Tag: deficit

Tourist arrivals rose six percent in February

Tourist arrivals in February increased by five percent from the previous month and six percent in annual terms, according to the Maldives Monetary Authority’s (MMA) latest monthly economic review.

“The annual increase was due to the rise in the number of arrivals from Asia and Europe,” the central bank’s monthly report noted.

While total bed nights in February rose five percent compared to the same period last year, the occupancy rate rose three percent from February 2013 to 89 percent this year.

The average duration of stay however “declined marginally in annual terms during the review period,” the report stated.

The MMA had previously revealed that tourist arrivals rose 17 percent in 2013 compared to the previous year “mainly due to the large increase in tourist arrivals from China, coupled with a slight growth in arrivals from Europe.”

Statistics from the Tourism Ministry show that 331,719 Chinese tourists visited the Maldives last year, which was a 44.5 percent increase from the previous year.

Chinese tourists accounted for 29.5 percent of all tourist arrivals in 2013.

In November 2013, the Finance Ministry revealed that the tourism industry’s GDP growth in 2012 declined by 0.1 percent following 15.8 percent growth in 2010 and 9.2 percent in 2011.

Despite negative growth in 2012, the Finance Ministry estimated that the industry would have expanded 5.5 percent in 2013 and forecast a growth rate of 5.2 percent for this year.

The average duration of stay has however fallen from 8.6 days in 2009 to 6.7 days in 2012, and 6.3 days in 2013.

According to the annual tourism yearbook published by the Tourism Ministry, the average occupancy rate of all tourist establishments in 2012 was 2.5 percent below the previous year at 70.6 percent.

The Maldivian economy is largely dependent on tourism, which accounted for 28 percent of GDP on average in the past five years, and generated 38 percent of government revenue in 2012.

Meanwhile, in the second largest industry, the volume of fish exports increased by nine percent in February compared to the previous year “largely contributed by the increase in the volume of fresh, chilled or frozen tuna exports.”

“However, earnings from fish exports declined by 25 percent during the same period, due to the fall in both the volume and earnings from canned or pouched tuna exports,” the review revealed.

“Additionally, earnings from yellow fin tuna exports also declined during this period compared to 2013.”

The rate of inflation – measured by the annual percentage change in the consumer price index in Malé – rose to 3.4 percent in February from 2.6 percent in January.

“This was largely due to the increase in fish prices,” the report explained.

“Similarly, the rate of inflation increased in monthly terms during February 2014, which was also due to the rise in fish prices.”

Public finance

The economic review noted that government expenditure “more than doubled” in January to MVR1.9 billion compared to the same period last year.

Total revenue fell by 11 percent to MVR1 billion “largely due to the 27 percent decline in business profit tax (BPT) [receipts].”

“Additionally, non-tax revenue also fell, owing to the significant decline in resort lease rent. As for the increase in expenditure, it was mainly due to the increase in subsidy payments,” the report stated.

As a result of “increased investments in T-bills by commercial banks, other financial corporations and public non-financial corporations,” the review noted that the total outstanding stock of government securities – treasury bills and bonds – rose nine percent in annual terms and 10 percent in monthly terms during February.

The trade deficit meanwhile narrowed by 29 percent during February compared to the previous year.

“This was due to the significant decline of 26 percent in imports which off set the 16 percent decline in exports. The decline in imports was contributed by the fall in petroleum products,” the report explained.

“Gross international reserves increased in both monthly and annual terms by 2 percent and 13 percent respectively and reached US$391.1 million at the end of February 2014. Reserves in terms of months of imports also rose in both monthly and annual terms to 2.7 months at the end of the same period.”

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Government’s revenue raising bills sent to committee

Three bills submitted by the government to raise additional revenue have been sent to a committee of the full parliament for further review.

Today’s extraordinary sitting of the People’s Majlis was held during the ongoing recess upon request of 27 government-aligned MPs. The government contends that failure to pass the revenue bills during the last session of 2013 was hampering implementation of the budget.

The three bills accepted today included an amendment to raise the Tourism Goods and Services Tax (T-GST) from eight to 12 percent as well as two amendments to the Tourism Act in order to reintroduce the discontinued flat US$8 bed tax and to require resort lease extension payments to be paid as a lump sum.

While two of the bills were accepted with 38 votes in favour and 26 votes against, the third was accepted with 37 votes in favour and 26 votes against.

