Government rules out supplementary budget to plug 2013 shortfall, commits to T-bill sales

Finance Minister Abdulla Jihad has said the government has overcome the need to issue a supplementary budget to plug a shortfall in state spending for the current year, relying instead on short-term treasury bills (T-bills) to carry over its debts.

The comments were made as the Ministry of Finance today confirmed it had been officially requested to present the proposed annual 2014 state budget to parliament on October 30, with work ongoing despite the challenges posed by the upcoming Eid holidays.

Jihad previously told Minivan News that despite anticipating parliament would need to approve a supplementary budget after state offices were found to have exhausted their recurrent expenditure for 2013 by April, the government was now instead relying on T-bills to balance outgoings.

The finance minister last month said that the Maldives was relying on 28 day T-bills to help “roll over” debt one month at a time after parliament had failed to approve a number of measures to try and increase state expenditure not included in the 2013 budget.

T-bills are sold by governments all over the world as a short-term debt obligation backed by sovereign states. In the Maldives, they have a maximum maturity of six months, in which time they must be repaid.

The present government’s reliance on T bills has been slammed by the opposition Maldivian Democratic Party (MDP), which has previously questioned why there had been an increased reliance on short-term financing considering total state revenue rose 16 percent over the 12 months up to July 2013.

Borrowing fears

The Finance Ministry claimed in August that it had managed to reduce state spending since 2012, despite the MMA raising fears that the current “beyond appropriate” levels of government expenditure was leading to a vicious cycle of borrowing.

Early last month, the government said it hoped to secure longer-term financing measures to cover the shortfall in annual revenue as the number of 28-day T-bills sold by the state almost doubled in July 2013 compared to the same period last year.

According to the Maldives Monetary Authority (MMA) monthly review for August 2013, sales of T-bills for July 2013 has risen by 95 percent year on year.

The MMA stated that there had been a 163 percent in 28 day T-bills by July 2013 compared to the same time last year, despite sales of T-bills with a maximum maturation period of three month and six months declining by 63 percent and 83 percent respectively.

Sales of T-bills were also up 35 percent for July 2013 over the previous month, according to the MMA’s figures.

Budget issues

Finance Minister Jihad told Minivan News earlier this year that the state’s increased reliance on T-bills between July 2012 and July 2013 reflected the difficulties faced by the government in trying to raise budgeted revenue during the period.

He added that with only “a few people” in the private sector now interested in purchasing the short-term debt obligation from the government, T-bills has been sold as part of wider investments made by the state through the country’s pension fund.

Parliament in April rejected government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

Other proposed measures include hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, introducing GST for telecom services as well as oil, and “selectively” reversing import duty reductions.

Opposition’s T-bill concerns

Mahmoud Razee, former Economic Development Minister under the previous government, claimed T-bills should only be used by the state to help cover its operational expenses, rather than serve as a long-term means of financing.

“With income tax revenue having increased according to the Maldives Inland Revenue Authority (MIRA), why have [T-bill sales] gone up? Under the MDP government we were using T-bills to meet our cash flow,” he said. “This had nothing to do with the fiscal deficit.”

Razee argued that while the former government had itself sought foreign loans to balance the financial deficit while in power, the administration of former President Mohamed Nasheed had worked to avoid relying on T-bills for longer-term financial concerns like balancing the national fiscal deficit.

“The moment T-bills are increased, this directly affects loans that banks are able to give to the private sector, leading to the cost of borrowing increasing,” he said.

Razee claimed that the MDP government had attempted to try and extend income tax reforms introduced during its time in office to further boost revenues – a plan he said was cut short by the controversial transfer of power on February 7, 2012.


Finance Minister aims to “rearrange” ministerial, independent institution spending

Finance Minister Abdulla Jihad will hold discussions over the next week with government departments, independent institutions and the Maldives judiciary to try and reorganise their respective spending allocated within the 2013 budget.

Jihad has told Minivan News this week that he would be meeting with all state departments and various institutions to ascertain the likely financial difficulties they expect to face over the next year after after the proposed 2013 budget was cut by over MVR 1 billion (US$65 million). He stressed that efforts to reorganise funds would not impact the amount of spending assigned to each ministry, but rather how existing money was being spent.

The comments were made after the proposed MVR 16.9 billion (US$1 billion) forwarded to the People’s Majlis was reduced to MVR 15.3 billion (US$992 million) before gaining approval last month.

The parliamentary committee that had reviewed the budget at the time had originally recommended MVR2.4billion (US$156 million) worth of cuts that some of its members claimed could be made largely by reducing “unnecessary recurrent expenditures” within the budget.

The Budget Review Committee’s proposal for a MVR 14.5 billion (US$947 million) budget – in line with recommendations by groups like the International Monetary Fund (IMF) – was met with mixed reactions from opposition and government-aligned parties at the time.

