Economic Development Minister Ahmed Mohamed has been appointed acting minister of finance and treasury in place of Abdulla Jihad, the President’s Office has announced.
No reason was given for the decision to appoint Ahmed Mohamed to the role.
Both Ahmed Mohamed and Abdulla Jihad were not responding to calls from Minivan News at time of press.
(0)Dislikes
(0)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.
Supplementary
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.
(0)Dislikes(0)Finance Minister Abdullah Jihad has said the government cannot accommodate MVR2.4billion (US$156 million) worth of cuts to the proposed state budget as recommended this week by a parliamentary committee review.
Speaking to Minivan News today, Jihad said that although there was room to reduce the proposed MVR 16.9 billion (US$1.1 billion) budget unveiled last month, the level of cuts recommended by Parliament’s Budget Review Committee were not feasible to run the state next year.
The parliamentary committee this week recommended an almost 15 percent reduction to state expenditure proposed for 2013 – resulting in a total budget of MVR 14.5 billion (US$947 million). The committee’s decision was met with mixed reactions from opposition and government-aligned parties who will vote on whether to approve the budget in parliament.
The committee opted to make cuts to the budget in line with recommendations from both the International Monetary Fund (IMF) and Maldives Monetary Authority (MMA) Governor Fazeel Najeeb as part of efforts to ensure a more manageable expenditure for next year.
A recent mission from the International Monetary Fund (IMF) had 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.”
Some senior finance figures within the country confirmed to Minivan News this week under condition of anonymity that the reductions made by the budget committee were an “encouraging” development in trying to manage state expenditure, with the proposals likely to receive Majlis support.
However, Jihad said that the Finance Ministry was presently in discussion over potential cuts to state spending, maintaining that a budget of MVR 14.5 billion would not be acceptable to the state.
“If the government agrees to cut some of the budget, I don’t think we can go that level,” he said, adding that it remained too early to give an acceptable figure by which the state would approve budget reductions.
Jihad yesterday told local media that the MVR 2.4 billion in cuts proposed by the Budget Review Committee would impact on the provision of healthcare and education – two areas he claimed had been “neglected” during the past two years.
However, the finance minister said today that the budget review committee had not suggested any specific areas or sectors where the budget needed to be cut, adding there had been “no mention” of further reductions to the health budget.
Speaking to Minivan News yesterday, MP Mohamed ‘Colonel’ Nasheed of the opposition Maldivian Democratic Party (MDP) said that the MVR 2.4bn in cuts had been made largely by reducing “unnecessary recurrent expenditures” within the budget.
Nasheed claimed that the committee had looked at specific areas of the budget where “fat” could be cut from state expenditure without directly impacting services.
“What we proposed was that there could be reductions to internal and external transport [for government employees],” he claimed. “We have big delegations going abroad at present. What we have called for is a 50 percent reduction of transport costs. It is not necessary to send 30 people abroad on trip. Five people could go for example.”
Another area Nasheed claimed cuts could be more easily made was in the purchase of new office furniture that could reduce spending by some MVR 451 million in line with the costs of supplies like stationary and paper. He claimed such expenses could be reduced through more effective online governance.
Cuts were also said to have to be made in the proposed provision of specific services to islands around the country, which Nasheed claimed had never been viable considering the current economic challenges facing the Maldives.
“[President Dr Mohamed Waheed Hassan] has made many lousy promises on his tours of islands for developments that cannot be granted. We cannot work from a fantasy budget,” he claimed at the time.
Civil servant salaries were not said to be included as part of the cost cutting, according to Nasheed.
DRP view
Despite Nasheed’s claims, the government-aligned Dhivehi Rayyithunge Party (DRP) has said that cutting the budget to MVR 14.5 billion from the proposed MVR 16.9 billion would impact the provision of government services and the functioning of independent institutions at a vital time.
DRP Deputy Leader and MP Dr Abdullah Mausoom claimed therefore that the party would wait for the government to decide whether it could function during 2013 with a reduced budget of MVR14.5 billion, before deciding whether to back the changes in the People’s Majlis.
“We need to know whether the government thinks it can manage to function with this MVR 14.5 billion. If it can then we would have no problem,” he told Minivan News yesterday.
Mausoom said that considering the cross-party composition of the Budget Review Committee that approved the cuts, support for the amendments in the People’s Majlis could prove likely.
Mausoom also contended that the “drastic” nature of the proposed reductions had raised concerns about whether funding would be distributed “fairly and equally”, as well as having a detrimental impact on the running of the state.
