Tag: Finance Minister Abdulla Jihad

Finance minister fears spiralling deficit will leave civil servants without pay

Finance Minister Abdulla Jihad has expressed fear that the ballooning budget deficit will affect the government’s ability to pay civil servants.

“We can’t hold on like this for long, we must acknowledge that this is a very serious problem,” Jihad told atoll council leaders in Malé today.

Jihad explained that shortfalls in revenue of MVR1.5 billion would see the deficit increase to MVR4 billion – equal to 10.6 percent of GDP.

“Expenses keep on increasing, even as we don’t receive any revenue. We did not get the expected revenue this year either. Because of this, we are facing great difficulty in managing the budget deficit,” said Jihad.

Upon being elected last year, President Abdulla Yameen promised to prioritise reducing state expenditure, acknowledging that the Maldives was in a “deep economic pit”.

The government currently employs just under 25,000 civil servants, representing over 7 percent of the population. This high figure has long been identified as one of the causes of country’s fiscal imbalances.

Haveeru reported Jihad as saying today that his ministry was facing pressure every month when salaries are due.

“We try to make regular salary payments even if we have to take loans in order to do so. We haven’t, as of yet, received any salary issues this year. We are trying to make the salary payments through any means possible,” he was reported as saying.

Revenue gaps

Last month’s figures from the Maldives Monetary Authority (MMA) show the salary and allowances expenditure to account for 33 percent of spending, while the finance ministry has not published monthly expenditure reports since March.

The MMA’s latest figures also show the original estimated deficit of MVR1.3 billion – agreed upon last December as part of a record MVR17.96 billion budget.

The budget was inclusive of proposed revenue raising measures – many of which had failed to materialise during the previous administration – amounting to MVR3.4 billion, or 19 percent of the budget.

Despite some measures – including a rise in tourism taxes – passing the Majlis in February, Jihad predicted at the time that compromises would mean the full MVR3.4 billion would not be realised.

Both the outgoing and incoming governors of the MMA have this year called on the state to reduce expenditure alongside increased revenue.

The MMA’s 2013 Macroeconomic Development report said that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability – currently 81 percent of GDP.

The report – released in May – noted “there is a considerable amount of uncertainty surrounding the 2014 budget”.

The World Bank’s Maldives Development Update October 2013 described the country as “spending beyond its means,” risking serious damage to the economy,

Expenditure

Despite the government’s persistent promises to focus on the economy, subsequent policies have focused more on infrastructure development than fiscal consolidation.

Initial moves to reduce the salaries of political appointees were soon followed by promises to raise pension payments by 54 percent and the removal of the cap on the Aasandha health insurance scheme.

More recently, the government is facing the prospect of a potentially crippling payout to infrastructure giant GMR after a Singapore court of arbitration ruled in favour of the Indian company in a dispute over the premature termination of its airport concession deal.

Economic development plans have focused largely of large infrastructure projects and special economic zones to attract foreign investment – though no major deals have as yet been signed.

An IMF delegation visiting the country in February, however, expressed surprise at the economy’s continuing resilience.

“For a long time we’ve been saying that reserves at the MMA are very low and that the fiscal deficit is quite difficult and we expect the economy to run into some problems,” said resident representative Dr Koshy Mathai.

“But somehow the economy has shown resilience, a lot of resilience, and we’ve been surprised – happily surprised but surprised nonetheless.”

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Court overrules government on lagoon development joint venture

The Civil Court has ruled in favour of Prime Capital Maldives Pvt Ltd in a contract dispute with the government over a joint venture agreement to develop a special tourism zone in Kaafu Atoll Fushidhiggaru lagoon.

In September, Prime Capital sued the government after the Ministry of Economic Development refused to register the joint venture company (JVC) citing lack of authorisation from the president as required by law.

In a verdict (Dhivehi) delivered on July 15, Civil Court Judge Ali Naseer ordered the government to register the JVC within a seven-day period, sign a master lease agreement within five days of registration, “and [to] make all arrangements undertaken by the government in accordance with the agreement”.

An agreement was signed between Prime Capital and the Maldivian government on January 18, 2013 – under the administration of former President Dr Mohamed Waheed – to lease the Fushidhiggaru lagoon for a 50-year period to a JVC with a 25 percent stake for the government.

