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.
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.
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.