Government’s Rf 300million BML loan to be investigated in Majlis

Maldivian Democratic Party (MDP) MP Ahmed Sameer has proposed that the Parliament take action against the government after it allegedly obtained a Rf 300 million (US$20 million) loan from the Bank of Maldives (BML) without consulting the legislature, local media has reported.

Sameer claims that the government had misled people by claiming it had sought parliamentary approval prior to obtaining the loan.

The issue of the loan was first discussed in the Majlis’ Finance Committee on June 25. After deliberating on the necessity for parliamentary approval for the loan, the committee opted to send the issue to the Counsellor General for clarification.

Kulhudufushi MP and Finance Committee member Abdul Ghafoor Moosa told Minivan News at the time that the loan could not be granted as it was not part of the state budget.

Moosa today said that the Counsellor General agreed with this opinion.

“The Counsellor General has said it should be approved by the full house. The government giving irresponsible reasons for its actions,” said Moosa.

Ahmed Nazim, head of the committee, was reported in Sun Online on June 25 as having told his committee that President Mohamed Waheed Hassan had sent the Majlis a letter on June 13 seeking permission to obtain the loan.

Two days after, however, Minister of Finance and Treasury Abdullah Jihad told the same news source that the loan had been issued in May at a time when parliament had been in recess.

“The loan had to be obtained urgently. The Parliament was in recess at the time, so we took the loan and sent the issue to the Parliament,” Jihad told Sun.

Moosa informed Minivan News that the Financial Committee did not go into recess, having business to deal with all year round.

Jihad told Sun that this type of budget support loan was accepted in the original budget and so he anticipated no legal issues with the move.

Jihad was not responding to phone calls at the time of press.

The Rf300 million budget support loan was intended to replace a $65million foreign loan that had been approved in the original 2012 budget.

Moosa claimed in June that the Rf300 million loan would be taken on a commercial basis, with high interest rates that would require the government to pay back Rf384million.

He said that the $65million loan, delayed due to incorrect paperwork, would have only been taxed at rates of around 2 percent.

Using these figures, the interest paid on the original loan would be Rf20million (US$1.3 million), whilst the interest on the new loan would be Rf84million (US$5.4million).

This year’s budget deficit is estimated to surpass Rf9 billion (US$584million) , around 27 percent of GDP

President’s Office Spokesperson Abbas Adil Riza said that the figure given by Moosa was incorrect, adding that the government was “not going to lose money on the deal”.

Abbas explained that Abdullah Jihad and other members of the current Finance Ministry had advised the government to take out the new loan as part of a “mop up” operation.


Government offices revising spending strategies to meet cut plans: Finance Ministry

Finance Minister Abdulla Jihad has claimed “several government offices” unable to cut their budgets by 15 percent ahead of a June 20 deadline were now working on submitting “revisions” for their spending.

Jihad told Minivan News today that the Finance Ministry was presently providing assistance to several departments that had failed to curb spending within deadlines set by the government.  The finance minister did not specify which offices had failed to make the required spending cuts within the time period.

According to Sun Online, government offices and councils were requested to enact a 15 percent cut to their budgets by June 15.   Independent institutions were meanwhile asked to reduce their outgoings by the same amount by June 20.

The cabinet took the decision last month to approve 15 percent spending cuts within government institutions in an attempt to reduce the state budget by Rf2 billion, according to the report.

Official government figures have indicated that inflation rose to an annual rate of 16.53 percent in April.  Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or  Rf9.1 billion (US$590 million).


Government’s revision of import duties “doesn’t make sense”, say former economic ministers

Minister of Finance and Treasury Abdulla Jihad yesterday announced the government’s intention to revise the changes made to import duties and to reduce the Goods and Services Tax (GST), after arguing that these policies had failed to improve the state’s finances.

The measures, introduced under the previous government, followed consultations with the International Monetary Fund (IMF) over how to strengthen and stabilise the economy.

These policies included introducing a general Goods and Services Tax (GST); raising import duties on pork, tobacco, alcohol and plastic products; raising the Tourism Goods and Services Tax (T-GST) to 6 percent; and reducing import duties on certain products.

The shortfall from reduced import duties was expected to be more than compensated for by Rf 2 billion (US$129.8million) in Tourism Goods and Services Tax (T-GST), effective since February 2011, and Rf1 billion ($US64.9 million) as general Goods and Services Tax (GST), introduced in August 2011.

