Tag: fiscal responsibility

Hiking airport service charge to US$30 narrowly rejected at parliament

Legislation proposed by the government to raise the airport service charge from departing international passengers to MVR460 (US$30) was narrowly rejected by parliament today.

The amendment bill submitted by government-aligned MP Riyaz Rasheed was rejected with 28 votes against, 27 in favour and two abstentions.

At the parliamentary debate on the bill yesterday (April 15), MPs of the opposition Maldivian Democratic Party (MDP) and government-aligned Progressive Party of Maldives (PPM) 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.

The 1978 law imposing the airport service charge on departing passengers was first amended under the previous administration and raised to US$18.5 for foreigners.

The imposition of a similar Airport Development Charge (ADC) of US$25 by Indian infrastructure group GMR was previously a major point of contention for the Waheed administration, which terminated the concession agreement with the GMR-led consortium to modernise the airport in December 2012.

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

Finance Minister Abdulla Jihad 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.

On January 29 this year, the cabinet decided to impose austerity measures to manage the budget following revenue shortfalls.

“Members of the cabinet noted that, by late this year, the country might have to face enormous challenges unless strict budgetary control measures were not implemented,” the President’s Office said at the time.

During the budget debate in December 2012, Majority Leader MP Ibrahim Mohamed Solih warned that the additional revenue projected in the budget was unlikely to materialise.

The MDP parliamentary group leader noted that most of the proposed measures – such as hiking the Tourism Goods and Services Tax (T-GST) to 15 percent, introducing GST for telecom services, and “selectively” reversing import duty reductions – required parliamentary approval.

Acting Finance Minister Ahmed Mohamed was unavailable for comment today on the impact to government finances from the loss of projected revenue.

Fiscal responsibility

Meanwhile, 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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Fiscal deficit in 2011 expected to fall to single digit, says President

The government expects the fiscal deficit to have fallen to a single digit at the end of the year, below the previous forecast of 11 percent of GDP, President Mohamed Nasheed said in his weekly radio address on Friday.

“The budget deficit as a percentage of GDP or national productivity has been estimated for next year at [budget] meetings with ministers and heads of government offices,” he said. “From that estimate we know that government expenditure has been substantially reduced in a number of different areas. For this year, we forecast a budget deficit of 11 percent. We have noted now that it has been reduced by three or four points.”

The government hoped that the fiscal deficit would be below 10 or “a single digit figure” when it is calculated at the end of the year, he said.

The budget deficit, which stood at just 1.9 percent of the economy in 2004, expanded to 7.3 percent in 2006 and ballooned to 23.9 percent in 2007, according to the International Monetary Fund (IMF).

The fiscal deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009. On paper, the government increased average salaries from Rf3000 to Rf11,000 and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF noted in March this year.

“We see bringing the fiscal deficit down as the key macroeconomic priority for the Maldives,” the IMF’s Mission Chief to the Maldives, Rodrigo Cubero, told Minivan News at the time. “A large fiscal deficit pushes up interest rates, thereby undermining private investment and growth, and also drives up imports, putting pressure on the exchange rate and inflation, all of which hurts the Maldivian people, particularly the poor.”

“Further efforts are still needed to reduce the fiscal deficit. Those efforts should comprise further tax reforms as well as measures to reduce expenditure and to improve the channelling of social expenditures to the needy.”

Meanwhile in a booklet issued to media titled “the DRP’s response to the government’s economic nuisance package,” the main opposition Dhivehi Rayyithunge Party (DRP) strongly objected to a bill on fiscal responsibility currently before parliament.

The bill was “a plot” devised to wrest financial control from local councils and negate parliament’s contentious amendments to the Public Finance Act, the DRP argued.

The DRP also noted that provisions on imposing limits to government spending would only come into force after 2013.

“In the past three years, the MDP [Maldivian Democratic Party] government earned billions of rufiya by selling off state assets, facilitating business opportunities for their friends and introducing new taxes,” the DRP said. “Nonetheless, while the health sector, the education and overall standard of living has gone from bad to worse, it is unclear how the government spent the billions and billions of rufiya it received.”

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