President seeking US$300 million credit facility from Saudi Arabia for “budget support”

The government has confirmed it is in discussion with Saudi Arabia, seeking a long-term, low interest credit facility of US$300 million to help overcome “fiscal problems”.

President’s Office Spokesperson Masood Imad confirmed President Waheed had held discussions with senior Saudi Arabian dignitaries including Crown Prince Salman bin Abdulaziz Al Saud over the proposed credit facility, during his recent visit to the country.

“The president has initiated the talks so it is just a matter of working out the details now,” Masood said, explaining that the funds would be used for “budget support” and development projects.

The opposition Maldivian Democratic Party (MDP) has meanwhile said the government would still be required to secure parliamentary approval for the funding.

MDP MP and Spokesperson Hamid Abdul Ghafoor said that the heavily partisan parliament now effectively controlled state finances as a result of former opposition politicians – now part of President Waheed’s government – imposing tighter spending restrictions on former President Mohamed Nasheed’s administration.

Ghafoor argued that with the MDP failing to recognise the legitimacy of the present government due to the controversial transfer of power last February, he did not believe there would be support for approving the credit agreement with Saudi Arabia due to the government’s existing extravagant borrowing levels.

The party accused the current government of reckless financial management, pointing to a potential US$1.4 billion compensation bill facing the state for deciding last year to abruptly terminate a US$511 million airport development contract agreed with infrastructure group GMR.

The compensation claim amounts to four times that of the Maldives’ current state reserves should it be awarded by a Singapore court overhearing arbitration hearings between GMR and the government.

“Since we do net see this government as legitimate, we do not see why we should support them,” he said. “They have put us into debt with their handling of the airport development and another bill for a border control system.”

Earlier this month, Malaysian security firm Nexbis invoiced the Department of Immigration and Emigration for US$2.8 million (MVR 43 million) for the installation and operation of its border control system technology in the country, in line with a concession agreement signed in 2010.

Immigration Controller Dr Mohamed Ali confirmed at the time that Nexbis had submitted a bill seeking charges for the period its system has been in use, as work continues on replacing the Malaysian company’s border controls with new technology provided by the US government.

Development delays

In April this year, Finance Minister Abdulla Jihad sought authorisation from parliament to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

Jihad warned that government offices and independent institutions might be unable to pay salaries or electricity and phone bills if funds were not transferred from the MVR 1.8 billion (US$117 million) Public Sector Investment Programme (PSIP).

Earlier the same month, Jihad also announced that the government had decided to delay all new development projects that were to be financed out of the state budget due to shortfalls in revenue.

The decision to suspend new projects was revealed after Housing Minister Dr Mohamed Muiz told local media at the time that he had been instructed not to commence any further infrastructure projects included in the 2013 budget, such as harbour construction or land reclamation.

Both Finance Minister Jihad and Economic Development Minister Ahmed Mohamed were not responding to calls from Minivan News at time of press.

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Government uncertain over waste management future as Tatva negotiations continue

The government remains locked in negotiations to find a “permanent” waste management solution in the Maldives following concerns about a recent build up of garbage in Male’, State Environment Minister Abdul Matheen Mohamed has said.

Matheen told Minivan News that although immediate concerns about garbage levels in the capital had been dealt with by Male’ City Council (MCC), which was in the process of “clearing” waste disposal sites on a daily basis – uncertainty remained on a long-term solution to dealing with trash.

At present, waste from across the country is shipped over to the island of Thilafushi near Male’ – an island that serves as the country’s key site for processing and burning garbage.

Certain councillors and MPs from Male’ last week claimed that a failure to deal with a build up of waste in the capital in recent months had escalated into a “national disaster” that could have potential health and safety implications for the public if not addressed.

However, Matheen added that the Finance Ministry’s decision last month to provide an estimated MVR 7 million (US$454,000) in funding to the MCC to try and clear trash from waste sites in the capital had already shown positive results.

“The MCC is clearing waste daily, the crisis is over,” he said. “Right now I believe that trying to manage waste in Male’ is not the best solution. If this waste can be shifted to Thilafushi that may be for the best.”

