Government revenue declines in May

Government revenue declined by MVR19.2 million (US$1.2 million) in May compared to the same period last year and reached MVR1.2 billion (US$77.8 million), the central bank has revealed in its monthly economic review.

Total expenditure during the month meanwhile rose by MVR104.9 million (US$6.8 million) and amounted to MVR1.5 billion (US$97 million).

“The decline in total revenue during May 2015 was mainly due to the decline in both tax and non-tax revenue which fell by MVR9.5 million and MVR1.7 million, respectively,” the review stated.

“The fall in tax revenue was mainly contributed by the decline in revenue from business profit tax and tourism tax, while non-tax revenues declined owing to a significant fall in revenue from resort lease rent. Meanwhile, the increase in expenditure was largely due to a growth in recurrent expenditure.”

In May, the government obtained US$20 million from Saudi Arabia for budget support. Finance minister Abdulla Jihad told Minivan News at the time that the funds were to be used to “manage cash flow” as revenue was lower than expected.

A large portion of forecast revenue is expected later in the year, he said, adding that shortfalls are currently plugged through sale of treasury bills (T-bills).

According to the Maldives Monetary Authority (MMA), the total outstanding stock of government securities, including T-bills and treasury bonds (T-bonds), reached MVR18.4 billion (US$1.1 billion) at the end of May, representing an annual increase of 36 percent.

The forecast for government income in this year’s record MVR24.3 billion (US$1.5 billion) budget is MVR21.5 billion (US$1.3 billion).

The projected revenue includes MVR3.4 billion (US$220 million) anticipated from new revenue raising measures, including revisions of import duty rates, the introduction of a “green tax”, acquisition fees from investments in special economic zones (SEZs), and leasing 10 islands for resort development.

The MMA’s monthly economic review meanwhile revealed that gross international reserves increased by 65 percent in May compared to the corresponding period in 2014 and stood at US$703.7 million, “of which usable reserves amounted to US$229.7 million.”

“During the review month usable reserves also registered increases in both monthly and annual terms by 12 percent and 41 percent, respectively. As for gross reserves in terms of months of imports, it rose both in monthly and annual terms and stood at 4.2 months at the end of May 2015.

Tourism and fisheries

The economic review noted that tourist arrivals declined by three percent in April compared to the same period in 2014, reaching a total of 102,242 guests.

“The annual decline in arrivals was contributed by the significant decline in tourist arrivals from Europe,” the MMA observed.

“In April 2015, total bednights registered a decline of 7 percent in annual terms, as the average duration of stay declined from 6.2 to 5.9 days. Partly reflecting the decrease in bednights, the occupancy rate of the industry declined to 73 percent in April 2015 from 80 percent in April 2014.”

In its quarterly economic bulletin, the central bank noted that despite a three percent growth in tourist arrivals in the first quarter of 2014, tourist bednights declined by three percent “owing to the fall in average stay of tourists from 6.3 days in Q1-2014 to 6.0 in the review quarter.”

Tourism receipts also decreased by four percent in the first quarter compared to the corresponding period in 2014.

“On the supply side, the operational capacity of the tourism industry increased by 3% when compared with Q1-2014 to reach an average of 27,827 beds. Reflecting this and the decline in tourist bednights, the occupancy rate of the industry fell to 79 percent in Q1- 2015 from 84 percent in Q1-2014,” the bulletin stated.

The volume of fish purchases meanwhile decreased to 6,134.6 metric tonnes in April, registering an annual decline of 11 percent.

“In May 2015, both the volume and earnings on fish exports declined in annual terms by 35 percent and 12 percent, respectively. This was mainly owing to the decrease in the volume and earnings of frozen skipjack and yellowfin tuna exports,” the economic review revealed.

In other sectors, the MMA noted that construction activity “continued to expand and remained robust as indicated by the annual increase in construction-related imports and increased bank credit to the sector during Q1-2015.”

