Tag: finance ministry

Finance Ministry proposes drastic austerity measures to Parliament

Parliament’s Finance Committee last week received a proposal from the Finance Ministry which, if accepted, would save MVR2.2billion (US$143million).

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.

If successfully carried out the Ministry’s proposals would halve this year’s budget deficit, currently projected to reach MVR9.1billion (US$590million).

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, the revised figures provided by the Finance Ministry have shown that revenue will only be MVR8.4billion (US$545million) for this year with actual expenditure rising to around MVR18 billion. The ensuing deficit would represent around 28 percent of the nominal GDP for 2012, which was predicted to be MVR31.7billion (US$2billion).

This ballooning deficit has alerted the IMF which has expressed concerns that without raising revenue and cutting expenditures the country risked exhausting its international reserves and sparking an economic crisis.

The Maldives Monetary Authority’s (MMA) most recent statistics show that the country’s gross international reserves had decreased by 2 percent in the 11 months up to May before dropping by a further 6 percent between May and June this year.

The MMA’s data shows this figure to represents around ten weeks worth of imports in the Maldives, a country which relies heavily on imports, spending around two thirds of its real GDP on foreign goods each year.

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,  doubling of the budget of the Maldives Marketing and Public Relations Corporation (MMPRC) to MVR69.3million (US$4.5 million), 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 a 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.

The raft of measures currently being considered by the Finance Committee represent the most comprehensive effort thus far to reign in the deficit.

Austerity Measures

The proposed measures for reducing state expenditure were published in local newspaper Haveeru. They include discontinuing electricity subsidies in Male’ City which, where around one third of the nation’s population live, saving MVR135million (US$8.7million).

Reducing the state’s offices budget by up to 15 percent is expected to save MVR1.5billion (US$97million) and was first suggested by Finance Minister Abdulla Jihad in May. Jihad mentioned at the time that a pay review board would be convened in order to “harmonise” the pay of government appointees.

The document received by Haveeru revealed details that this pay review body will seek to restructure pay schemes in order to save MVR100million (US$6.5 million). It also emerged that MVR300million (US$19.5million) could be saved by introducing a recruitment freeze in the civil service.

The austerity plan also includes a reform of the Aasandha national health care scheme, the cost of which promised surged ahead of its MVR720million (US$46.7million) budgeted allowance shortly after its introduction in January. After discussions with the government, the Aasandha company has decided to share the costs of private treatments with patients.

The Finance Ministry predicts that reform of the Aasandha scheme can save the government MVR200million (US$12.9million).

Revenue raising

Proposed revenue raising measures include raising the import duty on oil, upon which the country relies heavily for fuel, to three percent. MMA figures show that the price of crude oil has decreased 15 percent in the 12 months leading up to June whilst the domestic price had remained the same with the exception of diesel which increased in price by 2 percent.

Import duties are also to be raised on items whose value exceeds MVR6.4million (US$41million) as well as on liquor imports. The duty on both of these items had been raised as part of the amended Export Import Act in December of last year which saw duties on pork and alcohol products, used exclusively by the resorts, go up by 42 percent.

The tourist industry will be similarly hard-hit by the proposals to raise Tourism Goods and Services Tax (TGST) to 15 percent.  The IMF had previously urged the government to double the 6 percent tax levied on all goods and services sold in resorts with Tourism Minister Ahmed Adheeb announcing his intention in May to consult the tourism industry.

Minivan News discussed the potential increase with several resort managers at the time, and was told that an increase would have  “serious ramifications” for certain sections of the market. One manager said that the fixed term contracts many resorts have with operators meant that increases to T-GST would have to be absorbed from revenue, resulting in potential cutbacks to staff or services.

Visitors to the Maldives could also be affected by the proposed increase in the Airport Service Charge from US$18 (MVR277) to US$30 (MVR462).

Further rises to the tax levied on luxury items would be accompanied by the introduction of taxes to the sale of flats and on telecoms service in the Finance Ministry’s plan.

The visa fee paid by foreigners working in the Maldives is also slated to see be increased by MVR150 (US$10). Estimates of expatriate workers are be as high as 110,000 although the same estimates suppose that around half to be undocumented.

Despite the recent suspension of sittings of the full Majlis, the Finance Committee continues to hold meetings as normal.

Likes(0)Dislikes(0)

Former finance chief questions timing of MMA private sector T-bill reform

Former Finance Minister Ahmed Inaz has questioned the timing of the Maldives Monetary Authority’s (MMA’s) decision to offer Treasury Bills (T-bills) to the wider private sector claiming it would compound the country’s budget deficit rather than directly address state debt.