“It is a shame that such drastic reductions have been made. We have had a very different year [in 2012] to other years with the change of government. With 2013 set to be a presidential election year should the budget be squeezed as a result of political rivalry,” he stated.
Mausoom said that of noticeable concern was how the budget cuts may potentially impact the work of independent institutions that he said would be increasingly vital over the course of a contentious general election next year.
He added that a wide number of independent institutions in the country had already gone on record to address concerns about how the present budget would impact on their operations.
(0)Dislikes(0)Despite India requesting repayment of US$100 million in treasury bonds by February 2013, Finance Minister Abdulla Jihad has said his earlier fears that the Maldives would be unable to cover expenditure for the final months of 2012 were “no longer a concern”.
Jihad told Minivan News that India was also yet to provide a final US$25 million installment of a promised loan, one Jihad said just last month was vital to ensure the Maldives could cover its wage bill.
The Maldives is now required to pay US$50 million in T-bond payments to India by next month, with a second payment due in February, local media has reported.
The Finance Ministry said the debt would be repaid through state reserves, which Sun Online reported could fall to US$140 million (MVR2.2 billion) once the payments to India are settled.
Concerns over state reserves are shared by the International Monetary Fund (IMF), which earlier this month called on the Maldives to introduce a raft of new measures to try and raise revenue and cut spending to alleviate a ballooning fiscal deficit.
“The fiscal deficit is expected to rise in 2012 to 16 percent of GDP [Gross Domestic Product] in cash terms, and likely even higher if one accounts for the government’s unpaid bills, accumulated in an increasingly challenging environment for financing,” the IMF mission stated, following its visit to the Maldives.
Finance Minister Jihad said that as part of trying to balance the country’s expenditure, the Economic Ministry was attempting to secure private sector funding to make up any shortfalls in budget support resulting from a lack of funds anticipated from India. However, he did not give further details on the nature of the private sector groups presently being sought.
Jihad claimed that a “significant” part of the private sector focus would be through issuing treasury bills (T-bills) to the private sector as recommended earlier this year by the IMF.
“When we opened up treasury bills to the private sector initially there was no response,” he said. “However, there have now been consultations with private groups.”
T-bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills have a maximum maturity of six months, after which time they must be repaid.
Meanwhile, Jihad said the Finance Ministry had received no notice from Indian authorities regarding when it may receive the final US$25 million installment of a US$100 million loan agreed late last year. The finance minster said his department had been given no ultimatum or conditions to be met by Indian authorities in order to receive the money.
“I don’t know why the delay [in receiving the funds] has happened. You would need to ask the Indian High Commission about that,” he said.
The US$25 million was agreed as part of the $US100 million standby credit facility signed with Prime Minister Manmohan Singh in November 2011.
Diplomatic tension
Tensions between India and the Maldives has risen in recent months as divides within the coalition government of President Mohamed Waheed Hassan began to appear over opposition to a contract signed by the previous government, to develop and manage the country’s main airport with Indian infrastructure group GMR.
The divides have threatened to spill into a major diplomatic incident in recent weeks, after the President’s Office issued a release distancing itself from the comments of its own spokesperson, Abbas Adil Riza, who had accused India’s representative in the Maldives of being “an enemy and a traitor to the Maldivian people”.
The dispute between the government and GMR – currently being heard in an arbitration case at Singapore’s High Court – has become increasingly acrimonious with ongoing demonstrations across Male’ and even the water ways surrounding the airport.
The demonstrations have been backed by certain parties within President Waheed’s coalition government, who have set him an ultimatum of reneging on the contract by the end of the month.
While the GMR contract is not implicitly backed by other coalition parties, several senior party figures have opted against plans to “take to the streets” in calling for the airport to be “renationalised” or acting in a manner that could potentially damage future foreign investment in the country.
The GMR contract, which was overseen by a number of organisations including the International Finance Corporation (IFC) – a member of the World Bank group – represents the largest ever foreign investment in the Maldives. President Waheed himself told Indian media that his government was committed to protecting foreign investments in the Maldives, despite questioning elements of the deal.
Foreign borrowing
Earlier this year, President Waheed reportedly said he would not resort to borrowing from foreign governments in order to finance government activities.
“I will not try to run the government by securing huge loans from foreign parties. We are trying to spend from what we earn,” he was reported to have told the people of Nilandhoo.
“The Maldivian economy is fine. Don’t listen to whatever people say. We don’t have to [worry] about the Maldivian economy being in a slump,” he was quoted as saying at the time during a rally in Meedhoo.