The full Majlis committee formed an 11-member subcommittee to review the bills, including five opposition MPs and six pro-government MPs. The extraordinary sittings have been scheduled to resume on February 3.

Among other revenue raising measures proposed by the government are revising import duties, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, and introducing GST for telecommunication services.

In December, parliament passed a record MVR17.5 billion (US$1.16 billion) budget for 2014, prompting President Abdulla Yameen to call on the legislature to approve the revenue raising measures to enable the government to finance development projects.

“Double taxation”

MPs of the opposition Maldivian Democratic Party (MDP) voted against all three pieces of government-sponsored legislation, expressing concern over potential adverse effects on the tourism industry.

While some government-aligned MPs echoed the concerns, most argued that increasing government revenue was essential for providing public services and financing government operations.

MP Ibrahim Mohamed Solih, parliamentary group leader of the MDP, has previously contended that raising T-GST while reintroducing the bed tax would amount to “double taxation.”

Following the Majlis’s failure to extend the tourism bed tax before the end of last year, Finance Minister Abdulla Jihad told local media that the resulting losses to state revenue would be MVR100 million a month.

In an interview with Minivan News last week, Tourism Minister Ahmed Adeeb said parliament had not considered the impact on the budget when it broke for recess without extending the bed tax.

“Normally, budget and government revenue earning bills are passed together. But here, the parliament goes into recess after passing the budget, leaving the income bills pending for after that. And even then, they often just fail,” he said.

“This causes the budget to expand, but there’s no way for the government to earn enough to implement it. The T-GST [Tourist Goods and Services Tax] matters even more to the state income. The state keeps expanding, the allowances and salaries keep increasing, but the income for all of this still depends on the 25,000 tourist beds. Unless we expand this, how can we increase what we earn? We can’t keep expanding the state, and then squeezing the existing tourism sector without expanding it.”

On January 6, Adeeb issued a circular to all tourist establishments informing the resorts that the government was seeking reintroduction of the bed tax.

Resort lease extensions

Under the amendments proposed to the Tourism Act, resort leases can be extended to 50 years with a lump sum payment of US$100,000 per year.

Resorts with approved lease extensions – currently paying for the extension in installments – would also have to make the full payment within three months of ratification.

Following the controversial transfer of presidential power in February 2012, the administration of President Dr Mohamed Waheed allowed extended resort leases to be paid in installments, rather than upfront at the end of the lease.

In April 2012, the Maldives Inland Revenue Authority (MIRA) revealed that the total revenue collected in March 2012 was 37.9 percent lower than the projected revenue “mainly due to the unrealised revenue from the Lease Extension Period.”

At the time of the Tourism Ministry’s announcement of the extension payment changes, the government had already received lump sum payments from 25 resorts equating to US$40 million and was expecting nearly US$135 million more from 90 resorts.

“The [administration of former President Mohamed Nasheed] had requested that those resorts extending to a 50 year lease pay in a lump sum,” former Tourism Minister Dr Mariyam Zulfa explained to Minivan News at the time.

“[But] while I was Tourism Minister, Gasim Ibrahim and Ahmed ‘Redwave’ Saleem kept pressuring me to let them pay on a yearly basis. They didn’t want to give any money to the government, and soon after the government changed they got what they wanted. [The installments] will only be payable at the end of the current lease periods – it is a huge loss to the treasury.”

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Tourism industry GDP growth flatlined in 2012, reveals Finance Ministry

The tourism industry’s Gross Domestic Product (GDP) growth in 2012 declined by 0.1 percent following 15.8 percent growth in 2010 and 9.2 percent in 2011, the Finance Ministry revealed in a “Fiscal and Economic Outlook: 2012 to 2016” statement included in the 2014 budget (Dhivehi) submitted to parliament last week.

“The main reason for this was the political turmoil the country faced in February 2012 and the decline in the number of days tourists spent in the country,” the statement explained.

“The most important statistic used to measure productivity in the tourism sector is the total number of nights tourists spend in the country. As the most number of tourists to the country now come from China, we note that the low number of nights on average that a Chinese tourist spends in the Maldives has an adverse effect on the tourism sector’s GDP.”

However, despite negative growth in 2012, the tourism industry is expected to have grown by 5.5 percent in 2013, with a 5.2 percent growth rate forecast for 2014.