Inaz, who served as Finance Minister under the administration of former President Mohamed Nasheed, said that until the present government put a lid on its expenditure to levels agreed in the national budgets of the last two or three years – extending T-bills to the wider private sector in the current climate would only prolong economic uncertainty.

The comments were made as local media reported yesterday that the Maldives Monetary Authority (MMA) had opted to allow “private groups” to purchase T-bills.

Such bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills are said to have a maximum maturity of six months, in which time they must be repaid, according to Inaz.

The economy, particularly national debt, has become an increasingly important issue for the coalition government of President Dr Mohamed Waheed Hassan.

Parliament’s Financial Committee in May released projection that the Maldives’ budget deficit will reach 27 percent of the GDP by the end of 2012, a 175 percent increase on earlier forecasts.

In recent weeks, the government has downplayed delayed payments of civil servant salaries as being the result of a banking “administrative error”, while also admitting to facing “economic difficulties” in covering months of outstanding premium payments resulting from the Aasandha universal healthcare programme.

Yesterday, Abdulla Yameen, parliamentary leader of the government-aligned Progressive Party of Maldives (PPM) told local media that the country was in “dire need” of financial assistance from the international community to help set right the economy.

Yameen and fellow PPM MP and Spokesperson Ahmed Mahlouf were not responding to calls from Minivan News today to clarify the comments.

T-bill extension

Finance Minister Abdulla Jihad said the decision to extend the availability of T-bills to private enterprise was a condition outlined by the Asia Development Bank (ADB) to secure loan funding. He was unable to give the exact amount of the loan at the time of press.

According to Jihad, T-bills had been previously only open to private financial institutions, a market place that he said was presently “saturated” in terms of demand, limiting the amount of T-bills the institutions were willing, or had the capacity, to purchase.

“The issue was to open the market to private groups,” he said.

In regards to criticism from the previous administration about state spending, the Finance Minister pointed to a recent order for all government institutions to immediately reduce their budgets by 15 percent – a pledge Jihad stressed had been successfully realised.

However, former Finance Minister Inaz said by that extending the T-bill scheme without addressing wider concerns of groups like the International Monetary Fund (IMF) over government expenditure, authorities were only prolonging current economic instability rather than tackling the present spending shortfall.

“My reaction to the MMA’s proposals is that issuing T-bills to the private sector or these private groups is not going to help the situation. The budget deficit should be reduced at all costs. Then these T-bills could be introduced as a way to meet capital expenditure,” he said.

“Expenditure should of course not be reduced to a level that would kill off independent institutions and the democratic reform of recent years. But the best way forward is to maintain expenditure say to the levels set in the 2010 or 2011 budget, while increasing income.”

While accepting that current political tensions between the government and the now opposition Maldivian Democratic Party (MDP) made it difficult reach parliamentary agreement, Inaz said that the Majlis would need to agree on any changes to the state budget.

Inaz also called on policy makers to adopt a “broader mindset” by reviewing the present government’s decision, announced earlier this year, to restore import duties and reduce GST.

He believed that taxation measures such as the GST remained the easiest solution to boosting revenue.

Inaz contended that a focus on more direct taxation would allow the government to serve as a facilitator to encourage the private sector to generate economic activity.

T-Bill reliance under Nasheed

Despite concern over the timing of the MMA’s proposals, Inaz conceded that the previous administration had itself relied on debt financed through the sale of T-bills that amounted to about Rf 1.4billion in 2011. However, he claimed that the final budget passed under the Nasheed government in December 2011 was designed to reduce the nation’s budget deficit, while also cutting down on short-term debt obligations such as T-bills.

“The T-bills issued in 2011 amounted to Rf1.4 billion (US$90.8 million). We foresaw the need growing every year, but this is very difficult to maintain as the maximum maturity for T-bills is six months, during which time they must be paid back,” he said

However, Inaz added that before the controversial transfer of power in February that brought President Waheed into office, the Nasheed government had pledged to reduce its reliance on T-bills by focusing on generating revenue through economic reforms such as GST.

“This year though we were set to reduce our reliance on T-bills to about Rf 700 million (US$45.4 million) with a view to cutting back completely through repayments in the next two years or so.”

Local media reported in April last year that government debt accrued through the sale of T-bills to banks and financial enterprises was estimated to be equivalent to more than a third of this year’s Rf 12 billion (US$778.2 million) national budget, according to Maldives Monetary Authority (MMA) figures released at the time.

