President Dr Mohamed Waheed Hassan Manik ratified the fiscal responsibility bill on Monday (May 6) and issued a decree to delay the enforcement of 22 provisions that require specific guidelines for implementation.
“The Act ensures accountable, transparent and sustainable government implementation of the state fiscal policy,” according to the President’s Office website.
Following ratification and publication of the Act in the government gazette, President Waheed issued a decree in accordance with article 39 of the Act (Dhivehi), which authorises the president to delay enforcement of any provision of the law by one year if it requires rules or a mechanism to be set up before implementation.
The executive decree issued on Monday delayed the enforcement of articles 10 to 28 and 32 to 34 of the Act.
The new law sets limits on government spending and public debt based on proportion of GDP, stipulating that public debt must not exceed 60 percent of GDP from January 1, 2014.
Moreover, borrowing from the central bank or Maldives Monetary Authority (MMA) to manage the government’s cash flow should not exceed one percent of the average revenue for the past three years, while such loans would have to be paid back in 91 days at the market interest rate.
The provision was however among the 22 postponed for the next 12 months, which also included sections requiring the government to submit statements or reports to parliament outlining its fiscal strategy, debt repayment plans and budget position.
The ratification of a law on fiscal responsibility comes amidst concern over soaring levels of public debt, which is projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.
Nominal GDP in 2012 was MVR 34 billion (US$2.2 billion).
Economic growth in 2013 is meanwhile forecast at 4.3 percent, down from 7.1 percent growth in 2010 and 7 percent in 2011.
An International Monetary Fund (IMF) mission in November 2012 explained in a statement that economic growth slowed to 3.5 percent last year on the back of “depressed tourist arrivals earlier in the year and weak global conditions,” which have been “only partially offset by strong performance in construction and fisheries-related manufacturing.”
The original forecast for economic growth in 2012 was 5.5 percent.
According to figures revealed by the Finance Ministry in December 2012, nominal GDP in 2011 was MVR31,447 million (US$2 billion) while the estimate for 2012 was MVR34,148 million (US$2.2 billion).
Real GDP in 2011 was MVR20,461 million (US$1.3 billion). Nominal GDP per capita in 2012 was estimated to be MVR 80,260 (US$5,206) per annum.
Real GDP measures the value of all goods and services produced in a country expressed in the prices of a base year – 2003 in the Maldives.
The Finance Ministry also revealed that the ‘total external public and public guaranteed debt’ was estimated to reach MVR 13.7 billion (US$888 million) in 2012.
Of the MVR 4.1 billion (US$330 million) of the loan assistance spent in 2012, more than 50 percent was from multilateral financial institutions and 28 percent from bilateral donors.
A total of MVR 1.9 billion (US$123 million) from loan assistance has been spent for various projects in 2012 while the rest was spent for budget support.
As of September 2012, MVR 561 million (US$36.4 million) was received as budget support – US$16 million from the Asian Development Bank and US$20 million from a standby credit facility extended by the Indian government.
Moreover, the government spent more than MVR 1 billion (US$64.8 million) in 2011 and MVR 1.1 billion (US$71.3 million) in 2012 to service foreign debts as interest and repayments.
The figure was expected to remain the same in 2013.
In addition, the government spent MVR 660.5 million (US$42.8 million) in 2011 and MVR 2 billion (US$129.7 million) in 2012 to service domestic debts.
Government spending on loan repayment and interest payments was expected to reach MVR 3.1 billion (US$201 million) in 2012.
Including an estimated MVR 13 billion (US$843 million) in domestic debt, the total public debt is expected to reach MVR 27 billion (US$1.7 billion) in 2012 and MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.