The Maldivian economy is largely dependent on tourism, which accounted for 28 percent of GDP on average in the past five years, and generated 38 percent of government revenue in 2012.

Tourism growth

According to the annual tourism yearbook published by the Tourism Ministry, the average occupancy rate of all tourist establishments in 2012 was 2.5 percent below the previous year – at 70.6 percent.

“The major decline in occupancy rate was recorded from the resort/hotel sector, while the occupancy rate of guest houses and safari vessels remained constant at 23.4% in 2012,” the yearbook stated.

The average duration of stay fell from 8.6 days in 2009 to 6.7 days in 2012.

Moreover, following 20.7 percent growth in tourist arrivals in 2010 and 17.6 percent in 2011, the growth rate slowed to 2.9 percent in 2012, well below the annual average of 7.7 percent growth rate from 2008 to 2012.

The yearbook revealed that the overall positive was largely a result of the “outstanding performance” of the industry prior to the transfer of power in February.

“Fiscal discipline”

The outlook statement meanwhile observed that most economic and monetary problems facing the Maldives were “directly or indirectly related to the state’s ‘fiscal discipline.'”

The Finance Ministry noted that a fiscal responsibility law ratified in May stipulates that government debt must be brought below 60 percent of GDP within the next three years.

While public debt in 2012 stood at 78.6 percent of GDP in 2012, the outlook statement revealed that it had fallen to 72.6 percent this year.

However, the figure is expected to grow to 81 percent of GDP in 2014.

A budget surplus in the coming years would be necessary to reach the legally mandated target, the finance ministry stated.

Fiscal deficit (as a percentage of GDP)

While the estimated fiscal deficit in the 2013 budget was MVR1.4 billion (US$90 million) or 3.6 percent of GDP, the deficit at the end of the  year would stand at MVR1.7 billion (US$110 million) or 4.7 percent of GDP, the statement noted.

The main reason for the higher than expected deficit spending was failure to implement proposed revenue raising measures intended to generate MVR1.8 billion (US$116.7 million) in new income.

The measures included hiking the Tourism Goods and Services Tax (T-GST) to 15 percent, raising the airport service charge to US$30, leasing 14 islands for resort development, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

In April, parliament rejected government-sponsored legislation to raise the departure tax on outgoing passengers, prompting Finance Minister Abdulla Jihad to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

The move followed a cabinet decision to delay implementation of new development projects financed out of the budget due to shortfalls in revenue.

Meanwhile, Jihad reportedly told parliament’s Finance Committee last week that no foreign bank was willing to lend to the Maldives anymore because of instability.

When the new revenue did not materialise, Jihad said the finance ministry approached foreign banks to sell treasury bills, but was turned down. Some banks refused to roll-over previously sold T-bills, he added.

As a result, Jihad said, the government was forced to overdraw from the public bank account at the Maldives Monetary Authority.

Moreover, banks only agreed to buy T-bills at an 11 percent interest rate, Jihad said, which would not be sustainable for the government.

While MVR500 million (US$32 million) a month was needed to pay salaries and allowances for state employees, government income in some months was just MVR300 million (US$19 million), Jihad noted, leaving no option but to turn to the central bank.

Deficit and debt

The total public and publicly guaranteed external debt in 2012 stood at MVR11 billion (US$713 million) and was estimated to have reached MVR11.6 billion (US$752 million) this year, the outlook statement revealed.

A total of MVR2 billion (US$129 million) from foreign loans was disbursed in 2013 for development projects, with 7.44 percent from multilateral financial institutions, 34.5 percent from bilateral partners, and 51.8 percent from commercial banks.

The MVR839 million (US$54 million) estimated as budget support in 2013 meanwhile included US$25 million from a stand-by credit facility provided by India in 2011 and a US$29.4 million loan from the Bank of Ceylon.

External and domestic debt

The external public debt is projected to increase to MVR12.5 billion (US$810.6 million) next year, the finance ministry noted.

Domestic debt in 2012 was MVR13.8 billion (US$895 million) and MVR16 billion (US$1 billion) in 2013. This figure is projected to rise by 15 percent to MVR18.5 billion (US$1.19 billion) next year.

The state’s total debt in 2013 is therefore estimated to be MVR27.7 billion (US$1.79 billion) – expected to rise to MVR31 billion (US$2 billion) in 2014.

