Tag: quarterly economic bulletin

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.

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Government finances “further deteriorated in first six months of 2013”: MMA Quarterly Economic Bulletin

Government finances “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, according to the Quarterly Economic Bulletin of the Maldives Monetary Authority (MMA) released last week.

The central bank observed that the government’s target of reducing the budget deficit to 3.6 percent of gross domestic product (GDP) this year from 12.6 percent in 2012 “now seems rather challenging.”

“These developments have resulted in a widening of the budget deficit as indicated by the large financing requirement of the government during the first six months of 2013. The difficulties in accessing long-term foreign funds to finance the budget deficit resulted in the government resorting to the Maldives Monetary Authority (MMA) and other domestic sources to finance its growing deficit,” the report stated.

The economic bulletin explained that around 15 percent of total revenue budgeted for 2013 – MVR1.8 billion (US$116.7 million ) – was to be raised from new revenue measures, “which so far have not materialised.”

The revenue raising measures proposed in the 2013 budget included hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, raising airport service charge to US$30, leasing 14 islands for resort development, raising tariffs on oil, introducing GST for telecom services, and “selectively” reversing import duty reductions.

In April, parliament rejected government-sponsored legislation to raise the departure tax on outgoing passengers, prompting Finance Minister Abdulla Jihad to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

The move followed a cabinet decision to delay implementation of new development projects financed out of the budget due to shortfalls in revenue.

The economic bulletin meanwhile revealed that total revenue in the first half of this year (MVR5.9 billion or US$382 million) increased by 22 percent compared to 2012 on the back of a 35 percent increase in tax revenue.

Tax revenue was “boosted by favourable receipts from GST [Goods and Service Tax] and Business Profit Tax (BPT).”

While GST receipts rose by 46 percent, “contributed by the increase in the rate of GST on the tourism sector (T-GST), from 6% to 8% on 1 January 2013,” BPT receipts increased by 83 percent.

The MMA report explained that BPT collection this year was “based on financial returns for the twelve months ending June 2012, while the BPT collections made in 2012 were based on the financial returns of for the six months ending August 2011.”

Growing government spending

The economic bulletin also 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.”

Capital expenditure declined due to the government’s decision to suspend infrastructure projects financed out of the budget “in the face of significant shortfalls in revenue due to the inability to implement new revenue measures.”

The increase of recurrent expenditure was meanwhile “driven by the increase in spending on wages and salaries and government pension contributions, both of which largely reflects the transfer of employees in health corporations to civil service commission and employees in Aviation Security Service to Ministry of Defence and National Security starting from January 2013.”

In its professional opinion on the budget proposed for 2013, the Auditor General’s Office had suggested “major changes” to right-size the public sector and “control the salary of state employees and expenditure related to employees” to rein in the budget deficit.

The Auditor General observed that, compared to 2012, the number of state employees was set to increase from 32,868 to 40,333 – resulting in MVR 1.3 billion (US$84.3 million) of additional expenditure in 2013.

This anticipated increase included 864 new staff to be hired by the Maldives Police Service (MPS) and Maldives National Defence Force (MNDF).

Deficit financing

The budget deficit forecast for 2013 was MVR 2.33 billion (US$149 million) – to be financed by MVR 1.15 billion (US$74.5 million) in foreign loans and MVR 1.17 billion (US$75.8 million) in domestic finance.

The MMA’s economic bulletin noted that the budget deficit was largely financed from domestic sources, including the issuance of treasury bills (T-bills) to banks and non-bank sectors.

“At the end of June 2013 the total outstanding debt stock of government securities (T-bills and T-bonds) rose to MVR11,702.3 million which reflects a net issuance of MVR586.9 million in the first half of 2013 compared with MVR615.8 million in the same period of 2012,” it stated.

“Meanwhile, with the increasing challenges faced by the government in financing its growing deficit through domestic sources, the government at times had to resort to the MMA, to finance its deficit. During the first six months of 2013, the change in MMA net credit to government increased to MVR781.0 million from MVR131.2 million in the first six months of 2012.”

The country’s trade deficit also widened in 2013 compared to the same period last year due to higher level of imports, which “reflects the increase in domestic demand driven by economic recovery and the increase in government expenditure.”

While gross international reserves increased in the first six months of 2013 due to the “accumulation of foreign assets by the commercial banks,” the bulletin noted that, “in terms of import cover, gross reserves remained unchanged at 2.5 months in June 2013 reflecting the acceleration in import growth.”

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