“Activity in the wholesale and retail trade also grew, as indicated by increased imports by the private sector (excluding tourism) and bank credit to the sector.”

The rate of inflation in Malé meanwhile accelerated to 1.7 percent in April from 1.1 percent in March.

“The pick-up in inflation during the month was mostly contributed by the growth in fish prices and prices charged for housing rent,” the central ban explained.

“The monthly percentage change in the [Consumer Price Index] increased in April 2015. This was mainly due to the rise in fish and cigarett e prices. Cigarette prices rose during the month due to the increase in the import duty levied in April 2015.”


Newly appointed MMA governor reveals plans to strengthen economy

The newly appointed Governor of Maldives Monetary Authority (MMA) Dr Azeema Adam has stated that she will ensure firm action is undertaken to strengthen both the economy and its currency.

“We need to strengthen foreign exchange market regulatory framework and establish a sufficient monetary policy framework in order to maintain the value of rufiyaa,” she told local media yesterday.

Azeema added that the strengthening of these frameworks would also assist in reducing inflation and the rise in prices of general commodities, as well as echoing the concerns of her predecessor regarding monetisation.

“Printing money to overcome the budget deficit is something that brings down the value of the Maldivian rufiyaa. Therefore, this needs to brought to an end.”

“In order to do so, the MMA will assist the government to finance their budget deficit through a market mechanism,” she revealed.

She added that this will be difficult to accomplish without decrease government spending, while also noting the importance of the ratification of the new MMA Act which has been recently drafted.

Azeema also pledged to bring an end to dollar transactions on the black market, noting the importance of maintaining the value of local currency in a country like the Maldives which strongly depends on foreign currency.

The MMA’s recent balance of payments projections estimate that the country’s current account deficit will widen to US$562.5 million in 2014, which is equal to 22 percent of GDP.

She pledged to bring down the expense of running the central bank, stating that decreasing spending throughout the state bodies is imperative to strengthening the country’s economy.

Azeema stated that, although Maldives has a comparatively high level of investments in tourism and other sectors, it has so far failed to be reflected in the country’s financial status.

Productivity increasing

Due to the rapidly developing tourism sector, productivity of the Maldives will increase by 4.5 percent by the end of 2014, she said.

“At the end of 2013 we had US$368 million. Our estimate is that this will rise to 400 million dollars by the end of this year. Looking at how much is imported from this reserve, this is the import of about 2 or 3 months,” local media reported the new governor as saying.

Dr Azeema estimated that, compared to 2013, the current account deficit of the country will increase by 16 percent this year, while the official reserves exceed this. She said that this estimate is made based on the developing tourism sector, and the increased earnings that the government is acquiring from the field.

She went on to reveal that the major work the MMA will currently undertake is to introduce new insurance services and to establish further Islamic financing instruments.

The MMA will assist banks in releasing more loans to individuals by decreasing the minimum reserve requirement that they have to keep deposited at the central bank, she said.

“We need to strengthen the financial sector through revisions, this is a work we must undertake. We do not see big investments being made in the financial sector. However, we need to attract investments into this sector too,” Azeema told the press.

The governor stated that, where required, the central bank will also work to revise necessary laws and regulations in an attempt to strengthen the financial sector. She stated that this would assist the government in obtaining funds to implement various projects, while also being of help to small and mid-level businesses.

She highlighted the importance of creating more public awareness about the financial sector as well as encouraging a mentality of keeping savings from their earnings.

She further said that the MMA would encourage the use of electronic payment systems as opposed to cash and cheques. She stated that more convenient and efficient electronic payment systems will be introduced by the central bank, adding that this would be more secure than cash and cheque transactions.


MMA governor warns of having to print money

Maldives Monetary Authority (MMA) Governor Dr Fazeel Najeeb has warned that the central bank would be forced to print money to arrange funds for the State Trading Organisation (STO) to resolve a looming oil payment crisis.

