Parliament has passed a Rf12.7 billion (US$988 million) mid-term budget for 2010, seven per cent higher than the budget proposed by the government.
With the amendments made by the budget committee, additional funds will be allocated to restore civil servants’ salaries to their former levels and increase the budgets of independent institutions.
In his statement to parliament following voting on amendments, Finance Minister Ali Hashim said he fulfiled his legal duty by specifying how the deficit would be plugged in the Rf11.9 billion (US$926 million) budget originally submitted last month.
“But, since the honourable Majlis has so far not shown how the amounts it has added will be financed, I request that you state this before passing the budget,” he said, adding he could not bear responsibility for the economic consequences of an unmanageable deficit.
With the injection of over Rf800 million (US$62.2 million) to the budget by parliament, the deficit will grow to Rf5.4 billion (US$420 million), up from Rf4.6 billion (US$357 million).
Hashim warned that the budget deficit would exceed the limits acceptable to the International Monetary Fund (IMF), which has pledged US$92.5 million in financial assistance.
“This will create difficulties in obtaining the assistance pledged by the IMF, World Bank and the Asian Development Bank,” he said. “Moreover, if we move away from the economic principles acceptable to the IMF, it will become difficult to secure assistance from other financial institutions.”
A total of 15 amendments were passed, including increasing subsidies for fishermen by Rf100 million and Rf50 million for farmers, requiring the government to submit an audit report of the National Social Protection Agency by March and another report providing details of the public sector investment programme (PSIP) projects by February.
Moreover, the projects will be subject to parliamentary approval, while the government will be required to submit a report on how it intends to solve disembarking difficulties in all inhabited islands by March.
Among the other amendments were reallocating Rf10 million out of a Rf100 education ministry budget item – earmarked for assistance for students’ exam fees – to build schools in the atolls; and increasing annual state benefits to people who have memorised the Quran from Rf500 to Rf2,000.
The most contentious amendment passed today was proposed by Inguraidhoo MP Hamdhoon Hameed to require parliamentary approval for projects under the public-private partnerships (PPP).
Under another amendment, the finance ministry has to settle unpaid electricity bills of government offices in the islands by February out of its contingency budget.
In his statement, the finance minister urged MPs to expedite the passage of the taxation legislation as it was crucial for generating revenue in a sustainable way.
“If the amounts proposed to increase the budgets of independent institutions are included, I believe expenditure has to be reduced in other areas of the state budget,” he said, adding it would otherwise lead to further growth of the budget deficit.
Hashim said the government was planning to make significant changes to the fiscal framework from 2011 onwards, such as setting a percentage for the budgets of institutions and replacing line item budgets with a programme budget.
PSIP vs PPP
It was not possible to include more projects in the public sector investment programme (PSIP) while maintaining the deficit at a rate acceptable to international organisations, Hashim said.
But, he added, some investments, such as a new jail, were included in the PSIP.
On the pay cuts for civil servants, Hashim said the government agreed to restore salaries to former levels once revenue reaches Rf7 billion.
The finance ministry supports restoring civil servants’ salaries and discussions will take place with the Civil Service Commission, he said.
He added the pay cuts were necessary after projected revenue for 2009 did not materialise due to the impact of the global recession on the Maldivian economy.
Printing money to plug the ballooning deficit, he continued, has led to serious adverse effects on the domestic economy.
On the Rf4 million in subsidies for private media recommended by the committee, Hashim said he believed the corporatised Maldivian National Broadcasting Corporation (MNCB) should be eligible as it would no longer receive state subsidies.
During the debate today, MPs of the opposition Dhivehi Rayyithunge Party-People’s Alliance criticised the government for reducing almost Rf1 billion from expenditure on education and healthcare as well as for the relatively small amount designated for PSIP.
Defending the budget, MPs of the ruling Maldivian Democratic Party reiterated the government’s policy of carrying out development projects under public-private partnerships, arguing that unsustainable deficit spending for the PSIP had not delivered infrastructure for the islands.
MDP MPs criticised the budget committee for not including the “professional opinion” on the budget by the Maldives Monetary Authority (MMA), which acknowledged that it was formulated to curb inflation and pay down the large government debt.