2014 budget should be decided after election, says former finance minister

Former Finance Minister Ahmed Inaz has questioned the timing of a decision to present cabinet with the projected 2014 state budget less than 10 days before the scheduled re-run of the presidential election.

With the constitution requiring a new president be sworn into office by November 11, 2013, Inaz has told Minivan News that the budget should be decided by a democratically elected government immediately following the election, rather than by the outgoing administration of President Dr Mohamed Waheed.

The claims were made after the Supreme Court last month suspended the run off vote between Maldivian Democratic Party (MDP) candidate Mohamed Nasheed and Progressive Party of Maldives (PPM) rival MP Abdulla Yameen that had been scheduled for September 28.

The country’s apex court later annulled the first round, ruling that 5,600 ineligible votes had been cast.

With a re-scheduled poll just under a week away, the President’s Office has announced that Finance Minister Abdulla Jihad had presented the projected 2014 budget to the cabinet on October 8.

Whilst Jihad was not responding to requests for information, local media – citing unnamed Finance Ministry sources – have reported that the proposed budget is expected to total MVR16.5 billion.

The project spending plan come as the Maldives Monetary Authority (MMA) warned in its latest Quarterly Economic Bulletin that government finances have “further deteriorated in the first six months of 2013” due to a sizeable shortfall in expected revenue coupled with a marked increase in recurrent expenditure.

The economic bulletin revealed that the total government expenditure of MVR6.7 billion (US$435 million) in the first half of 2013 was 8 percent higher than the same period in 2012.

The growth of government spending was “entirely due to the 21 percent (MVR965.3 million) growth in recurrent expenditure, which was partly offset by the 26 percent (MVR440.6 million) decline in capital expenditure during the period”, the report stated.

While the present government had previously anticipated the need for for a supplementary budget after state offices were found to have exhausted their entire annual recurrent expenditure for 2013 by April, the Finance Ministry has instead relied on short-term treasury bills (T-bills) to carry over its debts.

Former Finance Minister Inaz said the present government’s reliance on the sale of T-bills was only delaying moves to address the problems with state spending, while ensuring the cost of lending for both public and private enterprise goes up.

Inaz argued that it should be for the newly elected administration to outline how state spending would be handled to find an “agreeable solution” backed by parliament.

“What I mean by agreeable solution is that in the current political climate, I do not believe there will be a clear parliament majority, so we must learn to talk [between political parties],” he said.

“If we delay, this will only prolong the deficit and kill the tax system completely.”

Long term co-operation needed

The former minister said that during the administration of former President Nasheed – under which he himself served – there had been “reluctance” to talk with the country’s opposition.

He added that the same opposition had for their part worked to try and stymie financial measures such as proposed tax reforms that he said had nonetheless been partially introduced by the MDP in the form of the Tourism Goods and Services Tax (T-GST) and general GST.

Having spoken with the current presidential candidates, Inaz argued that there was a shared interest in finding a solution to current concerns over the size of the country’s budget deficit, but argued against what he called the short and medium-term revenue raising measures previously suggested by the current government.

“It will take long-term strategies rather than looking for short-term solutions to try and increase revenue. We must push more cash into the economy and take less money from banks,” he said.

“We cannot increase taxes much more at present, so I believe the smartest way forward would be on focusing to increase productivity. For instance, the revenues in 2011 [from taxation] were way above what we had expected at the time.”

While Inaz said he backed greater efficiency within the civil service and private sector as a key means of boosting revenue, he claimed that significant cuts to recurrent expenditure was not realistic at present.

He took the example of the previous MDP government’s attempts to reduce state wage bills, which he said had required redundancy packages that would not be affordable in the current financial climate.

However, Inaz claimed that any potential government should instead consider freezing current civil service numbers and not hiring any more public sector workers unless a vacancy arose, something he claimed had again been started by the MDP in 2012 before the controversial change in government in early February of the same year.

Former Economic Development Minister Mahmood Razee – another significant figure in the former MDP government – said that it was vital that parliament agree to implement a complete and comprehensive reform of the current taxation system.