Likes(0)Dislikes(0)

“Administrative issue” behind delayed civil service wage payments: Finance Minister

Finance Minister Abdulla Jihad has said that delays in paying wages to some state employees was the result of an “administrative issue” with the Bank of Maldives (BML) that was expected to be resolved by today.

Jihad told Minivan News that there were no issue maintaining civil servant salaries, adding that BML had been unable to credit accounts for the last few days. A BML spokesperson today responded that the company was “not aware of any such issues” concerning payments being made to accounts it held.

Meanwhile, several island councils have said they had not had any issues with providing wages to their staff.

Economic situation

The Maldives government last week said it was working on overcoming “economic difficulties” to cover several months of outstanding premium payments resulting from the Aasandha universal healthcare programme. Authorities are presently facing a 27 percent budget deficit that has already drawn concern from the International Monetary Fund (IMF).

Besides a crippling budget deficit, the Maldives is also facing a foreign currency shortage, plummeting investor confidence, spiraling expenditure, and a drop off in foreign aid.

Late last month the Finance Ministry also ordered all government institutions to immediately reduce their budgets by 15 percent.

However, Jihad denied that the present economic situation was adversely impacting the state’s ability to provide wages to civil servants this month.

“We are expecting crediting to occur as of today,” he said. “This is just an administrative issue with the bank.”

Both Civil Service Commission (CSC) President Mohamed Fahmy Hassan and Parliamentary Financial Committee Head Ahmed Nazim were not responding time of press.

However, a number of island councils have maintained that they have continued to receive state funding without any interruptions.

An official for the North Ari Atoll island of Maalhos’ Council Secretariat told Minivan News this afternoon that he was not aware of any issues concerning paying staff salaries, which had so far been received on time each month.

In Haa Alifu Atoll, Utheemu Island Councilor Asrar Adam said the council also had not experienced difficulties with paying wages

“We have been paying the salaries of the staffs on the last day of each month always and this month’s salary have been paid,” he said.

Island Councilor of Raa Atoll Innamaadhoo claimed that during the time of former President Mohamed Nasheed, the council was given funding for its 2012 salaries in advance – therefore ensuring it did not have any issues in paying staff.

“When our president was here everything went fine, we don’t have to worry about the salaries of 2012,” he said.

State revenue

The Maldives Inland Revenue Authority (MIRA) last month published its second quarter report for 2012, detailing the majority of government revenue (with the exception of import duties).

The MIRA report highlights a 16.8 percent increase in revenue collected compared to the same period for 2011, attributable to the increase in tourism GST from 3.5 percent in 2011 to 6 percent in 2012.

Tourism land rent collected for the period was MVR 465.4 million (US$30.2 million)  – a drop of 24.9 percent that was 12.3 percent lower than expected.

Airport Service Charge revenue meanwhile fell 18.6 percent, to MVR 172 million (US$11.2 million).

Total revenue collection for the first half of the year was MVR 3.5 billion, an increase of 59.2 percent compared to the corresponding period of 2011, but 8.4 percent lower than projected.

Likes(0)Dislikes(0)

Finance Ministry orders all institutions to pay back former govt’s civil servant salary cuts

The Finance Ministry has today issued a circular informing all institutions to pay the amount cut from civil servants from January 2010 to December 2012 by the former government, staring from July onwards.

The circular said the money should be paid monthly and not in a lump sum, and advised all institutions to pay the amount from the annual budget for wages. If the money in budget was not enough, the finance ministry advised the institution to cut the money from the budget allocated for other expenses.

The circular was signed by the Ministry’s Financial Controller, Mohamed Ahmed.

The reduction in civil servant pay was introduced by the previous government in an attempt to manage a financial crisis back in 2009. The initial deduction, agreed between the Finance ministry and the Civil Service Commission (CSC), was only due to last for three months until the government’s income had risen above Rf7billion (US$544 million).

However, after the Finance Ministry refused to restore wages to the previous level, the CSC took the case to the courts.

The Civil Court ruled that the Finance Ministry did not have the authority to reduce the salaries, a cut of up to 20 percent in some cases. The CSC at the time interpreted this as a decision to restore the deducted salaries, a decision upheld by the High Court in May of last year.

In April this year the Civil Service Commission said the wage repayments, amounting to Rf443.7 million (US$28.8 million), will be disbursed in monthly installments over 12 months from July 1 this year. This money has not been accounted for in this year’s state budget, the deficit of which has already drawn concern from the International Monetary Fund.

In January 2010 the International Monetary Fund (IMF) warned that international funding to the Maldives would be threatened if civil servant salaries are restored to former levels.