State negotiations

Matheen said that the government was committed to seeking financing for alternative waste management schemes, while also renegotiating a deal signed by the former government with Tatva Global Renewable Energy.

The government of former President Mohamed Nasheed signed a contract with Tatva in 2011 to allow the India-based company to take over handling of waste in the capital – as well as from nearby inhabited islands and resorts properties.

The agreement also outlined a means of generating power from recycling waste products brought to Thilafushi in an attempt to cut down on trash being burned.

By December last year, President Dr Mohamed Waheed’s administration announced it was in the process of renegotiating Tatva’s agreement in a bid to replace the deal with what Environment Minister Dr Mariyam Shakeela at the time called a “mutually beneficial” agreement.

Just last week, Finance Minister Abdulla Jihad said that although the new agreement with Tatva was yet to be signed, a deal was expected to be finalised in the coming days.

However, Matheen today claimed that no agreement had been reached as yet over the negotiations, which he claimed appeared to be nearing some form of conclusion.

“The process has taken so much time. We will have to take a decision soon [on whether to sign the Tatva deal],” he said.

According to Matheen, the discussions with Tatva Global Renewable Energy had been complicated by having to find an agreement between a number of different parties; including the government, the MCC, service providers like the State Electric Company Limited (STELCO) and management at Thilafushi.

He alleged that another concern about the deal was the need for Tatva itself to find sufficient investment to back its own part of the proposed waste management scheme.

A spokesperson for Tatva was not responding to calls from Minivan News at time of press.

Matheen said that the government was waiting to see if an agreement could be reached with Tatva over the deal, adding that authorities would otherwise seek to open discussions with other service providers to try and find an alternate means of waste management.

Male’ clean up

While the negotiations continue, Male’ Councillor Mohamed Abdul Kareem confirmed to Minivan News that despite difficulties earlier this month, the council had now almost dealt fully with waste build-up in the capital after receiving funding from the Finance Ministry.

“The only problem we have had with waste management has been the budgeting issues, other than that, we have the technical expertise to clean the waste,” he said.

Kareem claimed that upon receiving funds from the government, the MCC had been able to hire special dhonis (boats) to clear garbage from disposal sites in Male’ that had been allowed to build up over a period of several months. The build up of waste had led to disputes between the council and various state bodies over responsibility for clearing the waste.

Waste being cleared from Male' Saturday (June 1)

With a proportion of funding now having been received by the MCC from the Finance Minsitry, Kareem said the council had been able to clear waste yard number two in Male’ of rubbish.  The site was now being “treated” to try and reduce odours that had built up at the site as a result of recent wet weather, before it would again start receiving waste.

He added that the site was presently being cleared and would not be temporarily open for use until the council completed its treatment and renovation.

Kareem claimed that as long as the government continued to provide funding for the MCC to handle waste management in and around the capital, the MCC did not expect to have any similar problems cleaning waste in the future.

He alleged last month that following the initial signing of the Tatva waste management deal under the previous government in May 2011, the MCC had not been provided with a budget for waste management – even after the deal was stalled by the present administration.

Waste concerns

In April, divisions were reported to have arisen between different ministerial bodies and the private sector over who should take responsibility for garbage being dumped into the sea.

Earlier this year, Minivan News reported that government authorities were working on trying to create functional waste management projects that would serve as an alternative to shipping waste to Thilafushi, despite numerous failed attempts in the past.

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Government agrees to US$454,000 waste management funding; councillors warn situation a “disaster”

The Ministry of Finance has agreed to provide Male’ City Council (MCC) with an estimated MVR 7 million (US$454,000) in funding this month to try and alleviate a build up of waste in and around the capital that local councillors and MPs claim poses a “national disaster”.

Finance Minister Abdulla Jihad told Minivan News today that amid concerns about a build-up of waste in the capital, funding was being granted to the MCC to deal with the situation following an ongoing dispute over responsibility for managing garbage.  The Finance Minister said he was unaware of the exact amount of funding provided to the municipal council at time of press.

