Economic growth relatively strong, but public debt ratio high: IMF

Economic growth in the Maldives is expected to remain “relatively strong in the near term,” but persistent fiscal deficits have driven up the public debt ratio to a high level, the International Monetary Fund (IMF) has said.

In a press statement last week following its executive board’s 2014 Article IV consultation with the Maldives, the IMF noted that growth is estimated to have reached five percent last year on the back of strong tourism activity, low inflation levels, and reduction in the current account deficit.

“However, persistent and growing fiscal deficits have driven up the public debt ratio to a high level,” the IMF observed.

“The fiscal deficit increased to an estimated 7.8 percent of GDP in 2013 and, following increases in recurrent spending, the deficit is likely to have widened further in 2014. Sustained primary deficits have led to an increase in the public debt level from 52 percent in 2009 to 75 percent of GDP in 2014.”

However, presenting the 2015 state budget to parliament in November, Finance Minister Abdulla Jihad said public debt was expected to reach MVR31 billion (US$2 billion) or 67 percent of GDP at the end of 2014.

Moreover, Jihad said the estimate for economic growth in 2014 was 8.5 percent, significantly higher than the IMF estimate.

In its monthly economic review for January, the Maldives Monetary Authority (MMA) revealed that the “total outstanding stock of government securities, which includes Treasury bills (T-bills) and Treasury bonds (T-bonds), rose by 53 percent in annual terms and reached MVR17.6 billion [US$1.1 billion] at the end of January 2015.”

“The annual increase in T-bonds reflects the conversion of a short term loan extended to the government by the MMA to T-bonds,” the central bank explained.

While the government’s forecast for economic growth in 2015 was 10.5 percent, the IMF expects growth to be around 5 percent this year.

Growth in 2014 was driven by “a rapid expansion from Asian markets and a tepid recovery from Europe,” the IMF noted.

“Higher tourism exports and subdued global food and fuel inflation have helped reduce the current account deficit to around 8.4 percent of GDP in 2014; and following significant data revisions, the current account is now substantially smaller than previously estimated. Lower oil prices have improved the outlook for the current account and inflation in 2015,” the IMF explained.

“Gross official reserves have risen to around $614 mn (2.8 months imports). Financial soundness indicators are slowly improving, monetary conditions are loose, but credit growth is subdued at just 0.5 percent year on year to November 2014.”

Reining in the fiscal deficit

The IMF welcomed the government’s cost-cutting and revenue raising measures for 2015 – intended to rein in the fiscal deficit -including imposing a green tax, acquiring fees from Special Economic Zones (SEZs), raising import duties, a public employment freeze, and better targeting of subsidies.

“However, further fiscal adjustment measures would be needed to place debt ratios firmly on a downward path,” the IMF cautioned.

Moreover, the IMF noted that “the fiscal adjustment envisaged in the 2015 budget will have a mildly negative effect on growth.”

“There is also some upside potential if lower oil prices are sustained. However, with limited policy buffers, the economy is vulnerable to fiscal slippages and inward spillovers. In the event of large fiscal overruns relative to the authorities’ targets, borrowing costs and monetization could increase, which would weaken the external position,” the press release stated.

In addition to the proposed revenue raising – which it suggested would “only have a temporary effect” – the IMF advised that “durable fiscal adjustment, with a focus on expenditure restraint, will be needed to place the public debt-to-GDP ratio on a downward path over the medium term, consistent with the Fiscal Responsibility Law.”

The IMF executive board also welcomed “the authorities’ commitment to avoiding the monetization of the fiscal deficit, which will help direct monetary policy at supporting the exchange rate regime and build buffers.”

The directors “supported plans to make greater use of market-based financing for government debt, including by developing the government securities market” and welcomed “the improvement in financial soundness indicators, and called for continued efforts to strengthen financial supervision, including measures to ensure uniform high standards for institutions that decide to operate in special economic zones.”

The IMF also suggested the stabilised exchange rate regime was “appropriate for Maldives,” welcomed “the increase in official reserves, and recommended continued strengthening of the official reserves position.”

On key medium-term objectives, the IMF recommended public service delivery and economic diversification and welcomed “proposals for establishing regional hubs and improving inter-island connectivity.”