Despite Waheed’s reassurances, October saw a number of state owned institutions face disconnection from the capital’s power grid as bills amounting to around MVR 150 million (US$9.7 million) were owed to the State Electricity Company (STELCO).
Responding to the institutions’ blaming of his ministry, Jihad at the time told Sun that the finances were simply not there.
“We are not receiving foreign aid as was included in the budget. How can we spend more than we receive? That’s why those bills are unpaid. We can’t spend money we don’t have,” he told the paper.
Since coming to power in February, the government has committed to reimbursing civil servants for wage reductions made during the austerity measures of the previous government, amounting to Rf443.7 million (US$28.8 million), to be disbursed in monthly installments over 12 months from July.
A MVR 100million (US$6.4 million) fuel subsidy for the fishing industry was also approved by the Majlis Finance Committee, with the hope of stimulating the ailing sector.
The overall deficit for government expenditure has already reached over MVR2billion (US$129million). Jihad has told the Majlis’ Finance Committee that he expected this figure to rise to MVR 6 billion (US$387 million) by year’s end – 28 percent of GDP – alleging that the previous government left unpaid bills equal to over one third of this anticipated deficit.
Former Minister of Economic Development Mahmood Razee has previously told Minivan News that this increased expenditure in the face of a pre-existing deficit represented the government “ignoring reality.”
“If they don’t get the loan, they will have to cut travel expenses, stop certain programs – take drastic measures or get another loan,” said Razee, claiming that the only alternative would be to sell treasury bills.
Following reports in August that the government was attempting to raise funds through the sale of treasury bills, former Finance Minister Ahmed Inaz claimed such a measure would not address IMF concerns about state spending, prolonging economic uncertainty.
In August, the current Finance Ministry announced its own austerity measures intended to wipe over MVR2.2billion (US$143 million) from this year’s budget deficit though few of these propositions have as yet been followed through.
(0)Dislikes(0)The government has said it is “not aware” of a Civil Service Commission (CSC) request to cease recruiting for any position higher than the role of assistant director until 2013, despite reports in local media to the contrary.
President’s Office Media Secretary Masood Imad said he had not been made aware of any requests to amend government recruitment practice and would need to clarify the matter, and referred Minivan News to the CSC.
Minivan News was awaiting confirmation at time of press both from Masood and CSC President Mohamed Fahmy Hassan over whether an official request had been made to curb government offices hiring senior civil servants.
However, local media, citing an an named government source, speculated that the reported CSC request was linked to “financial difficulties” currently facing the state.
The government official told the Sun Online news service that despite the need for new employees within the Finance Ministry, the recruitment process for such roles had been halted in line with the CSC’s request.
Earlier this week, Minister of Finance and Treasury Abdulla Jihad claimed the government was currently unprepared to meet its recurrent expenditure – including salaries – for the final three months of 2012 without a US$25 million loan promised by the Indian government.
While unable to confirm if the reported CSC request was linked to Finance Ministry fears over insufficient funding for state wages, key economic figures within the government of President Dr Mohamed Waheed Hassan have maintained that more drastic budget cuts are required to balance expenditure.
Despite government commitments to cut departmental budgets by 15 percent in 2012, Jihad told Minivan News last month that even with financial assistance promised from China and India, further cuts would need to be made to state salaries over the next year to deal with deficit concerns.
Jihad and Economic Development Minister Mohamed Ahmed were not responding to calls at the time of press.
CSC President Fahmy said in September 2012 that as no request had so far been made by the government to reduce the size and budget of civil society organisations, it did not have concerns about potential job cuts.
“Our mandate is to provide human resources to the government. As long as there is no effect on the salaries or number of civil servants, we will not seek to intervene in the policy of government,” he said.
With state income lower and expenditure higher than predicted, this year’s budget deficit had been forecast to reach MVR6billion (US$389 million), equivalent to around 28 percent of real GDP.
Despite this deficit, President Waheed has been campaigning this week in Faafu and Dhaalu Atolls, reportedly to reassure the public that the economy was running smoothly, whilst criticising those who he claimed sought to weaken it.
Waheed is also reported as having said that he would not resort to borrowing from foreign governments in order to finance government activities.
“I will not try to run the government by securing huge loans from foreign parties. We are trying to spend from what we earn”, he was reported to have told the people of Nilandhoo.
“The Maldivian economy is fine. Don’t listen to whatever people say. We don’t have to [worry] about the Maldivian economy being in a slump,” he was quoted as saying during a rally in Meedhoo.
