Minister of Finance and Treasury Abdulla Jihad has said the state must brace to enact austerity measures in the long-term if authorities are to address the country’s fiscal deficit – with further budget cuts anticipated in all government departments over the next 12 months.
Jihad has told Minivan News that previous commitments by government institutions to cut their budgets by 15 percent would need to be followed by further reductions to state and civil service spending in next year’s budget, regardless of financial assistance secured from China and India.
The minister’s comments were made as Parliament’s Finance Committee – reconvening for the first time since July – agreed this week to provide an additional MVR 12 million (US$780,000) in budget to the Auditor General’s (AG’s) Office, according to local media.
Auditor General Niyaz Ibrahim said that under the existing state budget, an agreement was reached that an additional MVR 58.8 million (US$3.8 million) would be provided to the AG’s Office, though it was decided to request a smaller proportion of these funds, the Sun Online news service reported.
People’s Aliance (PA) party MP and Finance Committee Chair Ahmed Nazim was not responding to calls from Minivan News at the time of press.
However, Jihad claimed that the decision to provide the extended budget was a “concern” considering the state was not getting enough direct revenue at present to justify its spending.
“We need to be fair when it comes to the budget, everyone should have to follow the same rules,” he claimed. “Otherwise this would mean that I could only reduce the budget of the Finance Ministry in future. It is time that everyone should tighten their belts.”
According to Jihad, provisions for the extension of funds to the AG’s Office had been included in the state budget, but he claimed that the country needed to work together in reducing state spending where possible.
Regarding claims that further cuts to the state budget wuld be required during the next 12 months, Chairman of the Civil Service Commission (CSC) Mohamed Fahmy Hassan said that it had “managed” with the 15 percent cuts already made to its expenditure.
Fahmy added 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 MVR9.1billion (US$590 million), equivalent to around 28 percent of nominal GDP.
Financial assistance
In the last few months, authorities in India and China had both pledged to provide financing to the Maldives. Finance Minister Jihad said that of these funds, US$25 million being provided by India would be put into “budget support” to try and address state spending. A large amount of the funding meanwhile from China, which would total US$500 million, was expected to be put towards development projects such as housing construction, the Finance Ministry added.
The Indian government had announced that it would be granting the Maldives an additional as part of the US$100 million standby credit facility agreed last year under the previous government.
China has also pledged funding to the government of President Dr Mohamed Waheed Hassan following an official state visit to the country.
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 has maintained that the state still needs to reassess where further spending cuts can be made going forward.
Just last month, the Finance Ministry forwarded proposals it claimed would cut MVR2.2billion (US$143million) form the national budget.
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.
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, several resort managers voiced concern at the time that the proposed revenue amendments would serve only to affect the financial viability of the country’s tourism industry, while providing little improvement in service or support in return.
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