“Directors stressed that strict ring-fencing of tax exemptions for special economic zones will be necessary to preserve the tax base. They also emphasized that scaling up infrastructure investment should be implemented efficiently in order to boost growth potential,” the press release stated in conclusion.

“Directors welcomed the significant recent improvements in macroeconomic statistics, and encouraged the authorities to continue to strengthen data quality and availability, including adopting a statistics law to enhance data provision, to assist policy decisions.”

Related to this story

Maldives economy “relatively buoyant” but fiscal imbalances continue to growth: IMF

Public debt to reach MVR31 billion by end of 2014, reveals finance minister

Finance minister presents record MVR24.3 billion state budget to parliament

Slippages in revenue or expenditure will undermine debt sustainability: MMA macroeconomic report

IMF delegation surprised by resilience of Maldivian economy


Public debt to reach MVR31 billion by end of 2014, reveals finance minister

Public debt is expected to reach MVR31 billion (US$2 billion) or 67 percent of GDP at the end of 2014, Finance Minister Abdulla Jihad has revealed.

“Despite achieving economic progress, the Maldivian economy is fragile and the Maldives’ financial situation is not in the most appropriate state at present,” Jihad cautioned in his budget speech at parliament today.

“The main reason for this is the year on year increase of the budget deficit and the state’s debt because of expenditure being higher than state revenue in recent years,” he explained.

The country’s balance of payments worsened and foreign currency reserves dwindled as a result of both the persisting fiscal deficit as well as outflow of foreign currency, Jihad added.

He noted that the dramatic increase of expenditure on public sector wages, subsidies, and social security programmes was also responsible for the fiscal imbalances.

Expenditure on state employees in 2014 would reach MVR15.8 billion (US$1 billion), Jihad observed, while MVR3.2 billion (US$207 million) would have been spent on subsidies and social security benefits.

Out of every MVR100 collected as revenue or income, Jihad explained that MVR40 was spent on employees and MVR22 on social protection and subsidies.

Consequently, the government was facing serious difficulties in “managing the state’s cash flow and financing the budget” as well as securing loans for budget support, Jihad said.

The budget was mainly financed by selling and rolling over treasury bills (T-bills), he said, which involves repayment at high interest rates.

According to the central bank, the total outstanding stock of government securities was MVR13.6 billion (US$881 million) at the end of September.

The growth in government securities was contributed by the increase in the amount of T-bills issued by the government to manage its cash flow requirements,” reads the Maldives Monetary Authority’s (MMA) latest monthly economic review.

Targeting subsidies

In May, Jihad continued, the government ceased obtaining funds from the central bank to finance the budget and the inflation rate has remained low as a result.

The government has also decided to freeze hiring new employees in 2015 in favour of conducting training programmes and optimising productivity. The defence minister last week criticised civil servants, saying they were providing “poor service” to the public.

Parliament needed to pass legislation on the state’s wage policy for a lasting solution to discrepancies in pay among state institutions, Jihad suggested.

He also revealed plans to revise the electricity subsidy, which he said currently benefits the affluent more than the needy.

Targeting the electricity subsidy to low-income families or households would save 40 percent of the government’s expenditure on the subsidy, Jihad explained.

The government was also working on revising the Aasandha health insurance programme – expanded by the current government – to ensure sustainability, he added, in addition to plans to target food subsidies in 2015.

In May, MMA Governor Dr Azeema Adam called for “bold decisions” to ensure macroeconomic stability by reducing expenditure – “especially the un-targeted subsidies” – and increasing revenue.

The MMA had previously warned that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability.

The International Monetary Fund (IMF) has also recommended targeting subsidies to the poor.

“The electricity subsidy is one that goes to even the richest strata of society. Basic food subsidies are being enjoyed now by the resorts, and never mind the resorts, are being enjoyed by wealthy foreign visitors who stay at the resorts,” Dr Koshy Mathai, resident representative to Sri Lanka and Maldives, told MPs on the public accounts committee in February.

“That to us seems like a totally unnecessary policy.”

He added that “substantial savings” could be made from the budget by targeting subsidies to those most in need of assistance.

Despite the cost-cutting measures, Jihad cautioned today that the government’s recurrent expenditure could not be reduced while people reside in 188 geographically dispersed islands.