US$25 million in funding from India was agreed upon last month as part of the $US100 million standby credit facility signed with Prime Minister Manmohan Singh in November 2011.
Unpaid bills
However, despite president Waheed’s reassurances, a number of state owned institutions have this month faced disconnection from the capital’s power grid as bills amounting to around MVR 150million (US$9.7million) were said to be owed to the State Electricity Company (STELCO).
Responding to blaming of his ministry, Jihad told Sun that the finances were simply not there, pointing to the adoption of spending policies of the previous administration.
“We are not receiving foreign aid as was included in the budget. How can we spend more than we receive? That’s why those bills are unpaid. We can’t spend money we don’t have,” he told the paper.
Former Minister of Economic Development Mahmood Razee has previously told Minivan News that this increased expenditure in the face of a pre-existing deficit represented the government “ignoring reality.”
“If they don’t get the loan, they will have to cut travel expenses, stop certain programs – take drastic measures or get another loan,” said Razee, claiming that the only alternative would be to sell treasury bills.
Following reports in August that the government was attempting to raise funds through the sale of treasury bills, former Finance Minister Ahmed Inaz said that this would not address the concerns of the IMF, prolonging economic uncertainty.
China has also made large commitments towards the Maldives’ economic development in recent months, although Razee said he believed that current changes within the Chinese government in the upcoming month made this an inopportune time to look there for additional financial aid.
In August, the current Finance Ministry announced its own austerity measures intended to wipe over MVR2.2billion (US$143 million) from this year’s budget deficit though few of these propositions have as yet been followed through.
(0)Dislikes(0)The government has agreed a loan of US$8.4 million (MVR129.5 million) with OPEC Fund for International Development (OFID) to build a hospital in Hithadhoo, Sun Online reports.
OFID is a finance institution established by the group of petroleum exporting states to channel aid to less-developed nations, most often for vital infrastructure
Previous loan support from the fund was given to upgrade Male’ international airport in 1999, and again in 2005 to extend Wataniya’s telecoms coverage.
Sun reported that the loan had originally been agreed last year, at a slightly higher rate of interest, and that the repayment period was 20 years.
Minister of Finance and Treasury Abdulla Jihad told Sun that the Health Ministry would begin the search for contractors next week.
(0)Dislikes(0)India has granted a further US$25million to the Maldives as part of the $US100million standby credit facility agreed during last November’s official visit from Prime Minister Manmoham Singh.
Indian High Commissioner D M Mulay signed the agreement with Minister of Finance and Treasury Abdulla Jihad at the Indian High Commission, local media reported.
Mulay, who was not responding to calls at the time of press, said that the deal represented the third instalment of the credit facility, with the previous two instalments having amounted to US$50million.
The previous tranche of US$30 million was released following President Waheed’s first official visit to India in May.
Mulay is also reported to have said that the rest of the promised credit will soon be handed to the Maldivian government: “The paperwork on the agreement is being processed now, the amount will soon be awarded to the Maldives,” Haveeru quoted Mulay.
A standby line of credit is normally forwarded to countries which have reached macroeconomic sustainability but experience short term financing issues.
The release of this credit comes just days after Waheed completed his first official state visit to China.
During this trip, Waheed finalised agreements for a US$500 million Chinese loan with the assurance of more aid available when needed.
The loans, equal to nearly one quarter of the Maldives’ GDP, are said to include $150 million (MVR2.3billion) for housing and infrastructure, with another $350million (MVR5.4billion) from the Export-Import Bank of China, reported Reuters.
Jihad told Minivan News last week that, despite securing this money from China, the government would still be considering austerity measures which are being considered in order to reduce the state’s budget deficit.
With income lower and expenditure higher than predicted, this year’s budget deficit had been forecast to reach MVR9.1billion (US$590million), equivalent to around 28 percent of nominal GDP.
India has traditionally enjoyed close ties with the Maldives, although there have been increasingly strong links between the Maldives and China, largely due to the number of Chinese tourists visiting the Indian Ocean nation.
A Chinese embassy opened in Male’ in time for the opening of the SAARC summit last November, reciprocating the opening of a Maldivian mission in Beijing in 2007.
Indian officials were reported at the time as having concern that the move was part of China’s “string of pearls” policy which supposedly involves Chinese attempts at naval expansion into the Indian Ocean.
