Tag: budget 2014

National debt set to rise to MVR92,196 per head warns MMA

The Maldives Monetary Authority – the country’s central bank and banking regulator – has published its professional opinion on the 2014 budget, painting a dark outlook and proposing urgent measures to prevent the economy from plunging further into debt.

The document was prepared upon an official request from the People’s Majlis, which is set to consider the spending plans when they emerge from committee on Saturday (December 21).

In the document, the MMA warned that the national debt is estimated to rise from MVR27.7 billion in 2013 to MVR31.5 billion in 2014 – equating to MVR92,196 per head.

Forecast GDP growth rate for 2014 is 4.5% – lower than the average of past ten years.

Inflation can be sustained at 4%, but this will depend on changes in the world market, stated the authority

Despite pledges to reduce state expenditure, the government returned a record MVR17.5 billion budget for consideration by the Majlis this month.

Subsequent recommendations in committee have seen the likely figure to rise to MVR18 billion.

Reducing government expenditure

Rising government expenditure was cited as the biggest challenge for the country right now. The agency advised the government to reduce recurrent expenditure to MVR10.2billion from its current level or MVR12billion, offering the following recommendations to do so:

  • Ensuring government subsidies are carefully targeted to the rightful persons.
  • Downsizing the state apparatus to one that’s appropriate for the Maldives’ size and income – including downsizing of parliament, councils, and independent institutions.
  • Finding ways of reducing recurrent expenditure and improving governance – suggesting the combination of local, parliamentary, and presidential elections was suggested.
  • Stop spending on government-run companies from the budget,  or dissolve such companies.
  • Don t proceed with projects (e.g. in contractor finance basis) unless funds have been secured or guaranteed.
  • Reduce debt, turn existing short-term debts in to long-term ones – for instance, by selling long-term foreign bonds at a small interest rate rather than depending on the domestic market for financing debt.
  • Prepare to implement the Fiscal Responsibility Act in 2014.

Finding better ways of financing the deficit

The document stated that the government had been financing the budget deficit mainly by taking short-term loans, selling treasury bills and treasury bonds, and by the MMA itself printing money. Instead of managing this deficit through a market mechanism, the government has resorted to dealing with it mainly through printing cash.

Overdrawing from the state’s Public Bank Account (PBA) to accommodate government spending has significantly increased the flow of the rufiyaa in the economy. The authority stated that this has reduced the foreign exchange reserves to dangerous levels – just two months of imports by the end of October 2013.

It was also noted that the increased flow makes it difficult to stabilise the foreign exchange rate.

According to the authority the PBA overdraft facility was misused by the government, using it to finance long term budget deficit even though it was intended to manage cash flow within a short period of time (a few weeks).

The amount overdrawn from PBA started increasing in October 2012 and reached MVR2.5 billion by 9 December 2013.

The MMA advised the state to pay all due treasury bills, treasury bonds and PBA overdrawing debts to the authority, whilst also noting that the MVR945 million required to pay for this had not been included in the proposed budget.

New revenue raising measures and legal changes

One of the key points highlighted throughout the document was the importance of implementing the new revenue raising measures – most of which is hoped to come from advance payments from resort lease extensions – which account for 23% of the total revenue in the budget.

If these measures are not implemented, the budget cannot cater for the recurrent expenditure and the estimated budget deficit for 2014 will increase from MVR886.6 million to 4.4 billion (11% of GDP), the MMA warned.

The MMA requested the state to proceed with amending the laws necessary for implementing new revenue increasing measures as soon as possible, and asked to find ways to generate an income from various industries instead of depending only on tourism for revenue.

Another notable recommendation was the reduction of the number of foreigners working in the country in order to create a more favorable balance of payments situation.

Read the full document (dhivehi) here.

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“Right now decentralisation in this country is just for show”: Addu City mayor

Mayor of Addu City Abdulla Sodig has suggested the financial difficulties facing his council are a result of the failure to implement the decentralisation act properly.

“Right now decentralisation in this country is just for show,” Sodig told Minivan News.

“The government and Majlis need to resolve these issues if the citizens are to benefit from decentralisation in a meaningful way.”

Addu City will be hit hard by the government’s proposed budget cuts, said Sodig, expressing concerns that the proposed budget for the city is insufficient to adequately provide essential services.

From the MVR421.4million budget requested by the council for 2014, only MVR45.6million was allocated in the budget proposed by Ministry of Finance to the People’s Majlis.

According to the mayor, the initial amount proposed in July 2013 was MVR54.8 million, in response to which the council informed the ministry that MVR123.1 million would be required for recurrent and capital expenditure – excluding Public Sector Investment Programmes (PSIPs).

When the council again requested a minimum of MVR85 million, the ministry proposed a reduced amount of MVR45.6 million. Of this amount, MVR35.2 million was allocated for salaries, MVR5.7 million for pre-schools, and MVR3.7 million for council office administrative costs.

Sodig says this amount would not cover the expenses of repairing mosques and roads.

“Addu City roads are badly in need of repair, whenever it rains most roads are flooded” he said. No funds were allocated for road reconstruction and repair in 2012 or 2013, he added.

Funds for some services in the council’s mandate, such as maintenance of roads and mosques, are included in the budgets of the relevant state departments, Sodig noted.

“It is very difficult, time consuming and costly to carry out our obligations like this.”

The MVR45.6 million budget currently proposed by the ministry does not include any additional projects, for which the council had requested MVR291.9 million.

“The amount we requested includes money needed for land reclamation projects in Hithadhoo, Maradhoo, Maradhoo-Feydhoo and Feydhoo. It was initially included in the budget, but has been removed now” Sodig explained.

In 2013 MVR6 million was proposed for PSIP projects, but the council received no money when the budget was finalised. The land reclamation projects were first proposed in 2008 but have been repeatedly delayed.

The actual budget allocation for the council in 2013 was MVR33.7 million, though it reached MVR55 million by the end of the year. The council still has pending electricity bills and up to MVR3 million and MVR186,000 in phone bills.

“At the budget committee we requested at least MVR25 million to pay our pending bills and for other existing contracts such as security and legal services, and they said anything that is absolutely essential will be included” Sodig said.

In 2014 the Council will earn an estimated MVR12.9 million in land lease payments and other fees collected for services provided by the council. A number of issues with financial independence of local councils, however, makes it difficult for the money to be properly utilised.

In 2012, the Finance Ministry requested all local councils to deposit all their revenues with Maldives Inland Revenue Authority (MIRA) – a decision which Sodiq believes has discouraged local councils from investing in income generating programmes. Fees collected for public services provided with the council’s own resources are also collected by the central ministries.

Sodig blamed laws contravening the ‘Decentralisation Act’ as a primary cause for these issues.

Article 81 of the act requires national authorities to allocate an amount (decided by Ministry of Finance) from state facilities in which the council does not have any participation but are within it’s administrative area.

The mayor noted that no such payments have been made so far, and that some of the natural resources currently utilised by the state were sources of income for locals through traditional economic activity prior to their development for other purposes.

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