Finance Minister Abdulla Jihad has said that new revenue raising measures remain the biggest obstacle to the passing of the new budget.
He has, however, expressed his opinion that the collection of lease extension payments up-front – anticipated by the government to raise MVR1.2billion (US$77million)- would not be a problem.
“I don’t think it is a problem because we are giving them for 99 years – that’s quite a long time,” Jihad told Minivan News today. “The property belongs to everyone – it’s the people’s property.”
Maldives Association for Tourism Industry Secretary General Ahmed Nazeer reportedly told the Budget Review Committee yesterday that he anticipated that 50 percent of resort owners would refuse to pay the sum up front.
When asked for additional opinion on the proposed budget today, Nazeer told Minivan News that he felt it would be inappropriate to give further comment whilst the budget was still under review.
The Finance Minister was able to confirm that the government had requested approval for three loans – totalling MVR814million (US$52million) – from the Majlis, of which MVR453million will go towards budget support.
Earlier this month, the Auditor General suggested Jihad had foregone the mandatory parliamentary approval when obtaining MVR300million (US$ 19.45 million) worth of budget support from the Bank of Maldives in May 2012.
Jihad responded that the onerous procedural obligations were circumvented in order to avoid an impending financial disaster.
The budget-support loan will come from the Bank of Ceylon, whilst additional loans await approval from Denmark’s Nordea Bank (€2.5million) for the upgrading of Malé’s electricity grid, and OPEC (US$20million) for sewerage projects.
After details of the high interest to be paid on the Bank of Ceylon’s loan emerged, Jihad last week use the term “beggars cannot be choosers,” noting that the Maldives has no choice but to borrow from commercial banks at high interest rates.
“We could go to Bank of New York, but they will not lend to us. The best bet now is Bank of Ceylon,” he said.
An agreement to receive 50 million yuan (US$ 8.2 million) in development aid from the Chinese government has already been approved this month, whilst Indian media has reported that President Abdulla Yameen’s state visit will see the resumption of a currently-dormant standby-credit facility.
The Budget Review Committee is expected to conclude deliberations upon the 2014 budget by December 20-21, explained Jihad, after which it will be sent to the full floor for further consideration.
Discussion of revenue raising measures is scheduled for Wednesday (December 18).
Failure to realise new streams of revenue, alongside an inability to curb expenditure saw the previous government – under which Jihad also served as finance minister – forced to divert capital expenditure to recurrent costs.
The proposed budget for 2014 is a record MVR 17.5 billion (US$1.1 billion), with a 6.7 percent growth in total expenditure mainly due to a MVR 1.1billion (US$72,687,239) increase in recurrent costs, accounting for over 73 percent of outgoings.
Both Jihad and Maldives Monetary Authority Governor Dr Fazeel Najeeb have told the Majlis committee that the proposed 2014 budget must be reduced if the government’s new revenue streams were not realised, with Jihad targetting the billion dollar tourism industry.
“The main revenue generator is tourism. From where else can we generate extra revenue? I don’t believe that we are presently charging taxes that are too high for the tourism sector,” local media reported him as saying yesterday.
The proposed revenue raising measures will provide the state with a total of MVR3.4billion (US$ 224million). However, the People’s Majlis will need to amend laws including revisions to tax laws and import tariffs to realise the expected revenue.
Proposed measures include raising Tourism Goods and Service Tax by 50 percent, delaying the abolition of tourism bed tax, raising airport departure charges for foreign passengers by 28 percent, and leasing a further 12 islands for resort development.
In his inauguration speech, Yameen warned the country’s economy was in “a deep pit” and pledged to reduce state expenditure. Local media reports quote Yameen saying he would cut expenditure by amounts varying between MVR 1 billion and 4 billion.
A World Bank report on the state the Maldives’ economy last week described the country as “spending beyond its means”.