The funding was announced as the MCC continues to accuse some state officials within the current government of having failed to provide it with a budget to deal with waste management for over a year in an attempt to discredit the work of its councillors. The majority of the MCC’s councillors are represented by members of the opposition Maldivan Democratic Party (MDP).

State funding

According to Jihad, funding will be provided to the MCC ahead of the expected signing over the next three weeks of a renegotiated waste management contract with India-based Tatva Global Renewable Energy. Once the deal is agreed, Tatva will take over handling of waste in the capital, as well as from nearby inhabited islands and resorts properties.

The previous government of former president Mohamed Nasheed had signed an agreement with Tatva in May 2011 as part of efforts to generate power from recycling waste gathered from Male’, as well as surrounding inhabited and resort islands.

By December last year, President Dr Mohamed Waheed’s administration had announced it was in the process of renegotiating Tatva’s agreement in a bid to replace the deal with what Environment Minister Dr Mariyam Shakeela at the time called a “mutually beneficial” agreement.

Minister Jihad has said that although the new agreement with Tatva has yet to be signed, a deal was expected to be finalised this week, while funding would also be given to the MCC to try and alleviate the waste issue in the meantime.

State Environment Minister Abdul Matheen Mohamed said that while his department was not directly involved with dealing with the waste management issue, it had tried to “help” find a solution by meeting with the MCC and the Finance Ministry.

Matheen added that the ministry had informed the MCC that if it was unable to handle the capital’s waste management, the Maldives Transport and Contracting Company (MTCC) could take responsibility for the matter until the new Tatva contract was expected to come into place on June 15 this year.

However, following discussions with the MCC, he claimed that a lack of finance has been identified as the key issue preventing processing of the waste.

According to Matheen, the Finance Ministry last week agreed to provide MVR 6.8 million (US$441,000) in funding to the MCC, with the council in return giving “confirmation” that a clean-up operation would be undertaken.

“The MCC have said they will be able to clean up the waste if we can provide finance. However, we are still seeing things are not going well,” he claimed.

Matheen also rejected allegations by the MCC that the government had sought to purposefully undermine the council and its work by not providing funding to oversee waste in the capital.

“The ministry respects local councils and we will help them when needed. So far we haven’t received any additional requests for help [from the MCC],” he said.

Clean up challenges

Male’ councillor Mohamed Abdul Kareem today confirmed that the Finance Ministry had agreed to provide funding to cover the MCC’s outstanding debts for equipment hire and other costs related to handling waste.

However, he alleged that following the initial signing of the Tatva waste management deal under the previous government in May 2011, the MCC had not been provided with a budget for waste management – even after the deal was stalled by the present administration.

“As the MCC does not have its own bank account, we are required to deposit our revenue to the government’s own finances,” Kareem said. “While we are collecting revenue from resorts for dealing with waste, we are not directly receiving the funds.”

Kareem claimed that the issue of waste around the capital had become increasingly severe in the last three to four weeks as a result of both ongoing financial limitations and recent adverse weather that prevented barges being able to transport waste.

Kareem added that with the council’s waste areas filling up rapidly in the capital and a limited access to heavy equipment to process garbage, the situation had escalated into a “disaster”.

He said that following meetings with the finance ministry this month, funding had now been obtained, with the majority of the money expected to cover outstanding debts resulting from having to hire specialised equipment to process and transport the waste.

Kareem told Minivan New that efforts were now underway to secure the services of special dhotis to try and shift waste over to the nearby island of Thilafushi, which serves as the country’s key site for processing and burning garbage.

“We are discussing at present hiring a number of 100 foot-long dhonis to try and transfer the waste as it has been there so long, which makes things more difficult. Just last night we transferred 29 truck loads [of garbage] to Thilafushi.”

Councillor Kareem said he did accept that there were some parties within President Waheed’s coalition that had shown an interest in trying to resolve the waste management problem, but accused other representatives in the current administration of lacking sincerity in their commitments.