According to local media, the government was to receive 30 percent of the profits from the tourism venture in the lagoon south of the capital Malé.

Prime Capital is reported to be a Singaporean company.

Denials

Following media reports last year suggesting that the JVC agreement was signed secretively, both Finance Minister Abdulla Jihad and Tourism Minister Ahmed Adeeb initially denied the existence of an agreement to lease the lagoon.

Less than two weeks before the first round of last year’s presidential election on September 7, Jumhooree Coalition campaigner Umar Naseer – now Home Minister – leaked documents to the media purported to be an agreement to sell the lagoon.

Naseer was campaigning for candidate Gasim Ibrahim, while Adeeb was deputy leader of the Progressive Party of Maldives whose candidate – now President Abdulla Yameen – was facing severe criticism from the Jumhooree campaign.

Yameen eventually won the race with Gasim’s endorsement in a run-off with former President Mohamed Nasheed.

The documents leaked by Naseer showed that Finance Minister Jihad had signed the agreement on behalf of the government while Adeeb – also Tourism Minister under President Waheed – had signed as a witness on behalf of Prime Capital.

Naseer alleged at the time that the economic development ministry stopped the project as the cabinet had not officially approved it.

Moreover, the agreement was signed without seeking legal advice from the attorney general, he claimed.

Adeeb denied the existence of an “official” lease agreement and dismissed the allegations as a “political assassination” attempt in the days preceding the presidential election.

He did say, however, that the Waheed administration was in talks with a foreign company as the previous administration had decided to lease the lagoon.

The Anti-Corruption Commission was meanwhile asked to investigate the deal.

Adeeb also suggested that Naseer was upset after the government refused to lease a lagoon called “Gaafalhu” for his whale submarine business.

In its lawsuit, Prime Capital had reportedly submitted a letter signed by Tourism Ministry Deputy Director Hassan Zameel sent to the economic development ministry requesting approval of the JVC registration.

The Civil Court ruled that registering a joint venture with a government stake was the legal responsibility of the government and ordered the relevant ministries to fulfil all contractual obligations.

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Government pays GMR US$ 4 million in arbitration fees

The Maldives Airports Company Ltd (MACL) has paid US$4 million to Indian infrastructure giant GMR as compensation for legal costs of arbitration proceedings in Singapore.

Following an 18-month arbitration process, a Singapore tribunal ruled last month that a concession agreement with the GMR-led consortium to manage and develop the Ibrahim Nasir International Airport (INIA) was “valid and binding” and held the government and MACL “jointly and severally liable in damages” for losses caused by the premature termination of the contract in December 2012.

The Singapore Court of Appeal ordered the Maldivian government and the 100 percent government-owned airports company to pay GMR US$4 million within 42 days for the cost of arbitration proceedings.

Finance Minister Abdulla Jihad told Sun Online last week that the US$4 million was paid out of the MACL’s revenues and not the state budget.

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Government owed over MVR250 million in unpaid dividends, audit reveals

The government is owed MVR256.9 million (US$16.6 million) in unpaid dividends from state-owned enterprises, the audit report of the Ministry of Finance and Treasury for 2012 has revealed.

In the report (Dhivehi) made public yesterday, Auditor General Niyaz Ibrahim recommended collecting the dividends within a period of one month.

The unpaid dividends include MVR5.1 million (US$330,739) owed by Island Aviation Services, MVR78.9 million (US$5.1 million) owed by the Malé Water and Sewerage Company, MVR167.8 million (US$10.8 million) owed by the State Trading Organisation (STO), and MVR5 million (US$324,24) owed by the Maldives Transport and Contracting Company (MTCC).

The auditor general also recommended regularly monitoring the finances of government-owned companies, seeking audited financial statements within six months of the end of the financial year, and collecting dividends without delay.

While the ministry was required to submit a consolidated financial statement for 2012 inclusive of the departments operating under its remit, the report noted that the ministry prepared separate statements for itself and the departments.

Moreover, the annual financial statements did not include details of loans and foreign aid, the report stated.

As the auditor general was therefore unable to offer his professional opinion on the financial statements for 2012, he recommended taking action against the responsible financial officer under articles 47 and 48 of the Public Finance Act for the lapse.

Highlighted cases

Among other issues flagged in the report, auditors found that the Finance Ministry spent MVR858.5 million (US$55.6 million) out of the budget code assigned for providing capital to government-owned corporations.