Providing services to small populations was difficult and costly, he observed, stressing the importance of formulating and implementing a population consolidation policy.

On plans to tackle the high rate of unemployment, Jihad noted that MVR332 million (US$20 million) was allocated in the 2015 budget for higher education programmes, with special emphasis on training doctors and health sector professionals.

The implementation of the government’s economic policy – with the introduction of special economic zones – would spur job creation and attract foreign investment, he added.

Jihad appealed for support from MPs for the government’s proposed revenue raising measures, warning that public services could be disrupted if anticipated revenue is not realised.

“The estimated budget for 2015 is a budget that lays the foundation to build the future of the current generation and future generations,” he said.


Government to freeze hiring in 2015

The state will not be hiring any new employees in 2015 in a bid to reduce recurrent expenditure, Finance Minister Abdulla Jihad told parliament’s public accounts committee last night (October 22).

Jihad told MPs that government ministries and various state institutions have proposed creating more than 5,000 posts next year.

However, President Abdulla Yameen has decided to “freeze employment” during 2015, Jihad revealed.

All state institutions should consider reducing expenditure as domestic debt has reached MVR16 billion (US$1 billion), he added.

Jihad noted that the government’s economic council was currently reviewing the estimated annual state budget for 2015 ahead of submission to the People’s Majlis for approval.

President Yameen’s campaign pledge to create 94,000 new jobs would be fulfilled through spurring job creation in the private sector, he added.

In August, Jihad warned that the ballooning fiscal deficit could affect the government’s ability to pay civil servants.

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.

The government currently employs just under 25,000 civil servants, representing over seven percent of the population.


Expansion of economic activity in first quarter driven by tourism sector growth: MMA

Domestic economic activity expanded in the first quarter of 2014 “driven by the strong growth of the tourism sector during the ongoing high season of the industry,” according to the Maldives Monetary Authority’s (MMA) quarterly economic bulletin.

Total tourism receipts in the first three months of the year increased by 10 percent compared to the first quarter of 2013, reaching US$801.1 million, the central bank revealed.

“In Q1-2014, the average operational bed capacity of the industry also increased by four percent when compared to Q1-2013 and totalled 26,999 beds, contributed by the opening of more resorts and guesthouses during the period,” the bulletin explained.

“Despite the increase in the operational bed capacity of the industry, the occupancy rate of tourism accommodation facilities remained relatively unchanged at 84 percent when compared to Q1-2013, owing to the higher increase in bednights.”

Arrival trends

On arrival trends in the first quarter, the bulletin noted that the 10 percent annual increase in arrivals was “entirely driven by the significant increase (24 percent) in arrivals from the Chinese market.”

Chinese tourists accounted for 27 percent of guests during the first quarter of 2014. According to the Tourism Ministry, the Chinese market expanded by 24 percent with an additional 16,960 tourists compared with the same period of 2013.

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

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

“Meanwhile, after recording three successive quarters of positive growth, arrivals from Europe (which constitute over half of total tourist arrivals) registered a marginal decline of two percent in Q1-2014, mainly due to a substantial fall in arrivals from Russia owing to its economic crisis and partly due to Easter calendar effects,” the bulletin continued.

“The poor performance of the Russian market (the third main market from Europe since Q2-2012) is in stark contrast to the double-digit growth rates exhibited by the Russian market throughout the last year.”

The bulletin noted that all major markets from Europe recorded a decline in arrivals. While arrivals from Germany – “the main source market from Europe” – and Italy both declined by four percent, arrivals from France declined by two percent.

“The better performance of UK market during the quarter is attributable to the sustained growth of the British economy since last year,” the bulletin observed.

Fisheries and construction sectors

The fisheries industry in the first quarter of 2014 “continued to be adversely affected by falling tuna prices in the international market since September last year,” the bulletin observed.

“This is reflected by the annual decline in fish purchases by collector vessels (12 percent) and the fall in both volume and earnings of fish exports in Q1-2014, by 26 percent and 6 percent, respectively,” the bulletin stated.

The construction industry however continued its “ongoing recovery” in 2014, the bulletin continued, which was “indicated by the strong annual growth in construction-related imports and bank credit to mainly residential housing construction projects.”