Kareem said the MCC presently understood that Tatva Global Renewable Energy was now expected to take over responsibility for waste management later next month at part of a deal with the government that would require the council to hand over all its facilities to the company “free of charge”.

“They will have to clean up the capital’s waste, though we will be expected to provide our facilities to them as part of the concession agreement,” he said. “It’s not an ideal situation, but we don’t have any other options at present.”

Protest

With funding now agreed, Ahmed Nihan, Progressive Party of Maldives (PPM) MP for Vili-Male’, said residents on the island remained concerned this week about the potential health implications of a build up of garbage on a barge near to the island.

Nihan joined an estimated 50 residents from the island on Friday to protest about a perceived lack of action from both the state and the MCC to try and resolve the issue.

Before leaving Male’ for campaigning purposes yesterday, he believed there had been little change in the situation, despite being informed of efforts by the MCC to try and secure the services of dhonis to try and ship the waste away from the island to Thilafushi.

“I have been asked to host a conference called between the finance Ministry and the MCC on my return to find a solution to the issue,” Nihan said. “It’s all a big mess.”

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Finance Minister rejects Family Court’s claim that government is holding child support money

Minister of Finance and Treasury Abdulla Jihad has rejected a statement from the Family Court alleging the ministry is delaying the release of child support money needed by single parents.

The money is paid to the court, which acts as an intermediary between separated parents. Jihad claimed the ministry has now begun to release the payments.

However, Family Court Registrar Ahmed Shafeeu told local media the court has been receiving complaints over delays in receiving the child support payments.

According to Shafeeu, once a parent submits child support money to the court the money is deposited in the state income account. The Finance Ministry is then supposed to return the money to the court, which issues it to the intended recipient.

Shafeeu states that this is under the order of the Finance Ministry, as defined in the Public Finance Act.

“However, I do not believe at all that there is any reason why this money has to be deposited in the state income account,” Shafeeu stated.

“Lots of people who deposit the money, and who are waiting to receive the money, continue to submit complaints about the delay repeatedly,” he said.

He further stated that no solution has been found to date, although discussions on the matter were held with the Finance Ministry three weeks ago.

Currently in cases of divorce among parents, if the mother applies for child support the father is required to provide a monthly contribution of MVR 1000 (US$65) per child.

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Finance Ministry asks to transfer MVR650 million from development budget to pay government salaries

Finance Minister Abdulla Jihad sought authorisation from parliament yesterday (April 29) to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

Appealing for approval from parliament’s Finance Committee, Jihad revealed that by the end of the first quarter of 2013, offices have exhausted the yearly budget provided for recurrent expenditure, which includes salaries, allowances and administrative costs.

Jihad warned that government offices and independent institutions might be unable to pay wages or utility and phone bills if funds were not transferred from the MVR 1.8 billion (US$117 million) Public Sector Investment Program (PSIP).

“If not we will see people gathered and queuing outside the finance ministry,” Jihad was quoted as saying by newspaper Haveeru.

Responding to Jihad’s request, Finance Committee Chair MP Ahmed Nazim reportedly said he did not believe such a significant alteration to the budget could be approved at the Majlis committee level.

Parliament broke for a one-month recess yesterday at the conclusion of the first legislative session of 2013.

The Finance Ministry meanwhile issued a circular (Dhivehi) yesterday instructing government offices to cancel all overseas trips for the rest of the year with the exception of study tours, training courses and all-expenses covered trips funded by foreign parties.

The decision was approved by the cabinet as an austerity measure to reduce government expenditure, the circular stated.

Earlier this month, the cabinet decided to delay implementation of new development projects financed out of the state budget due to shortfalls in revenue.

Jihad told Minivan News at the time that infrastructure projects that have not yet started would be postponed in an attempt to ease cashflow issues.

The move followed parliament’s rejection 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, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

Jihad told local media following the defeat of the bill to raise the departure tax on outgoing foreign passengers that the revenue raising measures were necessary to manage the state budget.

He confirmed to Minivan News at the time that the government was in the process of formulating a supplementary budget to be put before parliament.