The funds were released in violation of the constitution, the Public Finance Act, and regulations under the law, the report stated.

Article 96(c) of the constitution states, “No supplementary expenditures shall be added to an approved budget without further approval by the People’s Majlis. Expenditures included in the budget shall be applied solely for the specified purpose.”

The funds earmarked for capital expenditures of government-owned corporations in the 2012 state budget was MVR30.4 million (US$1.9 million), the report noted.

Of the funds released as capital for government-owned companies, auditors discovered that MVR840.6 million (US$54.5 million) was used to pay salaries for board members and staff and to cover other recurrent expenditures.

The ministry’s actions defeated the purpose of allocating funds for specified expenditures in the budget, the report stated.

As state-owned enterprises were not required to comply with public finance regulations, the report warned that releasing the funds could be “wasteful” or “facilitate corruption” in the absence of a mechanism for holding senior officials of the companies accountable for expenses.

Moreover, falsely including such a large amount of money as capital expenditures in the annual financial statement was “a serious deception,” which casts doubt on validity of the statement, the report noted.

The auditor general recommended taking legal action against the officials responsible for authorising the release of funds to the state-owned enterprises, which included health corporations, utility companies, regional airport companies, the Bank of Maldives, the State Electricity Company, STO, MTCC, Aasandha, and Fuel Supply Maldives.

The auditor general also cautioned against corporatisation of government services without assessing feasibility and determining financial and administrative challenges.

Abuse of authority

In another case highlighted in the report, auditors were unable to verify whether MVR254,898 (US$16,530) worth of expenses for overseas trips by senior officials were made for state purposes.

The Finance Ministry refused to share documents related to the trips “despite repeated requests,” the report stated.

The auditor general recommended that the expenses should be further investigated by the Anti-Corruption Commission.

Auditors also discovered that the Finance Ministry purchased a number of items without a bidding process in violation of public finance regulations, which requires a public tender for procurement of items worth MVR25,000 (US$1,621) or higher.

The items included a Macbook Air, two coffee machines, an air-conditioner, eight computer systems, and one iPad.

Meanwhile, in November 2012, a senior project officer at the Ministry of Home Affairs was hired as a consultant for the Finance Ministry to formulate projects for a period of two months.

While an announcement seeking a consultant was made on November 18 and an employment contract was signed on November 21, auditors found that the consultant began working at the ministry on November 12.

Auditors could not find any documents showing that the consultant worked on the projects during the contract period.

Moreover, in December 2012, Finance Minister Abdulla Jihad asked the ministry’s human resource committee to create a post for a project designer at the minister’s bureau.

The Civil Service Commission (CSC) was requested to create the post on December 24 despite misgivings of members on the human resource committee, the report stated.

When the job announcement for the ‘director project designing’ was made on December 27, the report noted that only one person applied for the post.

The interested candidate was the same individual previously hired as a consultant, the report revealed.

The unnamed individual was appointed to the post on January 28.

The auditor general recommended that the case should be investigated by the ACC as the hiring of the consultant constituted abuse of authority to benefit a third party.

Finance Minister Jihad – who was appointed to the post in February 2012 following the controversial transfer of presidential power – has meanwhile denied the allegations in local media.

Jihad told newspaper Haveeru that the project director post in question was a civil service job, over which he did not have hiring or firing powers.

“It is done in accordance with the rules by the relevant officials at the ministry. I don’t get involved in such matters. The auditor general releasing such a report is very irresponsible,” he was quoted as saying.

Jihad has also previously criticised the auditor general over a report released in December which concluded that an MVR300 million loan was secured in 2012 from the Bank of Maldives in violation of public finance laws.

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Parliament approves government’s revenue raising measures

Parliament today passed three bills submitted by the government to raise additional revenue anticipated in the 2014 state budget.

The revenue raising measures approved today include hiking the Tourism Goods and Services Tax (T-GST) from eight to 12 percent in November, reintroducing the discontinued US$8 bed tax starting this month, and requiring resort lease extension payments to be made within two years.

While the two amendments to the Tourism Act were voted through 38-18, the amendment to the Goods and Services Tax Act was approved 39-18. The changes will take effect once signed into law by the president.

The passage of the amendment bills was greeted with applause from government-aligned MPs.

