The World Bank has approved a US$6.5 million International Development Association (IDA) grant to support the strengthening of the Public Financial Management (PFM) System of the Maldives, which would help “government institutions to make informed decisions on fiscal adjustments in an efficient manner”.
In a press release on Tuesday (July 15), the World Bank noted that “a high level of fiscal discipline” was needed for translating the current administration’s key policies and objectives into “a medium-term development strategy”.
“A key challenge for the country will be to ensure that the government’s social and economic goals are fully consistent with the urgent need for fiscal consolidation to restore fiscal and debt sustainability,” said Country Director for Sri Lanka and Maldives Francoise Clottes.
“We are happy to assist the government in this endeavour with both financial and technical support.”
According to the World Bank, “the project will help enhance budget credibility, transparency, and financial reporting of central government finances.”
“The entry points for intervention will be the Economic Policy Planning Section, National Budget Formulation and Analysis Section, Debt Management Division, Tender Evaluation Section, Secretariat of the Privatisation and Corporatisation Board, and Treasury and Public Accounts Division; internal audit sections; and line ministries.”
“The project design also includes support to strengthen the institutional framework of key Ministry of Finance and Treasury functions and to enhance knowledge transfer through on-the-job training by technical experts,” said Jiwanka Wickramasinghe, Task Team Leader of the Project.
The press statement noted that the proposed PFM Systems Strengthening Project would contribute to the government’s long-term and “overarching goal by addressing the most urgent PFM weaknesses.”
In its annual global economic prospects report released last month, the World Bank had predicted a positive outlook for the Maldivian economy in 2014 with a projected GDP growth of 4.5 percent, “driven by strong tourist arrivals, particularly by robust growth in the Chinese tourist segment.”
The Maldives Monetary Authority (MMA) had also revealed earlier in June that economic activity expanded in the first quarter of 2014 “driven by the strong growth of the tourism sector during the ongoing high season of the industry.”
The central bank noted that the 10 percent annual increase in arrivals during the first quarter was “entirely driven by the significant increase (24 percent) in arrivals from the Chinese market.”
Meanwhile, in late May, a delegation from the World Bank led by the World Bank Vice President Philippe Le Houérou – in his first visit to the Maldives since assuming the post in July 2013 – met President Abdulla Yameen and agreed to work with the government in developing a national strategy for fostering growth and consolidating public finances.
The discussion focused on “the need to reduce fiscal deficits, create a favourable investment climate for the private sector and delivery of key public services,” according to a press release from the World Bank.
Le Houérou noted that the challenges faced by the Maldives includes “balancing public accounts while delivering public services on some 200 islands across hundreds of kilometres of the Indian Ocean.
The issue is how Maldives can make the most of its potential in order to achieve inclusive and sustainable development.”
In May, MMA Governor Dr Azeema Adam called for “bold decisions” to ensure macroeconomic stability by reducing expenditure – “especially the untargeted subsidies” – and increasing revenue.
In a report on macroeconomic developments in 2013, the MMA had warned that shortfalls in revenue or overruns in expenditure in 2014 “will undermine medium-term debt sustainability” and adversely affect the exchange rate and prices.
Despite a positive outlook for growth, “there is a considerable amount of uncertainty surrounding the 2014 budget. Overruns in current expenditure will most likely lead to ﬁnancing diﬃculties for the government or further crowding out of the private sector,” the central bank warned.
“Any setback to ﬁscal consolidation either due to slippages in revenue or current expenditure will undermine medium-term debt sustainability and will have adverse implications for exchange rate and prices.”