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.