The government spent MVR2.7 billion (US$175 million) in 2012 and MVR3.5 billion (US$227 million) in 2013 for loan repayment and interest payments to service foreign and domestic debts.

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Budget of MVR16.4 billion for 2014 submitted to parliament

An estimated budget of MVR16.4 billion (US$1 billion) for 2014 was submitted to parliament today by Finance Minister Abdulla Jihad, with a projected deficit of 2.5 percent of GDP.

Presenting the budget this morning, Jihad said the forecast for government revenue in 2014 was MVR13.9 billion (US$901 million), with income from taxation projected at MVR10.2 billion (US$661 million) and non-tax revenue of MVR3.5 billion (US$226 million).

In addition, MVR2.3 billion (US$149 million) was expected from new revenue raising measures.

As government expenditure in 2014 was estimated to be MVR14.9 billion (US$966 million), Jihad said, the resulting budget deficit would be MVR988 million (US$64 million).

The fiscal deficit would be plugged by foreign assistance, loans and domestic sources of finance, Jihad said.

The total budget reaches MVR16.4 billion including loans and foreign aid, Jihad explained, which was not included in total expenditure.

While the economy grew by 3.7 percent in 2013, economic growth is estimated to be 4.5 percent next year, he said.

Similar to previous years, Jihad observed, recurrent expenditure (MVR12 billion) accounts for 73 percent of the total budget, with almost half spent on salaries and allowances for state employees in addition to administrative costs, interest payments and subsidies.

A total of MVR2.2 billion (US$142 million) was allocated for social security and welfare spending, Jihad said, which covers the government health insurance scheme ‘Aasandha,’ electricity subsidies, pensions for the elderly and expenditure on price controls.

While MVR2.4 billion (US$155 million) was allocated for the Public Sector Investment Programme (PSIP), Jihad said MVR1.9 billion (US$123 million) of it would be spent on infrastructure projects in the atolls such as construction of harbours and establishing sewerage systems.

The finance minister revealed that government revenue was expected to reach MVR11.5 billion (US$745 million) by the end of 2013.

The original forecast in the 2013 budget was however MVR12.9 billion (US$836 million).

The 2013 fiscal deficit, projected at MVR1.4 billion (US$90 million), would stand at MVR1.7 billion (US$110 million) by the end of the year, Jihad said.

Following a budget debate next month, the proposed budget would be sent to the Budget Review Committee, consisting of all the members of the economic affairs and public finance oversight committees, for scrutiny and possible amendments.

In December 2012, the Budget Review Committee deducted more than MVR1 billion (US$64.8 million) from the MVR16.9 billion (US$1 billion) budget submitted by Finance Minister Jihad before parliament passed the a MVR15.3 billion (US$992 million) budget for 2013.

Revenue raising measures

In its latest Quarterly Economic Bulletin, the Maldives Monetary Authority (MMA) observed that government finances had “further deteriorated in the first six months of 2013” due to a sizeable shortfall in expected revenue coupled with a marked increase in recurrent expenditure.

The central bank’s economic bulletin explained that around 15 percent of total revenue budgeted for 2013 – MVR1.8 billion (US$116.7 million ) – was to be raised from new revenue measures, “which so far have not materialised.”

The revenue raising measures proposed in the 2013 budget included hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, raising airport service charge to US$30, leasing 14 islands for resort development, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

In April, parliament rejected government-sponsored legislation to raise the departure tax on outgoing passengers, prompting Finance Minister Abdulla Jihad to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

The move followed a cabinet decision to delay implementation of new development projects financed out of the budget due to shortfalls in revenue.

The economic bulletin also revealed that the total government expenditure of MVR6.7 billion (US$435 million) in the first half of 2013 was eight percent higher than the same period in 2012.

The growth of government spending was “entirely due to the 21 percent (MVR965.3 million) growth in recurrent expenditure, which was partly offffset by the 26 percent (MVR440.6 million) decline in capital expenditure during the period.”

Presenting the 2014 budget today, Jihad said the government proposes six new revenue measures to be implemented next year pending parliamentary approval,

  • Hiking T-GST to 12 percent from 8 percent at present
  • Revising import duties
  • Delaying abolishing the tourism bed tax for one more year
  • Raising airport departure charge from foreign passengers from US$18 to US$25
  • Leasing 12 islands for resort development
  • Introducing GST for telecommunication services (currently exempt from the tax)

Austerity

Jihad also advised implementing a raft of austerity measures, contending that the “expensive” public management model adopted in the Maldives was inappropriate for a small island state.