“Spurred by the strong performance of the tourism and other key sectors, activity in the wholesale and retail sector also picked up during the review period. This was reflected by a 13 percent increase in bank credit to the sector in the review period compared to Q1-2013, while private sector imports (excluding tourism) grew by 9 percent in the same period,” the bulletin read.

“Main driver of inclusive growth”

Meanwhile, a delegation from the World Bank led by the World Bank Vice President Philippe Le Houérou – in his first visit to the Maldives since assuming the post in July 2013 – met President Abdulla Yameen in late May and agreed to work with the government in developing a national strategy for fostering growth and consolidating public finances.

The discussion focused on “the need to reduce fiscal deficits, create a favourable investment climate for the private sector and delivery of key public services,” according to a press release from the World Bank.

“Maldives has enjoyed economic growth during the last decade and expects to achieve 4.5 percent growth in 2014,” Le Houérou was quoted as saying.

“But it still faces challenges, such as balancing public accounts while delivering public services on some 200 islands across hundreds of kilometres of the Indian Ocean. The issue is how Maldives can make the most of its potential in order to achieve inclusive and sustainable development.”

World Bank Country Director for Sri Lanka and Maldives, Francoise Clottes, noted the country’s “great success in developing a world-class tourism sector to take advantage of its breathtaking beauty.”

“This sector is expected to continue to grow and remains the main driver of inclusive growth and sharing prosperity, going into the future,” Clottes said.


Finance Ministry instructs offices to implement cost-cutting measures

The Ministry of Finance and Treasury last week issued a circular to all government offices and state institutions with instructions to implement cost-cutting measures during the final month of the year.

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

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

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

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

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

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

However, in the same month the Finance Ministry decided to reimburse civil servants for the amount deducted from their salaries in 2010 as part of the previous government’s austerity measures.

The deducted amounts, totalling MVR 443.7 million (US$28.8 million), were to be paid back in monthly instalments starting in July.


Explaining how finances were raised for the government this year, Jihad told parliament’s budget committee last week that a large number of treasury bills (T-bills) were sold to Champa Brothers when the Maldives Monetary Authority (MMA) commenced sales to private parties in August this year.

Sun Online reported that Champa Brothers purchased T-bills worth US$11 million.

MMA T-bills with maturity dates of 28 days are sold at 7.73 percent interest, 91 days at 7.70 percent interest, 182 days at 7.55 percent interest, and 364 days at 7.70 percent interest.

The MMA made an announcement yesterday (December 10) seeking investors for “private placements” of treasury bills and bonds denominated in both US Dollars and Dhivehi Rufiyaa (MVR).

Meanwhile, according to the weekly financial statement as of December 6, total government expenditure stands at MVR 11.7 billion (US$758.7 million), outstripping total revenues in 2012 of MVR 9 billion (US$583.6 million).

The government spending includes MVR 8.7 billion (US$564 million) in recurrent expenditure, MVR 1.3 billion (US$84 million) in capital expenditure and MVR 1.7 billion (US$110 million) for loan repayments, resulting in a deficit of MVR 2.7 billion (US$175 million) so far.

Of the recurrent expenditure, MVR4.48 billion (US$290 million) was spent on salaries and allowances for employees and MVR 4.2 billion (US$272 million) on office administrative costs.

In November, a mission from the International Monetary Fund (IMF) urged the government to implement a raft of measures to reduce spending and raise revenue with higher taxes and revised import duties.

The mission advised the government that taming the ballooning fiscal deficit was “the most pressing macroeconomic priority for the Maldives.”

“The fiscal deficit is expected to rise in 2012 to 16 percent of GDP [Gross Domestic Product] in cash terms, and likely even higher if one accounts for the government’s unpaid bills, accumulated in an increasingly challenging environment for financing,” the IMF mission stated.

In April 2012, the head of a previous IMF mission to the Maldives told Minivan News that the country’s fiscal deficit was “substantially understated” at less than 10 percent of GDP as projected in the 2012 budget, predicting a figure closer to 17.5 percent of GDP or higher.

“The large deficit has implied a rise in the public debt ratio, which now stands at over 80 percent of GDP, and has also helped to boost national imports, thus worsening dollar shortages in the economy and putting pressure on MMA [Maldives Monetary Authority] reserves,” the most recent IMF mission said in its statement.