Recurrent expenditure

Jihad meanwhile told MPs on the Finance Committee yesterday that the proposed transfer of funds out of the development budget was necessary before a supplementary budget could be submitted.

“If we do not do this we will not be able to manage the budget at all in the coming days,” he said.

Jihad contended that funds under the budget code for recurrent expenditure were running so low because parliament passed the proposed budget with large cuts to that item.

The Budget Review Committee headed by MP Gasim Ibrahim of the government-aligned Jumhooree Party (JP) approved omissions to reduce the budget from MVR 16.9 billion (US$1 billion) to MVR 15.3 billion (US$992 million).

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

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

Executive authority

Speaking at a function yesterday to inaugurate a Health Trust Fund, President Dr Mohamed Waheed suggested that the present financial constraints on the state was the result of Majlis allegedly abrogating executive powers.

President Waheed claimed that parliament had removed funds allocated for repair work in the budget.

“It has been cut [from the budget]. But equipment still has to be repaired even by transferring [funds] from another budget line. But the finance minister does not have the flexibility to do that as much as he used to have. It is done under the supervision of the Finance Committee,” he said.

The government was consequently facing difficulties in providing essential services to the public, Dr Waheed said.

The president and his cabinet were vested with the authority to run the government by both the constitution and voting public, he observed.

The present situation was however the result of “others trying to run the government” instead of the executive, he contended.

“I think that suffices for what I have to say,” Dr Waheed said.

Meanwhile, MP Abdulla Yameen, presidential candidate of the Progressive Party of Maldives (PPM) – the largest party in Dr Waheed’s ruling coalition – reportedly said at a ceremony last night that it would be difficult to accomodate the government’s request to reallocate MVR 650 million for recurrent expenditure.

Professional opinions

In December 2012, the Auditor General’s Office and the Maldives Monetary Authority (MMA) submitted professional opinions on the US$1 billion budget proposed by the Finance Ministry.

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 while the Auditor General’s Office expressed concern with formulating the PSIP without either a national development plan or population consolidation policy..

Auditor General Niyaz Ibrahim observed that of the estimated MVR 12 billion (US$778 million) of recurrent expenditure, MVR 7 billion (US$453.9 million) would be spent on employees, including MVR 743 million (US$48 million) as pension payments.

Consequently, 59 percent of recurrent expenditure and 42 percent of the total budget would be spent on state employees.

“We note that the yearly increase in employees hired for state posts and jobs has been at a worrying level and that sound measures are needed,” the report stated. “It is unlikely that the budget deficit issue could be resolved without making big changes to the number of state employees as well as salaries and allowances to control state expenditure.”

The Auditor General’s Office contended that “major changes” were needed to right-size the public sector and “control the salary of state employees and expenditure related to employees.”

The report observed that compared to 2012, the number of state employees was set to increase from 32,868 to 40,333 – resulting in MVR 1.3 billion (US$84.3 million) of additional expenditure in 2013.

This anticipated increase included 864 new staff to be hired by the Maldives Police Service (MPS) and Maldives National Defence Force (MNDF), the report noted.

In light of “existing inefficiencies” in the state, the Auditor General contended that hiring more staff for various independent institutions would be “a waste of public funds” as it would divert resources from service provision and development projects.

“Moreover, we note that increasing the number of employees would lead to an increase in office expenses and expenditure on employees’ retirement and pensions, decrease the number of people left to do productive work in the private sector (decrease the labour force), and slow the growth of the country’s economy,” the report stated.

Details of the state’s wage bill included in the report showed that MVR 187 million (US$12 million) was budgeted as salaries and allowances for 545 political appointees in 2012.

In addition, MVR 1.98 billion (US$128.4 million) was to be spent on 18,538 civil servants; MVR 999 million (US$64.7 million) on 6,244 police and army officers; MVR 362 million (US$23.4 million) on 1,455 elected representatives and attendant staff; MVR 485 million (US$31.4 million) on 3,372 employees of independent institutions; and MVR 345 million (US$22.3 million) on 2,714 contract staff.

