Rf11.9 billion budget proposed to parliament

A Rf11.9 billion (US$926 million) projected mid-term budget for 2010 with a Rf4 billion (US$357 million) deficit was proposed to parliament by Finance Minister Ali Hashim today.

Presenting the budget, Hashim said unlike previous budgets, the International Monetary Fund (IMF) has confidence that next year’s budget could be implemented.

With government revenue projected at Rf7.3 billion (US$568 million), he said, the deficit for 2010 will be Rf4.6 billion (US$357 million).

“To plug this deficit, we have proposed estimated foreign aid of Rf1 billion (US$77 million) for the various projects in the budget, an estimated Rf384 million (US$29 million) from foreign loan assistance, an estimated Rf1.3 billion (US$101 million) from privatising government companies and an estimated Rf1.9 billion (US$147 million) from selling treasury bills through the MMA [Maldives Monetary Authority],” he said.

Revenue and expenditure

Measures to increase government revenue included the introduction of corporate taxation in 2010, he said, urging MPs to pass the taxation legislation before the end of the year.

Further, a GST (goods and services tax) will be imposed on tourist resorts and hotels in the final quarter of 2010, he said, which is expected to bring in Rf358 million (US$27 million) in revenue.

Hashim said introducing taxation was important to stop the “ad hoc” means of raising revenue.

He added the IMF, the World Bank and the Asian Development Bank (ADB) had repeatedly urged the government to institute sustainable sources of revenue.

Expenditure on travel, capital and recurrent costs has been reduced in the budget, he said.

He added expenditure on salaries for state employees was also reduced and revenue had to be increased beyond Rf7 billion to review the reduced salaries of civil servants.

The policy of creating “a small government” will be implemented in 2010, Hashim said, and funds for redundancy packages for laid off employees was included in the budget.

Further, a loan programme with assistance from the World Bank will begin in early 2010 to provide education and business loans for dismissed staff.

Surplus

By the IMF government finance statistics measure, the deficit for 2009 was 26.1 per cent.

But, said Hashim, if the mid-term budget was implemented, it would decline to 14.8 per cent in 2010, 2.4 per cent in 2011 and reach a surplus in 2012.

The structure of the budget was agreed upon after consultations with the IMF, he said, and included recommendations by the IMF, ADB and World Bank to solve structural problems in the economy.

The recommendations include reducing expenditure and size of the government, introducing targeted subsidies and transferring debt with the MMA to government bonds.

Further, he said, the IMF will provide a balance of payments loan to maintain foreign currency reserves, while the ADB and World Bank will provide loans for budget support.

Tourism

“In 2009, the Maldivian economy, especially the tourism industry, was severely affected by the global economic recession that began in the middle of 2008,” he said. “However, we have started seeing signs that the downturn is coming to an end.”

While tourist arrivals were expected to decline by 11 per cent in 2009, he said, arrivals picked up during the middle of the year.

The revised forecast for about 643,000 tourist arrivals in 2009 would be 5.9 per cent lower than the previous year, but 5.1 per cent better than the previous forecast.

The growth rate of the tourism industry slowed by 4.8 per cent in 2009, he said.

But, he added, since the industry has showed signs of improvement towards the end of the year the projected growth rate for 2010 is six per cent.

Further, it is expected to expand by 8.7 per cent in 2011 and 9.1 per cent in 2012.

Construction

As a result of the declining tourist arrivals, the dollar shortage and decreased capital investment, the construction industry was projected to contract by 16.8 per cent in 2009.

But, said Hashim, with the healthy forecast for the tourism industry and development of islands leased in 2004 expected to begin next year, the construction industry is projected to grow by 3.4 per cent in 2010.

Fisheries

Fisheries began to decline in 2006, with a 22 per cent contraction in 2007 and 7.7 per cent in 2008.

“In 2009, fishing is now expected to decline by 26.7 per cent. However, as the price of oil has fallen in 2009, it is now estimated that fisheries will improve in 2010,” said Hashim. “In 2010, the growth of the industry is expected to be maintained at 10 per cent.”

Balance of payments

Hashim said the balance of payments current account deficit was expected to be 25 per cent of GDP for 2009, compared to 51 per cent in 2008.

But, with imports expected to increase in 2010, the deficit is projected to widen to 28 per cent.

Export earnings in 2010 are projected to rise by 18 per cent with higher earnings expected from oil re-exports and new fisheries products.

The gross reserve was expected to climb to US$299.1 million in 2009, including the sale of US$100 worth of government bonds.

With tourism revenue expected to rise along with proceeds from privatisation and foreign assistance, Hashim said, the gross reserve was projected to be US$331.6 million at the end of 2010.

Deficit spending

The revised total expenditure for 2009 was Rf12.1 billion (US$941 million), the finance minister said, of which Rf6.2 billion (US$482 million) was government revenue and foreign aid.

Expenditure exceeded revenue by Rf5.9 billion (US$459 million), which was to be plugged by Rf1.1 billion (US$85 million) in foreign loans, Rf637 million (US$49 million) in loan assistance and Rf4.1 billion (US$319) expected from the sale of treasury bills and bonds.

At today’s sitting, a 15-member ad hoc committee was approved to evaluate the budget and present a report.

The budget debate will take place on 1 December.