts in 2010 to keep in place unpopular pay cuts for civil servants – a maneuver blocked by the Civil Services Commission (CSC) and backed the then opposition – former President Nasheed’s administration insisted that increased revenue from the new taxes would match expenditure, and boasted that the 2012 budget was the first in many years to balance income and expenditure.

Following the police mutiny and controversial transfer of presidential power, spending by President Dr Mohamed Waheed’s administration had escalated as it sought to shore up support in a fractious political environment.

Moreover, in September 2012, a pair of government-aligned MPs blamed President Waheed’s lack of solid policies for the increase in state expenditure.

Newly-announced expenditure in first few months of the Waheed administration included:


8 thoughts on “IMF urges parliament to expedite fiscal responsibility legislation”

  1. It seems that maldives now "belongs" to Police and military personnel and the budget is theirs to spend as they wish.

    "To every action there is an equal and opposite reaction". Time will come for an equal and opposite reaction to this extravagant and illegal spending of baaghee waheed.

  2. This is a carefully crafted article aimed at raising fear and speculation over a simple problem.

    Let me break it down for you.

    Country politicized - All governments whether elected or otherwise forced to spend on calming down the public - State revenue not enough to finance political spending - however political rivalry still high.

    A fair timeline of events would go like this:

    - Post-tsunami Maldives was struggling to finance a growing debt situation.
    - The government's reaction to political opposition was to raise salaries for civil servants (a large cross-section of society).
    - Election time increased spending and rufiyaa circulation in the economy.
    - Nasheed assumed power in 2008 under questionable circumstances regarding his control over the government.
    - On unsure footing Nasheed chose to increase the salaries of public servants once more on top of Qayyoom's earlier increases.
    - For the purpose of buy support in the atolls Nasheed appointed Councilors in every island and every atoll at great expense to the State.
    - For the purpose of consolidating power Nasheed created 7 utilities companies and 7 health corporations in order to provide exorbitant amounts of money to new recruits and party loyalists.
    - Nasheed announced and implemented several dodgy infrastructure projects (a la Maumoon) to buy out more support.
    - Waheed assumed the Presidency and found himself faced with a similar situation.
    - In order to ensure the loyalty of the security forces he made concessions to the military and the police.
    - As for the increased spending on tourism marketing one really cannot say that its altogether a bad thing.

  3. Oh and let us all never forget the Aasandha fiasco and the grand old Equatorial Convention Center.

    All admirable attempts at reining in public spending I'm sure.

    Lovely of our Parliament to sit back and allow all of that to happen.

  4. "This is a carefully crafted article aimed at raising fear and speculation over a simple problem."

    And you are a cunning fox hired by these traitors to do exactly what you are trying to do.

    Spare yourself of the trouble making us believe what you and your other half say here is right!

    We are simply being spun on our asses by you and your payers, and made the donkey!

    We have to wait to be adorned with another loan the government take from somewhere (from Champa, again, perhaps) to pay government salaries, to be paid!


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