Almost 50 percent of government income was spent on employees, Jihad noted, advising revision of the state pension system and reduction of the numbers of island and atoll councillors as well as members of independent institutions and boards of government-owned companies.

As “the basis of increasing state expenditure is having to provide all facilities to small populations in separate islands,” Jihad said prompt implementation of a population consolidation policy was necessary for a long-term solution.

The current model of more than 1,000 elected councillors established by the Decentralisation Act passed in 2010 by the then-opposition majority parliament was branded “economic sabotage” by the ousted Maldivian Democratic Party (MDP) government, which had proposed limiting the number of councillors to “no more than 220.”

In March 2011, former chair of parliament’s Finance Committee, MP Ahmed Nazim, told Minivan News that the opposition Dhivehi Rayyithunge Party (DRP) had been too “heavy handed” in working with government.

“I was advocating that even now, we will work with the MDP to reduce the number of [island] councillors in small areas from five to three posts.  There is simply not enough work for all of them to do. Some opposition took a heavy handed approach meaning there was no need for compromise,” the current Progressive Party of Maldives (PPM) MP said, despite having voted for the bill framed by the opposition.

Meanwhile, in its professional opinion on the 2013 budget, the Auditor General’s Office stated that a policy of population consolidation together with effective measures to reduce the public sector wage bill was necessary to rein in the continuing fiscal deficits.

Moreover, in November 2012, a team from the International Monetary Fund (IMF) advised that strengthening government finances was “the most pressing macroeconomic priority for Maldives”.

Jihad said today that a National Pay Review Board had begun reviewing the pay scale of state employees, which was among the recommendation’s of the IMF mission.

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Government suspends new development projects due to budget constraints

The government has decided to delay implementation of new development projects financed out of the state budget due to shortfalls in revenue, Finance Minister Abdulla Jihad confirmed to Minivan News today.

Jihad said that the cabinet decided to postpone planned infrastructure projects that have not yet started in an attempt to ease cash flows rather than deducting a specific amount from the development budget.

“We are in the process of [drawing up a supplementary budget]. Hopefully by the end of the month we will have something,” he said.

The decision to suspend new projects was revealed by Housing Minister Dr Mohamed Muiz today following the signing of contracts to build harbours in four islands.

Speaking to press after the signing ceremony, Muiz said he was instructed by the finance ministry not to commence any further infrastructure projects included in the 2013 budget, such as harbour construction or land reclamation.

Muiz explained that government-funded projects in the pipeline will be pushed back until parliament passes bills to raise additional revenue.

The move follows parliament’s rejection last week of 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 measures included 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.

Following the narrow defeat of the airport service charge amendment bill in parliament, Jihad told local media that a “significant amount” would be lost from projected revenue as the additional income was anticipated in budget forecasts.

“If the amendments for the import duty are not passed, we will find it extremely difficult to manage the budgets of institutions. So it’s critical that the parliament expedites work on the bills and support them,” he was quoted as saying by newspaper Haveeru.

The bill proposed by the government to raise the airport service charge was defeated 28-27 despite the ruling coalition’s provisional majority in the 77-member house.

During the parliamentary debate last week, MPs of both the opposition Maldivian Democratic Party (MDP) and government-aligned Progressive Party of Maldives (PPM) – respectively majority and minority parties in parliament –  accused President Dr Mohamed Waheed of using state funds to finance his presidential campaign.

Supplementary budget

Dr Waheed meanwhile told the people of Thulusdhoo in Kaafu Atoll yesterday (April 20) that there was no cause to worry about the budget or rumours of impending bankruptcy.

“The Maldivian economy is not really that bad,” he was quoted as saying by Haveeru.

President Waheed however conceded that “difficulties” had arisen due to spending beyond the country’s means in the recent past.

As a consequence of deficit spending financed by loans, Dr Waheed said 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.

He added that the finance ministry was preparing to submit a supplementary budget to parliament before the end of April, which would seek funds needed to provide services to the public without interruption.

Economic Development Minister Ahmed Mohamed – a senior member of the government-aligned Dhivehi Rayyithunge Party (DRP) – however told Haveeru last week that a supplementary budget would be of no use if parliament failed to approve the proposed revenue raising measures.