Dr Najeeb told CNM yesterday that money would have to be printed if STO’s efforts to secure the funds through banks were unsuccessful.

STO MD Shahid Ali told parliament’s Finance Committee last week that the government-owned company needed to clear US$7 million out of a US$20 million debt owed to foreign oil suppliers to be able to import a new shipment.

“We estimate that the stock could run out by [November] 10 or 11 if a new stock is not brought in,” Shahid told MPs.

Finance Minister Abdulla Jihad told the committee that he had asked the MMA to provide MVR50 million to STO but was told that the central bank could only arrange for MVR20 million as the public bank account was overdrawn.

Shahid Ali told Minivan News on Sunday that the MMA had committed to financing the overdue payments although the “exact amounts have not been agreed upon.”

Jihad confirmed to newspaper Haveeru yesterday that MVR59 million had been made available to STO with more funds to be arranged on Thursday, which would enable the company to import a fuel shipment this week.

The MMA governor meanwhile revealed at parliament last week that the public bank account was overdrawn by MVR1.5 billion (US$97 million) as a result of having to finance government expenditure.

“When we have to accommodate every request by the government we are forced to act completely against the MMA law,” he said, referring to printing money and dipping into foreign currency reserves.

While short-term overdraws from the public bank account to manage the government cash flow was not a concern, Dr Najeeb told MPs that it was instead being used as a means to finance the budget deficit and print money.

Excess rufiyaa in circulation would worsen the dollar shortage and stoke inflationary pressures, he cautioned, explaining that “every MVR100 printed is added to the total [local currency] chasing the dollars.”

Deficit monetization – printing money to plug the fiscal deficit – was ceased by the previous administration in late 2009 in favour of issuing treasury bills and bonds while the MMA introduced open market operations to mop up excess liquidity.


Gross state reserves to reach US$310 million by June, MMA Governor warns parliament

The head of the Maldives’ central bank, Fazeel Najeeb, has warned parliament that the country’s gross state reserves will drop to US$310 million in two months due to outstanding debts.

The statement by the governor of the Maldives Monetary Authority (MMA) follows confirmation from Finance Minister Abdulla Jihad this week that the government had suspended new development projects due to shortfalls in revenue, and was in the process of drawing up a supplementary budget.

“This is not a healthy level. The existing amount is equivalent to that needed for imports of the next two months. The best practice is to have funds for imports needed for six months,” local media reported Najeeb as telling parliament’s finance committee.

The government trying to address the problem by selling bonds to foreign countries, he said, noting that the overdrawing of the state account was “common” as a result of cash flow constraints.

He dismissed rumours that the MMA had recently frozen the state’s current account, but said there were ongoing discussions to increase the state’s overdraft limit from MVR 140 million (US$9 million) to MVR 200 million (US$13 million).

Earlier this month, India’s Financial Express publication reported that Axis Bank had initiated an arbitration process to recover US$160 million in loans granted to infrastructure developer GMR, which were guaranteed by the Finance Ministry during the former administration.

The developer was given a seven-day eviction notice late last year after the new government declared that its 25 year, $US$511 million contract to upgrade and manage Ibrahim Nasir International Airport (INIA) was ‘void ab initio’ (invalid from the start).

The Attorney General (AG’s) Office at the time denied receiving any notice of arbitration from Axis Bank.

Maldivian President Dr Mohamed Waheed meanwhile told a rally on Thulusdhoo last Saturday that there was no cause to worry about the budget or rumours of impending bankruptcy.

“The Maldivian economy is not really that bad,” he declared.

However, the president acknowledged that as a consequence of deficit spending financed by loans, the government had to spend an amount almost equal to the state’s wage bill on interest and loan repayments.

“We Maldivians are not indebted to anyone. We are proud people. We pay back what we borrow. We don’t have any outstanding payment, to any party,” Dr Waheed said in his speech, according to the President’s Office website.