“One of the primary drivers of the large fiscal deficit has been government spending on public wages, which has more than doubled between 2007 and 2009, and is now one of the highest in the world relative to the size of the economy,” Rodrigo Cubero, IMF mission chief for the Maldives said at the time.

“Measures that would substantially raise the budget deficit, such as a reversal of previously announced wage adjustments, would also put the program off track, jeopardising prospects for multilateral and bilateral international financing,” he warned.

The Maldives is currently facing a foreign currency shortage, plummeting investor confidence, spiraling expenditure, a drop off in foreign aid and a crippling budget deficit of 27 percent.

Likes(0)Dislikes(0)

Government offices revising spending strategies to meet cut plans: Finance Ministry

Finance Minister Abdulla Jihad has claimed “several government offices” unable to cut their budgets by 15 percent ahead of a June 20 deadline were now working on submitting “revisions” for their spending.

Jihad told Minivan News today that the Finance Ministry was presently providing assistance to several departments that had failed to curb spending within deadlines set by the government.  The finance minister did not specify which offices had failed to make the required spending cuts within the time period.

According to Sun Online, government offices and councils were requested to enact a 15 percent cut to their budgets by June 15.   Independent institutions were meanwhile asked to reduce their outgoings by the same amount by June 20.

The cabinet took the decision last month to approve 15 percent spending cuts within government institutions in an attempt to reduce the state budget by Rf2 billion, according to the report.

Official government figures have indicated that inflation rose to an annual rate of 16.53 percent in April.  Earlier in the year, the Finance Committee estimated that the current budget deficit would reach 27 percent of GDP, or  Rf9.1 billion (US$590 million).

Likes(0)Dislikes(0)

High Court rules against keeping Muheeth murder suspect under house arrest

The High Court has overturned a previous Juvenile Court ruling to keep the main suspect in the murder of Abdul Muheeth under house arrest, declaring that the minor should be detained in accordance with the Home Ministry.

The High Court said yesterday that it had been notified by the Prosecutor General (PG’s) Office that the original Juvenile Court decision had not properly considered the present charges against the suspect or his criminal record.

In overruling the Juvenile Court, the High Court said the minor might become a threat to the society if detained under house arrest.

The PG also claimed during the High Court ruling that the Juvenile Court had not properly considered that the suspect, who is a minor, might influence the trial’s witnesses should he be released from police detention.

It was noted yesterday that the Juvenile Court has issued five warrants related to the case, with the most recent requesting that the suspect be put under house arrest.

The four previous warrants issued requested the suspect be kept in a place determined by the Home Ministry over concerns he might influence witnesses should he be released from detention.

The High Court said that when keeping a suspect in detention, the presiding judge in the case is required to refer to several different factors, such as the crime involved and the challenges faced in investigating the offence.

Other factors a judge needed to consider were the number of persons involved in the crime, the nature of the crime, the penalty for the crime, the probability that the accused might flee and the probability of influencing witnesses.

The High Court stated that the suspect had a criminal record with five previous offences.  The court said that these cases included involvement in an unlawful gathering whilst in possession of a violent weapon, a charge of assault using a violent weapon and one case of terrorism. In considering the suspect’s record, the High Court said it could be believed he might be a threat to the society if released from detention.

The PG requested the High Court to keep the minor in pre-trial detention until the court reaches a verdict on the case.  However, the High Court said the police had earlier requested the Juvenile Court grant an extension of detention for 15 days and it could only refer to police requests made at that time.

Muheeth, of G. Veyru, was stabbed to death near the Finance Ministry building on February 19.  Five suspects were arrested in connection with the case.

Police Inspector Abdulla Satheeh has previously told local media that the investigation into Muheeth’s death showed that the victim had not been involved in gang related crimes and this was not being considered a motive for the attack.  Satheeh added that the victim had no police record and was working in a responsible job at the time.

Likes(0)Dislikes(0)

Stop buying iPads, computers and phones, ACC tells government

The Anti Corruption Commission (ACC) has ordered the Finance Ministry to cancel plans to buy computers, iPads and phones for government ministries, claiming that only the People’s Majlis can approve ministerial salaries and benefits.

The Finance Ministry on April 30 released a circular approving the purchase of mobile phones, computers, and iPads for ministers from state funds allocated to the respective ministries. Furthermore, the finance ministry said the treasury would cover up to Rf 4000 (US$260) in monthly payments for ministers’ phone bills.

However, the ACC has told the Finance Ministry that no state institution could approve salaries and benefits for its staff, claiming that the task fell under Majlis’ jurisdiction.