“Numbers written on paper will not increase funds. One or two billion rufiya can be added to the budget through the supplementary budget,” he explained. “But shouldn’t there be a way to get that three or four billion rufiya?”

The minister also referred to media reports suggesting that some government offices have exhausted their annual budgets after the first three months of the year.

Parliamentary approval

During the budget debate in December 2012, Majority Leader MP Ibrahim Mohamed Solih warned that the additional revenue projected in the budget was unlikely to materialise.

The MDP parliamentary group leader claimed that the import duty revision to raise tariffs on oil “will not be passed in this Majlis.”

Moreover, he said at the time, the MDP would not support increasing T-GST without consultation with the tourism industry.

Predicting that revenue in 2013 would reach “only MVR 11 billion at most,” Ibu warned that income would not be enough to meet recurrent expenditures on salaries and administrative costs.

Meanwhile, Minority Leader MP Abdulla Yameen, parliamentary group leader of the PPM, said at the time that the government’s objectives or policies could not be discerned from the proposed budget.

“These projects are very random or ad hoc. The government’s planning should be better than this,” he said.

While President Waheed had taken note of the high salaries paid by institutions such as the People’s Majlis as “a serious problem,” Yameen said he could not see “any kind of sign” of reducing recurrent expenditure or salaries and allowances for government employees.

The state’s wage bill amounts to 48 percent of recurrent expenditure, which accounts for 70 percent of government spending.

2013 budget

A public sector investment program (PSIP) of MVR 3.1 billion (US$201 million) was proposed within the 2013 budget.

This included MVR 1.5 billion (US$97 million) from the state budget, MVR 21 million (US$1.3 million) from domestic loans, MVR 1.2 billion (US$77 million) as foreign loans and MVR347.6 million (US$22.5 million) as free aid.

After parliament trimmed more than MVR 1 billion (US$64.8 million) from the MVR 16.9 billion (US$1 billion) budget submitted by the Finance Ministry, Jihad warned that funds allocated in the budget would not be enough to manage expenses and predicted that a supplementary budget would be needed before the end of the year.

Parliament’s Budget Review Committee approved MVR 1.6 billion (US$103.7 million) in cuts from recurrent expenditure and added MVR 389 million (US$25.2 million) for infrastructure projects.

The budget items that the committee reduced included; overtime pay (cut 50 percent), travel expenses (cut 50 percent), purchases for office use (cut 30 percent), office expenditure (cut 35 percent), purchases for service provision (cut 30 percent), training costs (cut 30 percent), construction, maintenance and repair work (cut 50 percent) and purchase of assets (cut 35 percent).

The committee also instructed the Finance Ministry to reduce an additional MVR 605.7 million (US$39.2 million) from office budgets.

In December 2012, the Finance Ministry ordered offices to cancel all overseas trips, such as for study tours and training, and to seek approval from the ministry for all official trips that were not completely funded by foreign parties; cancel all repair work for the rest of December; and cancel purchases of capital items that were not included in the public sector investment programme (PSIP).

In the circular, the Finance Ministry noted that 15 percent had previously been deducted from office budgets to reduce the fiscal deficit “as a result of income being lower than estimated in the 2012 budget passed by parliament.”

However, since government spending necessary to provide essential services to the public could not be reduced, “the state’s expenditure has to be further controlled as additional measures are needed to reduce the state’s budget deficit,” the circular stated.

In July 2012, the Finance Ministry instructed all government offices to reduce their budgets by 15 percent, with only 14 of 35 offices complying by the given deadline.

“Some offices will face difficulties. But we don’t have a choice,” Jihad told local media at the time.

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Maldives’ currency reserves “dwindling to critical levels”: World Bank

Currency reserves in the Maldives have “dwindled to critical levels”, according to the World Bank’s bi-annual South Asia Economic Focus report.

The report highlighted that growth in South Asian countries – including the Maldives – is still below pre-economic crisis levels.

“Much of the recent slowdown in economic growth can be attributed to stagnating investment,” the World Bank stated in its findings. “Economic recovery could falter in the absence of a stronger investment climate.”

South Asian countries are “now more vulnerable” due to widening current account balances, slowing foreign direct investment, and persistently high inflation that has “limited the ability” of central banks to counter economic downturn via monetary policies.