MPs of the opposition Maldivian Democratic Party (MDP) voted against all three pieces of government-sponsored legislation, contending that the tax hikes would adversely affect the tourism industry.

“Numbers will not match”

The government had initially proposed collecting resort lease extension fees within three months, collecting bed tax throughout this year, and raising T-GST in July.

However, the parliamentary subcommittee that reviewed the legislation consulted the Maldives Association of Tourism Industry (MATI) last week and recommended revising the government’s proposals.

Representatives from MATI opposed continuation of the bed tax alongside the T-GST increase.

Appearing before the subcommittee, MATI Secretary General Ahmed Nazeer also questioned the practicality of collecting resort lease extension fees upfront.

Only 17 out of more than 100 resorts offered the opportunity by the administration of former President Mohamed Nasheed to extend leases with a lump sum payment were able to do so, Nazeer said.

Resort owners had amended their lease agreements to pay extension fees in installments during Dr Mohamed Waheed Hassan’s administration, Nazeer noted, and revising agreements for a third time could present legal challenges.

Government-aligned Jumhooree Party Leader Gasim Ibrahim – who chaired the subcommittee – meanwhile told local media following the revisions that the bed tax and T-GST hike would overlap in November, after which the former would be discontinued.

The decision was made to compensate for the loss of income from the bed tax in January, the business magnate and resort owner explained.

Finance Minister Abdulla Jihad told local media last month that the Majlis’s failure to extend the bed tax would result in a revenue shortfall of MVR100 million (US$6 million) a month.

Moreover, in the wake of the subcommittee’s revisions, Jihad warned that the projected MVR 3.4 billion (US$224 million) in additional revenue – which accounts for 18 percent of the record MVR17.95 billion budget passed for this year – could not be realised in full due to the changes.

Following remarks by Progressive Party of Maldives MP Moosa Zameer at the subcommittee last week – suggesting that pro-government MPs supported abolishing the bed tax in favour of increasing T-GST – Jihad told Minivan News that the government’s stance had not changed.

“It has not changed. And if the government does not go on with the bed tax, the numbers will not match in the budget,” he said.

Meanwhile, parliament yesterday accepted for review amendments submitted by the government to revise import duties.

In addition to raising tourism taxes and custom duties, other revenue raising measures proposed by the government include 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.

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Government reneges on cash handouts for pensions, offers insurance scheme instead

The government will provide the previously pledged old-age pension of MVR5000 per month (US$325) through an insurance scheme rather than in cash handouts, Finance Minister Abdulla Jihad has told the People’s Majlis Budget Committee.

However, individuals over 65 will continue to receive the current monthly pension of MVR2300 ($149) next year, a Finance Ministry official told Minivan News.

In addition to raising the pension from MVR2300 to MVR5000, President Abdulla Yameen had made last minute promises including “unlimited” health care under the state’s health insurance scheme Aasandha, designating a general practitioner to each family, creating 94,000 new jobs, providing MVR10,000 (US$650) for fishermen regardless of fish yield, and MVR8000 (US$518) for farmers.

Speaking at a Budget Committee meeting, Jihad said: “I do not think the current budget includes elderly benefits. The president has decided to do that through an insurance mechanism.”

In November, Fisheries Minister Dr Mohamed Shainee said the government will not be handing out cash to fishermen, but would introduce an insurance scheme whereby fishermen will be asked to pay a monthly premium of MVR500 (US$ 32) during the fishing season to gain MVR10,000 (US$ 650) during the off-season.

“There is a lot of support for the policy from fishermen. This will incentivise the fishermen. They catch more than MVR10,000 on good fishing days. But if the weather is bad or if the catch is low, there is a degree of despair. We are providing an incentive to overcome this despair to get ready for the next fishing season,” Shainee told local media.

The government will need to start a roster of fishermen, and divert funds from the MVR100 million (US$6.5 million) fuel subsidy to set up the insurance scheme, he added.

The insurance scheme offers come amidst a looming financial crisis. The World Bank has warned the country’s economy is at risk due excessive state expenditure. Further, the government is pursuing untenable financing measures that pose “macro-risks” including possible devaluation of the rufiyaa, the World Bank said.

At present, public debt stands at an “unsustainable” 81 percent of GDP, but is projected to reach 96 percent by 2015, the World Bank said.