With the budget now passed, Finance Minister Jihad said that his department intended  to look at the entire amount of state financing allocated this year on a department-by-department basis to identify the most significant spending shortfalls.

The finance minister said the review would allow his department to rearrange the budget within each ministry, as well as independent institutions and the courts to better cover spending needs over concerns the state may face “some difficulties” in future.

Jihad claimed that the proposed “rearranging” of state financing would not require parliamentary approval as the allocated overall spending for each body and institution would remain the same.

However, despite the efforts to reallocate monies within each ministry, Jihad maintained claims that the present budget was likely to be insufficient to cover costs over the next year.

“We will have to submit a supplementary budget this year,” he contended.

People’s Aliance (PA) party MP and Finance Committee Chair Ahmed Nazim was not responding to calls today. Fellow Finance Committee member MP Riyaz Rasheed was also not available for comment at time of press.


Finance Minister Jihad has previously told local media that with services being provided by the government expected to double during the coming year, it would become more difficult for the state to manage its budget.

“Because the budget is reduced, it will become difficult to manage expenses at a certain point. We think that a supplementary budget has to be introduced,” he was quoted as telling the Sun Online new service.

According to the Finance Minister, talks have already taken place with various offices to reduce their budgets.

Budget amendments

The estimated MVR 15.3 million budget was passed by parliament with eight additional amendments on December 27.

Amendments voted through included the scrapping of plans to revise import duties on oil, fuel, diesel and staple foodstuffs, as well as any item with import duty presently at zero percent.

An amendment instructing the government to conduct performance audits of the Human Rights Commission and Police Integrity Commission and submit the findings to parliament was passed with 53 votes in favour, ten against and four abstentions.

Amendments proposed by opposition Maldivian Democratic Party (MDP) MP Ali Waheed to shift MVR 100 million (US$6.5 million) to be issued as fuel subsidies for fishermen and MVR 50 million (US$3.2 million) as agriculture subsidies from the Finance Ministry’s contingency budget was passed with 68 votes in favour.

A proposal by Dhivehi Rayyithunge Party (DRP) MP Dr Abdulla Mausoom to add MVR 10 million (US$648,508) to the budget to be provided as financial assistance to civil society organisations was passed with 57 votes in favour and three against.

Revenue measures

Of the measures proposed by the Finance Ministry to raise revenue, revisions to import duties, raising the Tourism Goods and Service Tax (T-GST) from eight percent to 12 percent in July 2013, increasing airport service charge from US$18 to US$25, leasing 14 islands for resort development and imposing GST on telecom services were approved within parliament.

The Finance Ministry had however proposed hiking T-GST from 8 to 15 percent in July 2013 and raising airport service charge or departure tax from US$18 to US$30.

Rightsizing the public sector to reduce deficit

Amidst proposals to balance state spending during 2013, recommendations to reduce the public sector wage were made by the auditor general and submitted to parliament prior to the budget being passed.

Auditor General Niyaz Ibrahim observed that of the estimated MVR 12 billion (US$778 million) of recurrent expenditure, MVR 7 billion (US$453.9 million) would be spent on employees, including MVR 743 million (US$48 million) as pension payments.

Consequently, 59 percent of recurrent expenditure and 42 percent of the total budget would be spent on state employees.

“We note that the yearly increase in employees hired for state posts and jobs has been at a worrying level and that sound measures are needed,” the report stated. “It is unlikely that the budget deficit issue could be resolved without making big changes to the number of state employees as well as salaries and allowances to control state expenditure.”

Following the report, the The Budget Review Committee made cuts to overtime pay (50 percent), travel expenses (50 percent), purchases for office use (30 percent), office expenditure (35 percent), purchases for service provision (30 percent), training costs (30 percent), construction, maintenance and repair work (50 percent) and purchase of assets (35 percent).

The committee estimated that the cuts to recurrent expenditure would amount to MVR 1 billion (US$64.8 million) in savings.


Opposition expresses concern at defence spending hike in 2013 budget

Additional reporting by Ahmed Naish.

Budget Review Committee Member and Maldivian Democratic Party (MDP) MP Mohamed ‘Colonel’ Nasheed has revealed his party held “concerns” over the level of increased defence spending in the recently approved 2013 budget.

The 2013 state budget included a 14 percent increase to the 2012 defence budget that stood at MVR 797.9 million (US$51.7 million).

Amidst attempts to reduce the state’s budget deficit, MVR 130 million (US$8.6million) had been allocated to defence spending, bringing the total to MVR 930.9 million (US$60.3 million) for this year.

Authorities claim that the increased spending for the year is needed to cover additional duties such as the transfer of aviation security under the Ministry of Defence.

Through the budget review committee’s evaluation of the state budget, MP Nasheed claimed  that he and other members of the MDP had raised questions regarding the increase in the defence budget.

“While we understand national security is paramount, we did find the 14 percent increase to the defence budget a bit fishy,” he claimed. “We [MDP budget review committee members] raised questions regarding our concern over the increase, but unfortunately we do not have the majority on the committee.”