Jihad yesterday explained that it was the failure of these taxes to cover lost import duties that prompted a revision of these policies.

“There hasn’t been an increase in State revenue by increasing GST after reducing duties. The GST had been increased from this year to cover the cut down on duty rates. But GST revenue does not even come close to covering it,” Jihad told Haveeru.

Amendments to the Export-Import Act were passed in the Majlis in November last year. The amendments eliminated import duties for items such as construction material, foodstuffs, agricultural equipment, medical devices, passenger vessels and goods used for tourism services.

Duties were raises for tobacco, whilst the motion to increase pork and alcohol duties – items considered haraam under Islam and therefore consumed only on the resort islands – was defeated.

T-GST, as well as GST, was raised to 6 percent in January this year. The IMF has more recently urged that T-GST be raised to 12 percent in order to expedite the government’s deficit reduction efforts.

Jihad is reported as having told Haveeru that the government will also look to increase T-GST as it works to reduce a budget deficit that is anticipated to reach 27 percent of GDP this year – Rf9.1billion (US$590million).

Last month Jihad told Minivan News that the government was seeking to reduce all non-wage expenditure by 15 percent. He also explained that a pay review board was to be convened in order to “harmonise” the pay of all government employees, although he was keen to add that wage cuts would only be considered as a last resort.

“It doesn’t make sense”

Haveeru yesterday reported that around Rf1 billion (US$64.9 million) had been lost after the reduction in import duties.

Former Finance Minister Ahmed Inaz, who presided over the previous government’s economic reforms, said that this figure was inaccurate. He argued that the import duties lost amounted to a figure closer to Rf500million (US$32.5million).

Inaz also pointed out that Jihad’s proposed policy revision went against the Maldives’ previous commitments to free trade.

“We are founding members of the World Trade Organisation (WTO) and members of the South Asian Free Trade Area (SAFTA). We should be increasing trade – tariffs are not the best way to do this,” said Inaz.

“GST is a more transparent system [than import duties] which also enhances opportunities for the business sector,” he added.

GST benefits companies with less initial capital as products are taxed at the point of sale rather than up front upon entry to the country.

Jihad’s assertions that the previous government’s economic reforms are failing appear not to be borne out by the Maldives Inland Revenue Authority (MIRA) figures, the most recent of which show that the state has received Rf 418 million (US$27.1million)  and Rf 789 million (US$51.2million) in GST and TGST respectively, over the first five months of this year.

Should this revenue stream continue on a similar path, the government can be expected to receive around Rf 2.9 billion (US$188.3million) from GST and TGST. The government income from import duties over the past five years has been just over Rf 2 billion (US$129.8million).

Jihad was not responding at time of press.

Former Minister for Economic Development Mahmood Razee believed that the government was “trying to confuse the issue”.

“They are trying to create the illusion that this is the case but the calculations were confirmed and passed through the Majlis,” he said.

Failing a large reduction in the amount of goods coming into the country, Razee continued, these calculations should  still be valid. He added that he had been unable to get specific details on such figures from customs.

Both Razee and Inaz were confused as to the merit of the seemingly contradictory measures of increasing import duties whilst reducing GST.

Speaking to Minivan News separately, both said: “It doesn’t make sense.”

Inaz last night Tweeted: “Rationalising state expenditure and increasing revenue from tax is the only way forward”.

“We need political agreement to reduce expenditure in order to achieve maintainable economic stability,” he told Minivan News today.


Finance Minister announces plans to revise import duties, GST

Finance Minister Abdulla Jihad has announced the government intends to revise changes made to import duties and the Goods and Services Tax (GST), reports Haveeru.

Jihad is said to have explained that the revisions to import duties, initiated by the previous administration, have “not even come close” to covering the cost of income lost after reductions to import duties.

Haveeru reports that the Rf2 billion the state had previously earned from import duties had been halved whilst the GST earnings had not made up the shortfall as anticipated.

Jihad told Haveeru that the government was continuing to engage in deficit reduction measures which will include reducing state expenditure by 15 percent whilst raising Tourism Goods and Services Tax (TGST).

The current budget deficit has been estimated by the Majlis Financial Committee to be 27 percent of GDP this year – Rf9.1 billion (US$590 million).