Despite promising to curb state expenditure on assuming office, Yameen has only made modest cuts such as halving the presidential salary and reducing the salaries of state and deputy ministers.

Further, the government on Tuesday proposed a record MVR 17.5 billion (US$ 1.1 billion) budget with a projected deficit of 2.2 percent. Over 70 percent of the budget accounts for recurrent expenditure.

Of the MVR 17.5 billion, only MVR 500 million (US$ 32 million) will be spent on new development projects while MVR 400 million (US$ 26 million) will be spent on fulfilling Yameen’s presidential pledges, Jihad told the budget committee.

The government plans to plug the deficit by borrowing from commercial banks. The government has proposed obtaining a US$25 million from the State Bank of India to finance the projected deficit of MVR886,622,881 (US$ 57,201,476).

The parliament’s Finance Committee last week recommended the Majlis approve a US$29.4 million loan from the Bank of Ceylon for budget support for the current year.

The loan which carries a grace period of one year is to be paid back in monthly installments of US$ 490,000 at an interest rate of 8 percent.

Quoting the saying “beggars cannot be choosers,” Jihad said the Maldives has no choice but to borrow from commercial banks at high interest rates.

“We could go to Bank of New York, but they will not lend to us. The best bet now is Bank of Ceylon,” he said.

“The risk factor is high in the Maldives so some parties are increasing the interest rates. So if we have political stability in the Maldives, it is possible [the interest rate] may decrease. It will not happen all of a sudden but it will get better when that risk decreases in the future,” he added.

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Revised 2014 budget stands at record MVR 17.5 billion

After several weeks of delay, the Ministry of Finance and Treasury has submitted a record budget of  MVR 17.5 billion (US$ 1.1 billion) with a projected deficit of 2.2 percent of GDP.

On October 30, former President Dr Mohamed Waheed Hassan’s administration proposed a budget of MVR 16.4 billion (US$ 1 billion), but with the election of President Abdulla Yameen, the Majlis asked the Finance Ministry to revise the budget to include the ruling Progressive Party of the Maldives’ (PPM) campaign pledges.

In his inauguration speech, Yameen warned the country’s economy was in “a deep pit” and pledged to reduce state expenditure. Local media reports quote Yameen saying he would cut expenditure by amounts varying between MVR 1 billion and 4 billion. Yameen reappointed Finance Minister Abdulla Jihad soon after assuming the presidency.

The rise in total expenditure from MVR 16,410,803,668 (US$ 1 billion) to MVR 17,532,761,744 (US$ 1.1 billion) is mainly due to a MVR 1,120,837,239 (US$ 72,687,239) increase in recurrent expenditure, which continues to account for over 73 percent of the state budget.

The revised revenue is forecast to be MVR 15,101,854,850 (US$ 979,368,019), a MVR 1,223,577,000 (US$ 78,940,452) increase from the initial forecast of MVR 13,878,277,850 (US$ 895,372,765).

The increased figure is to come from advance payments from resort lease extensions.

Former President Mohamed Nasheed had proposed the same measure for the 2012 budget, but when Nasheed’s government fell in February 2012, the Ministry of Tourism allowed resort operators to pay resort leases in installments. Nasheed’s Maldivian Democratic Party (MDP) said the decision had cost the government US$135 million.

The additional revenue raising measures include:

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

Speaking at today’s Majlis Budget Committee, MDP Parliamentary Group Leader Ibrahim ‘Ibu’ Mohamed Solih said the MDP will support the government’s proposal to obtain lease extension fees upfront.

MDP MP Ilyas Labeeb noted the new revenue raising measures depended heavily on the tourism sector and proposed the committee meet with the Maldives Association of Tourism Industries (MATI) to get feedback on the impact proposals may have on the tourism sector.

The proposed revenue raising measures will provide the state with a total of  MVR 3,474,270,604 (US$ 224,146,491). However, the People’s Majlis will need to amend laws including revisions to tax laws and import tariffs to realise the expected revenue.

The projected budget deficit stands at 2.2 percent of the GDP or MVR886,622,881 (US$ 57,201,476). The new deficit shows a decrease of MVR 101,618,924 (6,556,059) from the initial deficit of MVR 988,241,805 (US$ 63,757,536).

The deficit is to be mainly financed through foreign loans. The government expects to obtain MVR 832,680,000 (US$ 53,721,290) from foreign parties for budget support.