In order to reduce the budget deficit, the budget review committee made cuts of MVR 1.6 billion (US$103.7 million) to the MVR 16.9 billion (US$1 billion) state budget proposed by Finance Minister Abdulla Jihad. Parliament eventually passed an amended MVR 15.3 billion (US$992 million) state budget.

According to the Budget Review Committee report, the Maldives Monetary Authority (MMA) advised the committee to reduce total expenditure to MVR 15 billion and attempt to reduce public debt.

Despite the recommendations, Defence Minister Mohamed Nazim this week defended the MVR 130 million increase,  telling Minivan News that the money was needed to accommodate the newly established Aviation Security Command.  The operations have been put under the Ministry of Defence and National Security.

President Dr Mohamed Waheed Hassan Manik announced the establishment of the Aviation Security Command On Tuesday (January 1) in order to formulate aviation security policies and procedures.

Aside from undertaking new responsibilities under the Aviation Security Command, Defence Minister Nazim said additional improvements for Maldives National Defence Force (MNDF) personnel welfare were also being sought.

“We are also looking to improve accommodation for MNDF personnel, and we will be looking to open an operating theatre and Intensive care unit in the military hospital,” said Nazim.

When asked as to why the military hospital needed to be expanded given the size of the MNDF, Nazim said that uniformed personnel waiting in line to receive treatment at the other two hospitals in Male’ wasted valuable service time.

“The hospital is not just utilised by the military, it is also used by the police force and immigration and customs officers,” he added.

When addressing the issue of increased defence spending within the budget, Dhivehi Rayyithunge Party (DRP) MP and budget review committee member Dr Abdulla Mausoom said that national security was an important consideration needing to be made.

“You are talking about national security, and now aviation security for a whole country. Yes the budget is more than reasonable. The DRP is under no influence from the government and this time we are not concerned over the increase in the defence budget,” Mausoom said.

New uniforms and new accommodation for MNDF

Speaking at a ceremony on Monday (December 31, 2012) to unveil new uniforms for naval officers, Defence Minister Nazim said that efforts were underway to arrange accommodation for more officers at MNDF centres.

“Equipment has been purchased to arrange accommodation for officers. After the repairs, more officers will get accommodation in the next three months,” Nazim was quoted as saying.

The new accommodation would be provided at the MNDF Bandaara Koshi and Kalhuthu’kala Koshi in Male’, Nazim said.

Nazim said that efforts were also being made to arrange for low cost medical treatment for MNDF officers and their families overseas.

Providing accommodation to MNDF officers was discontinued as part of cost-cutting measures implemented by the administration of former President Mohamed Nasheed.

During last month’s budget debate, parliament’s Majority Leader, MDP MP Ibrahim Mohamed Solih, criticised the Finance Minister for failing to mention in his budget speech plans to hire 864 new police and army officers.

MP Solih, parliamentary group leader of the MDP (MDP), noted that the wage bill would shoot up 37 percent in 2013 compared to the previous year.

Echoing the concerns of the parliamentary group leader, MDP MP Eva Abdulla revealed that MVR 6 million (US$ 389105) was added to the budget of the Maldives National Defence Force (MNDF) following the controversial transfer of presidential power on February 7.

Former President Nasheed has alleged that he was forced to resign from office under “duress” in the wake of a police mutiny on February 7. Eva raised concerns that the police and army have hired 250 and 350 new staff respectively under the new government.

Consequently, both institutions found to have spent more than MVR 75 million (US$4.8 million) in addition to the approved budgets for 2012, she claimed.

Eva observed that the increase in the government’s wage bill of 37 percent was approximately MVR1.7 billion (US$110 million), which was also the amount allocated for harbour construction in the 2013 budget.

These funds should instead be spent for “harbours, education, sewerage and housing,” she argued.

Defence budget breakdown

Of the MVR930.9 million assigned for the military, MVR 805.4 million (US$52.2 million) is to be spent on military defence and MVR 125.5 million (US$8.1 million) on civil defence, according to the defence budget proposal last month.

Moreover, defence expenditure under the Public Sector Investment Projects (PSIP) include MVR 3.1 million (US$201,000) for the construction of a troops accommodation building in Gaaf Dhaal Thinadhoo and MVR 1.9 million (US$123,216) for a military barracks in Laamu Kadhdhoo.

Following the controversial transfer of presidential power in February, where sections of the police and military mutinied against the former government, an allowance of military personnel pending for more than two years was disbursed in a single payment by the Waheed administration.

Local media reported at the time that some officers had received over MVR6000 (US$390) in accrued allowances, although a total figure spent on the pay out, or how many officers received the allowances, was not stated.

MVR 1.1 billion has been budgeted to pay salaries and allowances for 7,108 personnel in the uniformed bodies.

The figure in the 2012 budget was MVR 999 million for 6,244 army and police officers.