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Finance Minister confident MPs will back wider revenue measures

Finance Minister Abdulla Jihad has expressed confidence that MPs will approve a raft of measures to raise state revenue, even after they narrowly rejected government proposals to increase an airport service charge yesterday (April 16).

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

The finance minister 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.

After yesterday’s rejection of the service charge increase, Jihad told Minivan News that he was of the belief parliamentarians would back other proposed measures that he has previously claimed will be vital in balancing the state budget.

These measures include hiking Tourism Goods and Services Tax (T-GST) to 15 percent, introducing GST for telecom services, and “selectively” reversing import duty reductions.

Despite expressing optimism that these reforms would be passed, Jihad stressed that he had personally received no feedback from MPs or political representatives regarding the exact level of support for such measures at time of press.

During the parliamentary debate on increasing the airport service charge this week, MPs of the opposition Maldivian Democratic Party (MDP) and government-aligned Progressive Party of Maldives (PPM) both 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 before the increase was rejected.

“Significant” impact

Jihad today expressed concern that the Majlis’ rejection of hiking the airport service charge would significantly impact state revenues.

Speaking to newspaper Haveeru, Jihad said that budget forecasts has been designed with the increased airport charge in mind, with yesterday’s vote meaning a “significant amount” of funds would be lost from state revenue.

“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 telling local newspaper Haveeru.

Jihad later told Minivan News that longer-term tax measures were already being considered as an alternative to cover any shortfall as a result of the airport charge not being increased.

He also did not rule out the possibility of resubmitting a proposal to increase the airport service charge at a later date – although no such decision had been made as yet.

The Parliamentary Group leaders of the country’s largest two parties could not be reached for comment today on the finance minister’s claims.

Maldivian Democratic Party (MDP) Parliament Group Leader Ibrahim Mohamed Solih (Ibu Solih) had his phone switched when contacted by Minivan News.  Solih’s PPM counterpart, presidential candidate Abdulla Yameen, was not responding to calls at time of press.

MDP MP and Spokesperson Hamid Abdul Ghafoor claimed the party would look to review all measures proposed in parliament to try and increase revenue on a “case-by-case” basis.

However, he claimed that the opposition party remained “skeptical” about any financial measures being proposed by the administration of President Waheed, accusing the government of pushing the country towards bankruptcy.

Fiscal responsibility

Despite rejecting an increased airport service charge, 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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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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State budget of MVR 16.9 billion for 2013 presented to parliament

Finance Minister Abdulla Jihad submitted an annual state budget of MVR 16.9 billion (US$1 billion) for 2013 (Dhivehi) to parliament today, proposing a raft of measures to raise revenue and reduce spending.

Of the proposed MVR 16.9 billion of government spending, more than 70 percent was recurrent expenditure, Jihad noted in his budget speech (Dhivehi).

“As in other years, the highest portion of recurrent expenditure is expenditure on [salaries and allowances for government] employees,” Jihad explained. “That is 48 percent of total recurrent expenditure.”

As total expenditure would outstrip projected revenues of MVR 12.9 billion (US$836 million), Jihad said the resulting deficit would be plugged with MVR 971 million (US$62 million) as budget support and MVR 1.3 billion (US$84 million) from Treasury bill (T-bill) sales.

Of the MVR 971 million in budget support, MVR 671 million (US$43 million) was expected as foreign loan assistance, Jihad explained, with the rest to be made up from “domestic finance.”

New measures proposed to raise revenue is expected to account for MVR 1.8 billion (US$116 million) in income, Jihad said.

Jihad further claimed that the budget deficit at the end of 2013 would be MVR 2.3 billion (US$149 million), half the deficit in the current year.

On revenue forecasts, Jihad revealed that income from taxation would account for MVR 9.1 billion (US$590 million) while MVR 3 billion (US$194 million) was expected from other sources, such as resort lease rents, dividends from government companies and profits from the Maldives Monetary Authority (MMA).