After the awarding of the Chinese loan, however, former Foreign Minister and current UN Special Rapporteur to Iran, Dr Ahmed Shaheed was keen to play down any suggestions that the Maldives was about to significantly change its foreign policy priorities.
“This is very much in keeping with past policy. The lines so far drawn have demonstrated that the Maldives remains primarily SAARC focused, followed by trading partners in the EU and Singapore. China has moved into this second category,” he added.
“Nothing will change the fact that we are only 200 miles from Trivandrum,” said Shaheed.
When asked upon his recent return from Sri Lanka what the Maldives’ policy was regarding Sino-Indian competition in the region, President Waheed is said to have responded that the policy of a small nation like the Maldives ought to be to avoid too great an involvement in geopolitics.
(0)Dislikes(0)Parliament’s Finance Committee last week received a proposal from the Finance Ministry which, if accepted, would save MVR2.2billion (US$143million).
The austerity measures include raising Tourism Goods and Services Tax (TGST) to 15 percent, terminating electricity subsidies in Male’, increasing import duties on alcohol and imposing a 3 percent duty on oil, “reforming” the Aasandha health insurance scheme, and reducing the budget of every Ministry and independent institution by 15 percent – among other measures.
If successfully carried out the Ministry’s proposals would halve this year’s budget deficit, currently projected to reach MVR9.1billion (US$590million).
The original budget for 2012 envisioned that revenue would rise to MVR11.4billion (US$740million) with expenditure anticipated to be MVR14.5 billion (US$941million). This would have resulted in a budget deficit of around MVR3billion (US$194million), representing 10 percent of GDP.
However, the revised figures provided by the Finance Ministry have shown that revenue will only be MVR8.4billion (US$545million) for this year with actual expenditure rising to around MVR18 billion. The ensuing deficit would represent around 28 percent of the nominal GDP for 2012, which was predicted to be MVR31.7billion (US$2billion).
This ballooning deficit has alerted the IMF which has expressed concerns that without raising revenue and cutting expenditures the country risked exhausting its international reserves and sparking an economic crisis.
The Maldives Monetary Authority’s (MMA) most recent statistics show that the country’s gross international reserves had decreased by 2 percent in the 11 months up to May before dropping by a further 6 percent between May and June this year.
The MMA’s data shows this figure to represents around ten weeks worth of imports in the Maldives, a country which relies heavily on imports, spending around two thirds of its real GDP on foreign goods each year.
The current government has pointed the finger at the previous administration for the current budgetary issues whilst simultaneously implementing a series of policies which have added to its financial obligations.
These deficit expanding policies have included promoting 1000 police officers, doubling of the budget of the Maldives Marketing and Public Relations Corporation (MMPRC) to MVR69.3million (US$4.5 million), hiring of 110 new police officers, and a reinterpretation of the legal provision for the payment of resort island lease extensions which had cost the government MVR92.4million (US$6million) already in comparison with the same point last year.
The government also chose to reintroduce a MVR100 million (US$6.5 million) fishing subsidies and to reimburse MVR443.7 million (US$28.8 million) in civil servant salaries, reversing measures implemented during the previous government’s own austerity drive.
The raft of measures currently being considered by the Finance Committee represent the most comprehensive effort thus far to reign in the deficit.
Austerity Measures
The proposed measures for reducing state expenditure were published in local newspaper Haveeru. They include discontinuing electricity subsidies in Male’ City which, where around one third of the nation’s population live, saving MVR135million (US$8.7million).
Reducing the state’s offices budget by up to 15 percent is expected to save MVR1.5billion (US$97million) and was first suggested by Finance Minister Abdulla Jihad in May. Jihad mentioned at the time that a pay review board would be convened in order to “harmonise” the pay of government appointees.
The document received by Haveeru revealed details that this pay review body will seek to restructure pay schemes in order to save MVR100million (US$6.5 million). It also emerged that MVR300million (US$19.5million) could be saved by introducing a recruitment freeze in the civil service.
The austerity plan also includes a reform of the Aasandha national health care scheme, the cost of which promised surged ahead of its MVR720million (US$46.7million) budgeted allowance shortly after its introduction in January. After discussions with the government, the Aasandha company has decided to share the costs of private treatments with patients.
The Finance Ministry predicts that reform of the Aasandha scheme can save the government MVR200million (US$12.9million).
Revenue raising
Proposed revenue raising measures include raising the import duty on oil, upon which the country relies heavily for fuel, to three percent. MMA figures show that the price of crude oil has decreased 15 percent in the 12 months leading up to June whilst the domestic price had remained the same with the exception of diesel which increased in price by 2 percent.