Debt and deficit

In his budget speech to parliament last month, Finance Minister Jihad said total spending in 2012 was expected to be MVR 16.5 billion (US$1 billion) while revenues would reach 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.

According to the Finance Ministry, government spending on loan repayment and interest payments was expected to reach MVR 3.1 billion (US$201 million) in 2012.

Including an estimated MVR 13 billion (US$843 million) in domestic debt, the total public debt is expected to reach MVR 27 billion (US$1.7 billion) in 2012 and MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.

As a result of financing budget deficits with loans for the past six years, ‘total external public and public guaranteed debt’ was estimated to reach MVR 13.7 billion (US$888 million) in 2012.

Moreover, the government spent more than MVR 1 billion (US$64.8 million) in 2011 and MVR 1.1 billion (US$71.3 million) in 2012 to service foreign debts as interest and repayments.

The figure was forecast to remain the same in 2013.


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.


IMF urges parliament to expedite fiscal responsibility legislation

A delegation from the International Monetary Fund (IMF) has urged MPs to expedite legislation on fiscal responsibility, at a meeting with parliament’s Finance Committee and Economic Affairs Committee on Wednesday.

According to the parliament secretariat, the IMF team told MPs that passage of the fiscal responsibility bill currently being reviewed by the Economic Affairs Committee was the most important measure the People’s Majlis could take to improve the country’s economic outlook.

A fiscal responsibility bill to impose limits on government spending and ensure public debt sustainability was submitted to parliament in 2011 by the administration of former President Mohamed Nasheed as part of an economic reform package.

Presenting the bill in August 2011, MP Ahmed Easa of the formerly ruling Maldivian Democratic Party (MDP) said a lot of effort was needed to “change the inherited, outdated and indebted economic system.”

As measures to legally mandate fiscal responsibility, the legislation proposed setting limits on government spending and public debt based on proportion of GDP (Gross Domestic Product).

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

Moreover, the bill proposed that 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.

Meanwhile, according to parliament, members of the IMF mission currently in the Maldives are Overall Coordinator Dr Koshy Mathai, Dr Fazurin Jamaludin, Nicholas Million, Dr Nandaka Molagoda, and Jules Tapsoba.

Ahmed Munawwar, Manager of the Monetary Policy Section of the MMA also attended yesterday’s meeting.

According to the latest figures from the Finance Ministry the fiscal deficit as of November 4 stands at MVR 2.4 billion (US$155.6 million), with government spending of MVR 10.4 billion (US$674.4 million) outstripping revenues of MVR 8 billion (US$518.8 million) so far this year.

Of the MVR 10 billion in expenditure, MVR 7.6 billion (US$492.8 million) was on recurrent expenditure – salaries and allowances for government employees and administrative costs – while MVR 1.5 billion (US$103.7 million) was spent on repaying loans and interest payments.

Fiscal imbalance

In April 2012, Jonathan Dunn, chief of the IMF mission to the Maldives, told Minivan News that the country’s fiscal deficit was “substantially understated.”

The remarks followed the IMF warning of dire consequences if expenditure was not curbed to rein in the ballooning budget deficit.

Speaking in parliament on behalf of the former government in August 2011, MP Easa meanwhile noted that according to the World Bank, a 66 percent increase in salaries and allowances for government employees between 2006 and 2008 was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”

“We are seeing the bitter consequences today of spending out of the budget without any control or limit,” MP Easa had said.

Dunn had meanwhile emphasised in April 2012 that “fiscal imbalances in the Maldives have been present for many years” and that “fiscal adjustment remains necessary”.

Faced with increasing pressure from the IMF to lower expenditure after failed attempts in 2010 to keep in place unpopular pay cuts for civil servants – a maneuver blocked by the Civil Services Commission (CSC) and backed the then opposition – former President Nasheed’s administration insisted that increased revenue from the new taxes would match expenditure, and boasted that the 2012 budget was the first in many years to balance income and expenditure.

Following the police mutiny and controversial transfer of presidential power, spending by President Dr Mohamed Waheed’s administration had escalated as it sought to shore up support in a fractious political environment.

Moreover, in September 2012, a pair of government-aligned MPs blamed President Waheed’s lack of solid policies for the increase in state expenditure.

Newly-announced expenditure in first few months of the Waheed administration included: