State budget of MVR 16.9 billion for 2013 presented to parliament

Finance Minister Abdulla Jihad submitted an annual state budget of MVR 16.9 billion (US$1 billion) for 2013 (Dhivehi) to parliament today, proposing a raft of measures to raise revenue and reduce spending.

Of the proposed MVR 16.9 billion of government spending, more than 70 percent was recurrent expenditure, Jihad noted in his budget speech (Dhivehi).

“As in other years, the highest portion of recurrent expenditure is expenditure on [salaries and allowances for government] employees,” Jihad explained. “That is 48 percent of total recurrent expenditure.”

As total expenditure would outstrip projected revenues of MVR 12.9 billion (US$836 million), Jihad said the resulting deficit would be plugged with MVR 971 million (US$62 million) as budget support and MVR 1.3 billion (US$84 million) from Treasury bill (T-bill) sales.

Of the MVR 971 million in budget support, MVR 671 million (US$43 million) was expected as foreign loan assistance, Jihad explained, with the rest to be made up from “domestic finance.”

New measures proposed to raise revenue is expected to account for MVR 1.8 billion (US$116 million) in income, Jihad said.

Jihad further claimed that the budget deficit at the end of 2013 would be MVR 2.3 billion (US$149 million), half the deficit in the current year.

On revenue forecasts, Jihad revealed that income from taxation would account for MVR 9.1 billion (US$590 million) while MVR 3 billion (US$194 million) was expected from other sources, such as resort lease rents, dividends from government companies and profits from the Maldives Monetary Authority (MMA).

On social and economic programmes, Jihad said MVR 2.5 billion (US$162 million) was allocated to the education sector, MVR 1.7 billion (US$110 million) for strengthening the judiciary, MVR 1.5 billion (US$97 million) for improving health services, MVR 2 billion (US$129 million) for social security and welfare and MVR 5.5 billion (US$356 million) for infrastructure projects in the atolls.

A public sector investment programme (PSIP) was formulated with MVR 3.1 billion (US$201 million), Jihad said, with MVR 1.5 billion (US$97 million) from the state budget, MVR 21 million (US$1.3 million) from domestic loans, MVR 1.2 billion (US$77 million) as foreign loans and MVR347.6 million (US$22.5 million) as free aid.

The PSIP projects include construction and repairs of harbours in 14 islands, establishing sewerage systems in 11 islands, water systems in three islands, 1,500 housing units in eight islands, 21 new mosques and upgrading the regional hospitals in Kulhudhufushi and Addu City to tertiary level.

Meanwhile, according to the latest figures from the Finance Ministry, government spending as of November 22 stands at MVR 10.9 billion (US$706 million), while revenues of MVR 8.5 billion (US$551 million) have been collected so far this year.

Jihad said in parliament today that total spending in 2012 is expected to be MVR 16.5 billion (US$1 billion) while revenues would be MVR9.4 billion (US$609 million).

The revenue forecast in the 2012 budget was however MVR 11 billion (US$713 million).

“At the end of 2012, the state’s budget deficit is estimated to be at MVR 4.3 billion (US$278 million). That is 12.6 percent of GDP,” Jihad revealed.

Revenue raising and cost-cutting measures

A recent mission from the International Monetary Fund (IMF) urged the government to implement a raft of measures to raise revenues, advising that strengthening government finances was “the most pressing macroeconomic priority for the Maldives.”

Echoing the IMF concerns, Jihad told MPs that rising public debt was “a major challenge to the country’s economy,” revealing that the state’s debt would increase to MVR 31 billion (US$2 billion) by the end of 2013 – 82 percent of GDP.

If the deficit spending trend continues, Jihad warned that the Maldives would face severe difficulties in securing development loans and financial assistance.

Taking the IMF recommendations on board in formulating the budget, Jihad proposed a number of revenue raising and cost-cutting measures,

• Review government subsidies to target assistance to the needy
• Freeze hiring “as much as possible”
• Reforming the universal health insurance programme ‘Aasandha’
• Reducing the number of councillors and board members of government companies
• Reducing expenditure for trips from government offices to the atolls
• Reduce government expenditure on rent for government offices
• Reduce overseas trips by government employees
• Amending the Pension Act to abolish “double pension”
• Reversing import duty reductions
• Hiking T-GST (Tourism Good and Services Tax) to 15 percent from July 2013
• Introducing GST for telecom services (currently exempt from the tax)
• Introducing GST for oil
• Increasing airport service charge for foreigners from $18 to $30
• Amending the law on revenue stamps
• Abolishing 22 loss-making government companies

Jihad appealed to MPs to approve the measures and warned of “bitter consequences for the whole nation” should deficit spending continue in the future.

The Finance Minister urged MPs to “put aside political differences and prioritise national interest” in recognising that the country could not “indefinitely” spend beyond its means.

“We have to accept that these measures will affect all of us to some extent,” he said. “However, if we do not begin taking these measures, we might have to face more severe difficulties as a result of steps we would be forced to take.”

Monetary policy

According to projections by the MMA, said Jihad, the current account deficit is expected be higher than 2012 by 15 percent.

The current account deficit is projected to widen to 28 percent of GDP in 2013, Jihad said.

Collaborative efforts from different sector would be needed to “solve the balance of payments problem facing the country,” Jihad added, as the imbalance in the foreign exchange market has been building for many years, resulting in a parallel or “black market” for dollars.

Policies have been proposed to increase exports and expand small businesses, Jihad said.

Following the submission of the budget today, a joint committee of the parliament’s Finance Committee and Economic Committee would convene to review the proposed budget before it is put for a vote.

The budget debate has meanwhile been scheduled for December 4, 5 and 6, Speaker Abdulla Shahid said today.

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