On social and economic programmes, Jihad said MVR 2.5 billion (US$162 million) was allocated to the education sector, MVR 1.7 billion (US$110 million) for strengthening the judiciary, MVR 1.5 billion (US$97 million) for improving health services, MVR 2 billion (US$129 million) for social security and welfare and MVR 5.5 billion (US$356 million) for infrastructure projects in the atolls.

A public sector investment programme (PSIP) was formulated with MVR 3.1 billion (US$201 million), Jihad said, with 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.

The PSIP projects include construction and repairs of harbours in 14 islands, establishing sewerage systems in 11 islands, water systems in three islands, 1,500 housing units in eight islands, 21 new mosques and upgrading the regional hospitals in Kulhudhufushi and Addu City to tertiary level.

Meanwhile, according to the latest figures from the Finance Ministry, government spending as of November 22 stands at MVR 10.9 billion (US$706 million), while revenues of MVR 8.5 billion (US$551 million) have been collected so far this year.

Jihad said in parliament today that total spending in 2012 is expected to be MVR 16.5 billion (US$1 billion) while revenues would be MVR9.4 billion (US$609 million).

The revenue forecast in the 2012 budget was however MVR 11 billion (US$713 million).

“At the end of 2012, the state’s budget deficit is estimated to be at MVR 4.3 billion (US$278 million). That is 12.6 percent of GDP,” Jihad revealed.

Revenue raising and cost-cutting measures

A recent mission from the International Monetary Fund (IMF) urged the government to implement a raft of measures to raise revenues, advising that strengthening government finances was “the most pressing macroeconomic priority for the Maldives.”

Finance Minister JihadEchoing the IMF concerns, Jihad told MPs that rising public debt was “a major challenge to the country’s economy,” revealing that the state’s debt would increase to MVR 31 billion (US$2 billion) by the end of 2013 – 82 percent of GDP.

If the deficit spending trend continues, Jihad warned that the Maldives would face severe difficulties in securing development loans and financial assistance.

Taking the IMF recommendations on board in formulating the budget, Jihad proposed a number of revenue raising and cost-cutting measures,

  • Review government subsidies to target assistance to the needy
  • Freeze hiring “as much as possible”
  • Reforming the universal health insurance programme ‘Aasandha’
  • Reducing the number of councillors and board members of government companies
  • Reducing expenditure for trips from government offices to the atolls
  • Reduce government expenditure on rent for government offices
  • Reduce overseas trips by government employees
  • Amending the Pension Act to abolish “double pension”
  • Reversing import duty reductions
  • Hiking T-GST (Tourism Good and Services Tax) to 15 percent from July 2013
  • Introducing GST for telecom services (currently exempt from the tax)
  • Introducing GST for oil
  • Increasing airport service charge for foreigners from $18 to $30
  • Amending the law on revenue stamps
  • Abolishing 22 loss-making government companies

Jihad appealed to MPs to approve the measures and warned of “bitter consequences for the whole nation” should deficit spending continue in the future.

The Finance Minister urged MPs to “put aside political differences and prioritise national interest” in recognising that the country could not “indefinitely” spend beyond its means.

“We have to accept that these measures will affect all of us to some extent,” he said. “However, if we do not begin taking these measures, we might have to face more severe difficulties as a result of steps we would be forced to take.”

Monetary policy

According to projections by the MMA, said Jihad, the current account deficit is expected be higher than 2012 by 15 percent.

The current account deficit is projected to widen to 28 percent of GDP in 2013, Jihad said.

Collaborative efforts from different sector would be needed to “solve the balance of payments problem facing the country,” Jihad added, as the imbalance in the foreign exchange market has been building for many years, resulting in a parallel or “black market” for dollars.

Policies have been proposed to increase exports and expand small businesses, Jihad said.

Following the submission of the budget today, a joint committee of the parliament’s Finance Committee and Economic Committee would convene to review the proposed budget before it is put for a vote.

The budget debate has meanwhile been scheduled for December 4, 5 and 6, Speaker Abdulla Shahid said today.

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