Razee argued that the previous government had predicted that once its tax reform plans had been fully implemented to include measures such as income tax, there would not be any need to increase taxes like GST and T-GST as the Majlis previously had this year.

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AG slams former government over foreign investment “damage” from alleged lack of financial research

Attorney General Azima Shukoor has accused the previous government of failing to conduct sufficient research before signing several major foreign investment projects, that had now been terminated by the present administration.

Azima was quoted by private broadcaster Villa Televison (VTV) (Dhivehi) as claiming that unspecified “economic damage” currently faced by the state had resulted from a lack of economic and legal research by the administration of former President Mohamed Nasheed.

She was quoted in local media arguing that “damages” to the state had resulted from a number of foreign investment projects signed by Nasheed’s administration, including the US$511 million concession agreement signed with GMR to build and manage a new terminal at Ibrahim Nasir International Airport. Azima also raised over another deal with Malaysia-based Nexbis to manage and operate a border control system in the country.

Both agreements have since been terminated by the administration of President Dr Mohamed Waheed, with the Maldives facing a US$1.4 billion compensation claim from GMR after its contract was suddenly declared void in November. The company was then given a seven day notice period to leave before being evicted by authorities.

Nexbis was last week given 14 days to vacate by the government, which likewise terminated its concession agreement with the company.

However immigration officials last week questioned whether  replacement technology was ready to be implemented, in place of the Nexbis system.

Former government response

Responding today to the attorney general’s criticisms, Mahmood Razee, former economic development minister during the Nasheed administration, stressed that the former government had engaged with the World Bank’s International Finance Corporation (IFC) before moving ahead with the airport privatisation program.

As such, he rejected accusations that no research had been conducted before undertaking such a high profile project.

“Clearly this was not a stab in the dark,” Razee said of the deal. “[The World Bank engagement] determined how best to proceed with the airport development for the benefit of the government and the people. After looking at the revenue streams, it was concluded that it was best to move forward with the public private partnership.”

He claimed that aside from potential financial benefits of agreeing the deal, the consortium consisting of GMR and Malaysia Airports Holdings Berhard (MAHB) had been picked based on the companies’ experience in managing other airport projects.

With the deal now terminated, Razee added that it remained critical to secure development at the airport as soon as possible, claiming the current facilities at INIA did not meet the required standards.

Waheed’s government last year accused the IFC itself of negligence during the bidding process for the development of INIA, charges the World Bank rejected at the time.

By June this year, the Maldives’ Anti-Corruption Commission (ACC) ruled out corruptionin the awarding of a concession agreement in June 2010 to the GMR/MAHB consortium. The government meanwhile continues to insist the sudden termination of the contract was in the national interest.

“Cause and effect”

Former Economic Development Minister Razee said the Maldives would remain reliant on development funding for future development projects, which would cost hundreds of millions of dollars out of reach of the government.

With the country now lacking sufficient rating to obtain credit commercially, Razee argued that development funds remained the only means for a country like the Maldives to secure sizeable finance.

The present government’s decision to cancel two major foreign investments would have a “cause and effect”, he suggested.

Should the MDP be elected to power in the presidential election scheduled for next month, the party would have to consider returning to negotiations with GMR in a bid to avoid huge financial fallout from arbitration proceedings now being conducted in Singapore.

He claimed that the cooperation of international bodies such as the World Bank in securing the GMR deal would likely to be sought in other high-profile investment projects sought under an MDP government.

Economic problems

The Maldives National Chamber of Commerce and Industries (MNCCI) meanwhile last month accused senior politicians under successive governments of trivialising the severity of the country’s economic problems.

MNCCI Vice President Ishmael Asif claimed parties were addressing financial concerns and issues impacting foreign investment with negative slogans rather than actual policies in the run up to September’s election.

While accepting the present “bad shape” of the Maldives economy, the chamber of commerce was particularly critical of what it called negative economic campaigning by senior figures in the last two governments – arguing they had done little to address an ongoing shortage of US dollars and a lack of investment banking opportunities and arbitration legislation in the country.

Asif’s comments were made in response to claims by the government-aligned Progressive Party of Maldives (PPM) that foreign investors were now turning away from the Maldives due to concerns about political stability and safety in the country.

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