Rising imports, and the Maldives dependency on those imports, also leaves the country more vulnerable to commodity price increases, argued the findings.

“Countries will need to improve their business climate to attract the private sector investment needed for these new entrants to find productive jobs, thereby reducing poverty and boosting shared prosperity,” said Martin Rama, Chief Economist for the South Asia Region at the World Bank.

Improving tax revenue collection and curbing energy subsidies are required for further progress to be achieved.

Maldives Monetary Authority (MMA) statistics released in January 2013 indicated that gross state reserves have shrunk to MVR 4.9 billion (US$317.7 million).

This is essentially only enough for one month of imports.

Between November and December 2012, reserves dropped 14 percent, or MVR 849.7 million (US$55 million). In comparison with the start of 2012 – when the State reserve was MVR 5.3 billion (US$343 million) – January 2013 had seen an eight percent decline.

MMA statistics explained that the reason for the downward slide at the end of 2012 was due to depletion of state funds in local and foreign banks, according to local media.

The ballooning 2012 budget deficit alerted the International Monetary Fund (IMF), which previously expressed concern that without raising revenue and cutting expenditures, the country risked exhausting its international reserves and sparking an economic crisis.

Finance Minister Abdulla Jihad told MPs in December 2012 that additional revenue was needed to finance the fiscal deficit and rein in soaring public debt, which was projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.

The governor of the country’s central bank said back in May 2012 that the Maldives was facing its worst economic crisis in recent memory.

Fiscal responsibility

Despite parliament recently rejecting an increased airport service charge, legislation on fiscal responsibility submitted in 2011 by former President Mohamed Nasheed’s government was passed with 42 votes in favour and 10 against at a sitting of parliament on April 15.

If the bill is ratified, the government would be prohibited by law from obtaining loans after January 1, 2016, in order to finance recurrent expenditure or loan repayments.

The bill also sets limits on government spending and public debt based on the proportion of GDP, mandating the state to not allow public debt to exceed 60 percent of GDP.

Borrowing from the central bank or MMA should not exceed seven percent of the projected revenue for the year, while such loans would have to be paid back in a six-month period under additional finance conditions outlined under the recently approved legislation.

Moreover, a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

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, the 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 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.

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Hiking airport service charge to US$30 narrowly rejected at parliament

Legislation proposed by the government to raise the airport service charge from departing international passengers to MVR460 (US$30) was narrowly rejected by parliament today.

The amendment bill submitted by government-aligned MP Riyaz Rasheed was rejected with 28 votes against, 27 in favour and two abstentions.

At the parliamentary debate on the bill yesterday (April 15), MPs of the opposition Maldivian Democratic Party (MDP) and government-aligned Progressive Party of Maldives (PPM) opposed the proposed hike.

MPs of both the majority and minority parties alleged that President Dr Mohamed Waheed planned to use an expected MVR185 million (US$12 million) from raising the departure tax to finance his presidential campaign.

The 1978 law imposing the airport service charge on departing passengers was first amended under the previous administration and raised to US$18.5 for foreigners.

The imposition of a similar Airport Development Charge (ADC) of US$25 by Indian infrastructure group GMR was previously a major point of contention for the Waheed administration, which terminated the concession agreement with the GMR-led consortium to modernise the airport in December 2012.

Hiking the airport service charge from US$18 to US$30 was among a raft of measures proposed by the Finance Ministry within the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

Finance Minister Abdulla Jihad told MPs in December 2012 that additional revenue was needed to finance the fiscal deficit and rein in soaring public debt, which was projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.

On January 29 this year, the cabinet decided to impose austerity measures to manage the budget following revenue shortfalls.

“Members of the cabinet noted that, by late this year, the country might have to face enormous challenges unless strict budgetary control measures were not implemented,” the President’s Office said at the time.

During the budget debate in December 2012, Majority Leader MP Ibrahim Mohamed Solih warned that the additional revenue projected in the budget was unlikely to materialise.

The MDP parliamentary group leader noted that most of the proposed measures – such as hiking the Tourism Goods and Services Tax (T-GST) to 15 percent, introducing GST for telecom services, and “selectively” reversing import duty reductions – required parliamentary approval.

Acting Finance Minister Ahmed Mohamed was unavailable for comment today on the impact to government finances from the loss of projected revenue.

