The Finance Ministry has said it has managed to reduce state spending over the last twelve months, despite the Maldives central bank raising fears over the current “beyond appropriate” levels of government expenditure.
Finance Minister Abdulla Jihad has told Minivan News yesterday that efforts had been successful over the last twelve months to curb recurrent government expenditure, while its borrowing had at the same time remained consistent.
According to Jihad, the government’s decision in April to suspend state-financed development projects had also helped to curb outgoings as the country looks to secure foreign finance for the purpose of budget support.
“We have had difficulties this year with spending, so we have taken these initiatives,” he said.
The suspension of development projects was taken after the state was found to have exhausted its annual budget for recurrent expenditure (including salaries, allowances and administration costs) in the first quarter of 2013
The decision was made in same month that currency reserves in the Maldives were found to have “dwindled to critical levels”, according to the World Bank’s bi-annual South Asia Economic Focus report.
Jihad said that state borrowing had remained consistent over the last year, after the Waheed administration had paid back US$100 million in treasury bonds to Indian authorities by a requested date of February 2013.
Earlier this month, President Waheed pledged that the country would be in a position to restart development projects next year as a result of his government repaying bills incurred through the previous administration’s borrowing.
While President Waheed had previously said he would not resort to borrowing from foreign governments in order to finance his administration, Jihad today confirmed the state was “moving ahead” with efforts to secure credit from overseas sources in Saudi Arabia and Sri Lanka.
Earlier this month, the government requested parliament approve a US$29.4 million loan from the Bank of Ceylon to finance the 2013 budget approved by parliament.
In July, the President’s Office confirmed that discussions had been held with Saudi Arabia seeking a long-term, low interest credit facility of US$300 million to help overcome the “fiscal problems” facing the nation.
Parliamentary approval would be required for the credit facility before it could be obtained by the government, Jihad added.
Governor of the Maldives Monetary Authority (MMA) Dr Fazeel Najeeb (August 23) was quoted in local media as warning that “excessive” government expenditure was directly responsible for the country’s present economic issues.
Speaking during a function to celebrate three years since the formation of the Maldives Inland Revenue Authority (MIRA), Dr Najeeb claimed that increased government expenditure required large amount of loans that would put the country in a vicious lending cycle.
He also expressed concern at a perceived slow down in the country’s private sector and bank investments increasingly in government Treasury Bills (T-bills).
“The value of Rufiyaa is dropping because government accounts do not have the money, because it is a necessity to print large quantities of money,” he was quoting as saying by Sun Online.
Najeeb said that a long-term economic stability plan would be needed in the country as part of attempts to increase foreign investment, reduce inflation, and curb printing of the Maldivian Rufiyaa in order to calm an increase in prices.
“The plan shall include new foreign investments, aim to reduce inflation, decrease the printing of money and cease it altogether. This will decrease the pressure on the Rufiyaa”.
Minivan News was awaiting a response from Dr Najeeb at time of press.
Waheed Administration’s spending
In July 2012, the Finance Ministry instructed all government offices to reduce their budgets by 15 percent, with only 14 of 35 offices complying by the given deadline.
However, the Finance Ministry in the same month announced its intention to reimburse civil servants for the amount deducted from their salaries in 2010 as part of the previous government’s austerity measures.
The deducted amounts, totaling MVR443.7 million (US$28.8 million), were to be paid back in monthly instalments starting immediately.
Meanwhile, the original budget proposed by the state for 2013 had also included salary increases for military and police officers as well as plans to hire 800 new officers for the security services.
Combined with the transfer of about 5,400 employees in the health sector to the civil service, some MPs at the time estimated that the state wage bill would shoot up by 37 percent.
Parliament eventually passed a MVR15.3 billion (US$992 million) state budget on December 27 last year, after it was reduced by more than MVR1 billion (US$64.8 million) from the MVR16.9 billion (US$1 billion) proposal previously submitted by the Finance Minister.