Whilst the initial budget proposed financing MVR 690,601,517 (US$44,554,936) by selling T-bills, the revised budget has drastically reduced the figure to MVR 141,802,593 (US$ 9,148,554).

The Budget Committee is to meet with the state’s independent institutions on December 11, 12 and 14, and the MMA governor and Auditor General on December 11.

The committee will hold discussions on the budget of government offices on December 15, the Public Sector Investment Programme on December 16, and the revenue raising measures on December 18.

The committee’s report will be compiled on December 19 and 20 and the final report will be sent to People’s Majlis Speaker Abdulla Shahid on December 21.

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Finance Ministry’s MVR 300 million budget-support loan “illegal”

A report by the by the Auditor General has revealed that President Dr Mohamed Waheed’s administration violated finance laws in securing a domestic loan worth MVR300 million (US$ 19.45 million) from the Bank of Maldives (BML) as part of its budget-support program.

The report (dhivehi) – based on the audit published at the Auditor General’s (AG) website last Sunday – claimed then Finance Minister Abdulla Jihad had not obtained the required approval from the president and the parliament.

Jihad has hit back, claiming that the loan was taken to avoid financial disaster. He also suggested that the mandated processes for approving government loans had only been introduced to thwart the MDP government in 2010.

The audit was conducted following a request from the parliament’s Public Finance Committee, after opposition Maldivian Democratic Party (MDP) MP Ahmed Sameer filed the matter at the committee in July 2012.

Section 5 of the Public Finance Act 2006 (as amended in 2010) states that any loan or credit facility which either the government or a government-owned corporation wishes to obtain, can be taken only after presidential and parliamentary approval.

The audit report stated that despite the legal requirement, Jihad – recently reappointed to the same position by the recently elected President Abdulla Yameen – had signed the letter of sanction on May 28, 2012, one day before the request for approval of the loan was sent to President Waheed.

According to the report, Jihad signed the final loan agreement with BML a day later on May 29, 2012.

A measure taken to prevent a financial disaster

In his defense, the Finance Minister has told local media that the loan was taken out of necessity, to prevent the state from financial disaster.

Jihad claimed that during May 2012, the government faced enormous difficulties following a decline in cash flow. By the end of the month in question, the government had almost exhausted its finances, said Jihad.

Furthermore, the minister claimed that he had consulted with President Waheed and decided to take the loan, but that the parliament had gone to recess.

“At that critical time, we had no other option. That was a measure that had to be taken in order to keep the state running. Hadn’t we done that, the state employees would not have been paid the month’s wages. We ought to consider the situation at the time. At that time we weren’t even able to obtain a loan from the Maldives Monetary Authority (MMA),” Jihad told Haveeru.

Blasting the current requirement of parliamentary approval before taking loans, Jihad claimed that no other modern democratic states followed such a practice. Because of the requirement, the government had lost several loans and had become a disgrace in front of most of the international financial organisations, Jihad added.

He also admitted that the amendment brought to the Public Finance Act in 2010 during the administration of former President Mohamed Nasheed was intended to disrupt the government’s functioning.

President Nasheed at the time had no choice but to ratify the amendment as his party was outnumbered when the vote was taken in parliament. The then-opposition now comprises most of the current governing coalition.

Jihad also criticized the AG’s report itself: “I am the Minister. But when the report was compiled, [Auditor General] had asked nothing from me. Of what had happened? So how can this report be accurate?”

Shortcomings

The report also revealed that although the government had formally sought parliamentary approval of the loan on June 13, 2012, by this date the Finance Ministry had already withdrawn the first tranche – MVR200 million (US$ 12.97 million) out of the MVR300 million.

The government withdrew the remainder on June 20, 2012, the report stated.

Furthermore, the report claimed that in the letter sent to the president by Jihad, approval was sought for the loan with a request that it be made part of the US$65 million (MVR 1 billion) overseas loan that gained parliamentary approval as part of the 2012 national budget.

The report claimed that the conditions for the domestic loan from BML, and that of the proposed US$65 million overseas loan differed significantly.

Among the significant differences highlighted in the report, parliament had approved the US$65 million overseas loan with an interest rate of 2 percent while the BML loan had an interest rate of 9 percent subject to annual reviews.