Import duties are also to be raised on items whose value exceeds MVR6.4million (US$41million) as well as on liquor imports. The duty on both of these items had been raised as part of the amended Export Import Act in December of last year which saw duties on pork and alcohol products, used exclusively by the resorts, go up by 42 percent.
The tourist industry will be similarly hard-hit by the proposals to raise Tourism Goods and Services Tax (TGST) to 15 percent. The IMF had previously urged the government to double the 6 percent tax levied on all goods and services sold in resorts with Tourism Minister Ahmed Adheeb announcing his intention in May to consult the tourism industry.
Minivan News discussed the potential increase with several resort managers at the time, and was told that an increase would have “serious ramifications” for certain sections of the market. One manager said that the fixed term contracts many resorts have with operators meant that increases to T-GST would have to be absorbed from revenue, resulting in potential cutbacks to staff or services.
Visitors to the Maldives could also be affected by the proposed increase in the Airport Service Charge from US$18 (MVR277) to US$30 (MVR462).
Further rises to the tax levied on luxury items would be accompanied by the introduction of taxes to the sale of flats and on telecoms service in the Finance Ministry’s plan.
The visa fee paid by foreigners working in the Maldives is also slated to see be increased by MVR150 (US$10). Estimates of expatriate workers are be as high as 110,000 although the same estimates suppose that around half to be undocumented.
Despite the recent suspension of sittings of the full Majlis, the Finance Committee continues to hold meetings as normal.
(0)Dislikes(0)Finance Minister Abdulla Jihad has said that delays in paying wages to some state employees was the result of an “administrative issue” with the Bank of Maldives (BML) that was expected to be resolved by today.
Jihad told Minivan News that there were no issue maintaining civil servant salaries, adding that BML had been unable to credit accounts for the last few days. A BML spokesperson today responded that the company was “not aware of any such issues” concerning payments being made to accounts it held.
Meanwhile, several island councils have said they had not had any issues with providing wages to their staff.
Economic situation
The Maldives government last week said it was working on overcoming “economic difficulties” to cover several months of outstanding premium payments resulting from the Aasandha universal healthcare programme. Authorities are presently facing a 27 percent budget deficit that has already drawn concern from the International Monetary Fund (IMF).
Besides a crippling budget deficit, the Maldives is also facing a foreign currency shortage, plummeting investor confidence, spiraling expenditure, and a drop off in foreign aid.
Late last month the Finance Ministry also ordered all government institutions to immediately reduce their budgets by 15 percent.
However, Jihad denied that the present economic situation was adversely impacting the state’s ability to provide wages to civil servants this month.
“We are expecting crediting to occur as of today,” he said. “This is just an administrative issue with the bank.”
Both Civil Service Commission (CSC) President Mohamed Fahmy Hassan and Parliamentary Financial Committee Head Ahmed Nazim were not responding time of press.
However, a number of island councils have maintained that they have continued to receive state funding without any interruptions.
An official for the North Ari Atoll island of Maalhos’ Council Secretariat told Minivan News this afternoon that he was not aware of any issues concerning paying staff salaries, which had so far been received on time each month.
In Haa Alifu Atoll, Utheemu Island Councilor Asrar Adam said the council also had not experienced difficulties with paying wages
“We have been paying the salaries of the staffs on the last day of each month always and this month’s salary have been paid,” he said.
Island Councilor of Raa Atoll Innamaadhoo claimed that during the time of former President Mohamed Nasheed, the council was given funding for its 2012 salaries in advance – therefore ensuring it did not have any issues in paying staff.
“When our president was here everything went fine, we don’t have to worry about the salaries of 2012,” he said.
State revenue
The Maldives Inland Revenue Authority (MIRA) last month published its second quarter report for 2012, detailing the majority of government revenue (with the exception of import duties).
The MIRA report highlights a 16.8 percent increase in revenue collected compared to the same period for 2011, attributable to the increase in tourism GST from 3.5 percent in 2011 to 6 percent in 2012.
Tourism land rent collected for the period was MVR 465.4 million (US$30.2 million) – a drop of 24.9 percent that was 12.3 percent lower than expected.
Airport Service Charge revenue meanwhile fell 18.6 percent, to MVR 172 million (US$11.2 million).
Total revenue collection for the first half of the year was MVR 3.5 billion, an increase of 59.2 percent compared to the corresponding period of 2011, but 8.4 percent lower than projected.
(0)Dislikes(0)