Fiscal responsibility

Meanwhile, legislation on fiscal responsibility submitted in 2011 by the previous government was passed with 42 votes in favour and 10 against at a sitting of parliament on Monday (April 15).

If the bill is ratified, the government would be prohibited by law from obtaining loans after January 1, 2016 to finance recurrent expenditure or loan repayment.

The bill also sets limits on government spending and public debt based on proportion of GDP, mandating the government to not allow public debt to exceed 60 percent of GDP.

Borrowing from the central bank or Maldives Monetary Authority (MMA) should not exceed seven percent of the projected revenue for the year, while such loans would have to be paid back in a six-month period.

Moreover, a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

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Trade deficit widens to MVR 1.1 billion

The trade deficit in the Maldives rose to MVR 1.1 billion (US$70.9 million) in the last year, according to statistics from the Maldives Monetary Authority (MMA).

Statistics show that US$ 314.4 million had been received as revenue from exports. However US$1.4 billion was spent on imports – an 11percent increase to the overall trade deficit.

Local media reported that while there had been a reduction in overall exports, fish exports had increased.

According to MMA’s statistics, the 2013 trade balance is MVR 1.5 billion (US$96.7 million).

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Parliament passes MVR 15.3 billion budget for 2013

Parliament today passed a MVR 15.3 billion (US$992 million) state budget for 2013, reduced by more than MVR 1 billion (US$64.8 million) from the MVR 16.9 billion (US$1 billion) proposal submitted by Finance Minister Abdulla Jihad last month.

The budget was passed with 41 votes in favour, 28 against and no abstentions. MPs of the formerly ruling Maldivian Democratic Party (MDP) voted against the budget.

In addition to changes imposed by the Budget Review Committee, the estimated budget was passed with eight amendments approved at today’s sitting.

Among the 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 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 Maussom 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.

Budget review

Presenting the budget report (Dhivehi) at Tuesday’s sitting, Budget Review Committee Chair MP Gasim Ibrahim said the committee held 31 meetings, spent 45 hours studying the proposed budget and met senior officials from 27 ministries and state institutions.

The omissions approved by the committee to reduce the budget from MVR 16.9 billion to MVR 15.3 billion were largely made from recurrent expenditure, the Jumhooree Party (JP) Leader said.

While Finance Minister Abdulla Jihad had agreed to MVR 1 billion in cuts, the committee decided to trim the budget “by a little bit more than that,” according to Gasim.

The committee approved cuts amounting to a total of MVR 1.6 billion (US$103.7 million).

However, he added, the committee added MVR 389 million (US$25.2 million) for infrastructure projects such as harbours, sewerage and water for islands.

The budget items that the committee made cuts to included 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.

The committee also instructed the Finance Ministry to reduce an additional MVR 605.7 million (US$39.2 million) from office budgets.

On the measures proposed by the Finance Committee to raise revenue, the committee approved revising 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.

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.

The committee also decided to limit loans obtained in 2013 to finance the budget to MVR 2 billion (US$129.7 million) and prohibit the government from taking loans for development projects with an interest rate higher than seven percent.

The government has meanwhile been asked to provide details of the loans and guarantees planned for 2013 for parliamentary approval as required by amendments brought to the Public Finance Act in 2010.

Professional opinion from MMA and Auditor General’s Office

According to the Budget Review Committee report, the Maldives Authority Authority (MMA) advised the committee to reduce total expenditure to MVR 15 billion and attempt to reduce public debt.

The central bank warned that the projected deficit in the 2013 budget was likely to adversely affect the foreign exchange market and foreign currency reserves.

The MMA also advised the committee to pass a budget that would “facilitate” the Maldives joining the International Monetary Fund’s (IMF’s) “Staff Monitoring Programme.”

The programme would provide access to loans from the international debt capital market, the MMA said.

Speaking to press at the conclusion of a visit by an IMF mission last month, head of the delegation Koshy Mathai explained that the requested “Staff Monitoring Programme” would not involve disbursement of funds from the IMF.

“We would basically see how the government is doing against its own targets – it would set targets for itself for performance of these different economic areas – and then if the track record is built up and things are going well, then maybe later we could discuss having a programme where money is disbursed,” Mathai said.

Meanwhile, in its professional opinion on the budget, the Auditor General’s Office expressed concern with the public sector investment programme (PSIP) being formulated without either a national development plan or population consolidation policy.

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