President Mohamed Nasheed has said the country’s crippling budget deficit of 26.5 percent will drop to 15 percent in the upcoming 2011 state budget, and potentially 10 percent by the end of the year.
The government’s aim had been 18 percent, Haveeru reported the President as saying following the laying of the foundation stone for 1000 flats in Hulhumale’ last week.
Nasheed noted that when the present government came to power in 2008, “the deficit was 44 percent compared to net national productivity.”
The government is under considerable pressure from the International Monetary Fund (IMF) to reduce the deficit, and earlier this month delayed its third disbursement to the country because of the government’s inaction on the matter this year, pending the release of the 2011 budget.
While the IMF program itself is worth US$92.5 million, other foreign donors and investors consider the IMF’s opinion of a country’s fiscal policies when making decisions.
While acknowledging the political pressures faced by the government during 2010, particularly regarding its ability to cut a crippling public sector wage bill which increased 400 percent between 2004 and 2009, the IMF has stated throughout 2011 that the country is “living beyond its means.”
In June 2010, the IMF published its Country Report for the Maldives, and calculated that if the government continued to pursue economic reform at its current pace and policy, the country’s fiscal deficit would increase by one percent of GDP in 2010 and 4.5 percent of GDP in 2011.
Attempts to increase revenue by passing a Business Profit Tax bill has been obstructed in parliament by vested business interests, while the Civil Service Commission has taken the Finance Ministry to court over its refusal to restore a 15 percent salary cut.
The forthcoming 2011 budget, explained leader of the Maldives IMF delegation Rodrigo Cubero, was “a crucial opportunity for the government to implement the austerity measures much needed. At the moment, the current policy stance is not sustainable.”
The government has not yet revealed how the 2011 budget intends to reduce the deficit by such a margin as stated by the President.
Last year, parliament’s Finance Committee, headed by the opposition-aligned People’s Alliance MP Ahmed Nazim, amended the budget to include an additional Rf 800 million (US$62 million) in order to aid the restoration of civil servant salaries following a 15 percent pay cut, and subsidies for sectors ranging from fishing and agriculture to private media.
Finance Minister Ali Hashim had not responded to Minivan News at time of press.