Furthermore, repayment of the US$65 million loan was to commence within 10 years, while the BML loan required the repayment within just two years.

“Therefore, the loan of MVR300 million taken from the Bank of Maldives in the year 2012 had been taken without the approval of the parliament and the president, disregarding the decisions made by the legislature and the Public Finance Act,” concluded the report.

The Auditor General furthermore requested the authorities to take action against those found responsible for the misconduct.

The current government meanwhile has sought for the approval of a US$29 million (MVR 447 million) budget-support loan that is to be taken from the Bank of Ceylon, for the 2014 state budget.

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Government to cut costs, include new pledges in revised budget

The People’s Majlis Budget Committee has asked Finance Minister Abdulla Jihad to submit a revised budget on Monday November 25, following new President Abdulla Yameen Abdul Gayoom’s request to cut costs in the state budget for 2014.

Jihad – who also held the post of Finance Minister under former President Dr Mohamed Waheed Hassan – had presented a MVR 16.4 billion budget for 2014 with a projected deficit of 2.5 percent of GDP to parliament on October 30.

Speaking at the Majlis Budget committee today, Jihad asked for five days to revise budget to reduce state expenditure and include the Progressive Party of the Maldives’ (PPM) pledges made during the presidential election.

Yameen has expressed concern over the economic vulnerability of the Maldives and pledged to reduce state expenditure by MVR 1 billion.

“State debt is sky high. The state budget’s expenses are extremely high. Hence, we have to prioritise reducing state expenditure. I will start work very soon to reduce budget expenses,” Yameen said during his inauguration speech.

Jihad said today that state debt would reach MVR 30 billion (US$1.9 billion), approximately 78 percent of GDP.

During this week’s budget debate, opposition Maldivian Democratic Party (MDP) MPs maintained their call for the PPM’s pledges to be included in the new budget. These include providing “unlimited” health care under the state’s health insurance scheme Aasandha, designating a General Practitioner to each family, MVR 10,000 (US$650) for fishermen regardless of fish yield, MVR 8000 (US$518) for farmers and increasing old age pension from MVR 2300 (US$150) to MVR 5000 (US$325).

MDP Parliamentary Group Leader Ibrahim ‘Ibu’ Mohamed Solih said he was concerned that government MPs were advocating against the inclusion of funds for pledges in the new budget.

The Majlis will insert the funds necessary for the pledges if the government fails to do so, MP Rozaina Adam warned.

At today’s Budget Committee meeting, Jihad said the government is currently reviewing methods to decrease recurrent expenditure of MVR12 billion (US$778 million) which accounts for 73 percent of the budget.

He appealed to the Majlis to pass revenue raising measures which include hiking T-GST from 8 percent to 12 percent, revising import duties, delaying the abolishing of tourism bed tax for one more year, raising airport departure charge from foreign passengers from US$18 to US$30, leasing 12 islands for resort development and introducing GST for telecommunication services.

President Yameen also wants to revise the local council framework to reduce the numbers of island and atoll councilors, Jihad said.

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.”

The PPM had also advocated against increasing any airport taxes with PPM aligned Dhivehi Qaumee Party (DQP) annulling an Airport Development Charge (ADC) through the courts when Indian Infrastructure giant GMR was in charge of managing the airport. The GMR was booted out of the country in 2012.

Speaking at a rally to celebrate PPM’s presidential win last night, Yameen vowed to take only half the presidential salary of MVR 100,000 (US$6500) and decrease political posts at the President’s Office.

“The reason behind this is that Dr Jameel and I both live a simple life. No matter what has been said about us we are not wealthy. We want to be an example to others and lead by example,” Yameen said.

Highlighting the state’s dire financial state, Yameen asked his supporters for time and patience. He has previously said it would take two years to straighten the financial affairs of the country.

However, in the same speech, Yameen said he had ordered Jihad to include MVR 300 million for youth development in the 2014 state budget and pledged that the government will include the same amount in the state budget every year.

Meanwhile, the Majlis Finance Committee last night decided they will await instructions from the new government before approving loans sought by Dr Waheed’s administration. These loans include funds for budget support, building harbors in 22 islands, and funds for a Malé City electricity project.

“I do not think we should pass these loans when President Abdulla Yameen has said he wants to cut costs and reduce state debt,” Dhivehi Rayyithunge Party (DRP) MP Visam Ali said.

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