“Article 102 of the Constitution authorizes the People’s Majlis to allocate salaries and benefits for the President, Vice-President, Judges, Members of Parliament and staff of the state institutions. Instead of state institutions deciding for themselves on matters within Majlis jurisdiction, we have ordered the Finance Ministry on May 7 to approve such benefits through the Majlis,” an ACC statement read.

“We would like to remind you the Auditor General has repeatedly criticized such actions in his audit reports and called on state offices not to do so without Majlis authorization. Further, when this commission asked the Majlis for advice on phone allowances, the Majlis Finance Committee told us in a letter on 30 March 2011 to act according to the salary structure approved by the Majlis on 28 December 2011 until the Majlis decides otherwise,” the statement noted.

The Auditor General Ibrahim Niyaz last week released a report on the Department of Judicial Administration (DJA) noting that between October 2008 and December 2011, Supreme Court judges had paid their phone bills amounting to RF 281,519 (US$18,280) from the state budget, despite the fact that the parliament had not allocated phone allowances to the judges.

Niyaz has recommended the amount be reimbursed and that the granting of phone allowances be determined by the parliament.

The Supreme Court on 16 May 2011  released a statement claiming that no Supreme Court judge had received phone allowances, after local media accused judges of misappropriating state funds for phone allowances.

Meanwhile, Chief of the IMF mission in the Maldives, Jonathan Dunn, warned parliament in April that if the country does not reduce its expenditure, it risks running out of reserves and miring the country in poverty.

Furthermore, the Majlis Finance Committee last week has projected that the Maldives budget deficit will reach 27 percent of the GDP by the end of year 2012, a 175 percent increase on earlier forecasts.

Government spending in 2012 is expected to increase by almost 24 percent, reaching Rf17.45 billion (US$1.13 billion) at the end of the 2012, while government revenue for 2012 will be Rf2.6 billion (US$168.6 million) less than the projected amount of Rf10.87 billion (US$704 million) – a 23 percent plunge.

With the shortfall of revenue and increased government spending, Head of the Majlis’s Financial Committee, Deputy Speaker and People’s Alliance (PA) MP Ahmed Nazim observed that the budget deficit will exceed from Rf 3.9 billion (US$ 252 million) to Rf9.1 billion this year (US$590 million), amounting to 27 percent of the country’s GDP.

Finance committee member and MDP MP for Kulhudhufushi, Abdul Ghafoor Moosa, told reporters that unplanned spending on police and military personnel and planned reimbursement of civil servants pay cuts in 2010, are both significant causes for rising costs to the government.

He observed that the largest shortfall in revenue is a direct result of the US$135 million pulled out from the budget with new government’s recently revised policy on lease extension payments for resort islands.

Maldives Inland Revenue Authority (MIRA) anticipated receiving a total of Rf375 million (US$ 24 million) for lease extensions, however the income received dropped to Rf23 million (US$1.5 million) as a result of the decision to accept the lease extension fees in an annual installment instead of a lump sum as decided by former administration.

The loss of concession fees from Ibrahim Nasir International Airport (INIA), the result of a successful Civil Court case to block the Airport Development Charge (ADC) filed by the Dhivehi Qaumee Party (DQP) while it was in opposition, also saw the government receive only US$525,355 from the airport for the quarter, compared to the US$8.7 million it was expecting.

The government-aligned PA’s Deputy Leader Nazim however contended that the 23 percent drop in government income was caused by unrealised revenue from privatisation schemes and a shortfall of Rf 166.7 million and Rf435 million (US$28 million) from the projected dividends of Dhiraagu and import duties respectively.

Likes(0)Dislikes(0)

Government to shun service providers not registered under GST scheme

Government authorities are being urged not to obtain goods or services from businesses that have failed to register for the Goods and Services Tax (GST).

A new Finance Ministry circular has said government offices must not conduct business or sign contracts with enterprises not registered with the Maldives Inland Revenue Authority (MIRA), according to local media reports.

The circular has been signed by the present Finance Minister Abdulla Jihad.

Likes(0)Dislikes(0)

Minister Aslam appointed acting head of Finance Ministry

Housing and Environment Minister Mohamed Aslam has been appointed as acting head of the Finance Ministry.

The appointment was made in the wake of Ahmed Inaz’s resignation from the post on December 29, following a covert meeting with Mulaku MP Abdulla Yamin of opposition Progressive Party of Maldives (PPM) on December 27.

The meeting, held in a car on a poorly lit side of Male’, was discovered by ruling Maldivian Democratic Party (MDP) activists who demanded Inaz’s resignation.

State Finance Minister Ahmed Naseer also resigned on December 29, for undisclosed reasons.

Likes(0)Dislikes(0)