Government expenditure rose 58 percent in June, reveals MMA

Government spending in June rose 58 percent compared to the same period in 2013, the Maldives Monetary Authority’s (MMA) monthly economic review for July 2014 has revealed.

Total expenditure, excluding net lending, “amounted to MVR1.6 billion (US$103 million) in June 2014,” stated the report released on Sunday (August 31).

Total government revenue, excluding grants, meanwhile rose four percent in annual terms and reached MVR0.9 billion (US$58 million).

“The increase in total revenue during June 2014 was largely due to the 57 percent growth in import duty and the 9 percent increase in total goods and services tax,” the central bank explained.

“Meanwhile, non-tax revenue registered a decline owing to the 18 percent decline in resort lease rent. As for the increase in expenditure, it was mainly due to the 30 percent increase in current expenditure.”

Budget deficit

In early August, Finance Minister Abdulla Jihad revealed that the government was facing “great difficulty in managing the budget deficit” due to shortfalls in revenue.

The ballooning budget deficit – which Jihad warned could reach MVR4 billion (US$260 million) or 10.6 percent of GDP – could affect the government’s ability to pay civil servants, he said.

A fiscal deficit of MVR1.3 million (US$84,306) had been projected in the record MVR17.96 billion (US$1.1 billion) budget approved by parliament.

The budget was inclusive of proposed revenue raising measures – many of which had failed to materialise during the previous administration – amounting to MVR3.4 billion (US$220 million), or 19 percent of the budget.

“Expenses keep on increasing, even as we don’t receive any revenue. We did not get the expected revenue this year either,” Jihad said last month.

Despite parliament passing the measures in February – including tax and import duty hikes – Jihad predicted at the time that the anticipated revenue might not be realised in full due to compromises.

“We try to make regular salary payments even if we have to take loans in order to do so,” Jihad said.

The monthly review revealed that the total outstanding stock of government securities – treasury bills and bonds – increased 18 percent in July compared to the corresponding period last year, reaching MVR13.7 billion (US$888 million).

“The annual growth in government securities was contributed by the increase in the amount of T-bills issued by the government to manage its growing cash flow requirements,” the review explained.

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

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

Tourism, fisheries and inflation

Tourist arrivals in July increased 20 percent from the previous month and 14 percent compared to July 2013, reaching 100,191 visitors, the review noted.

While bednights rose by nine percent in annual terms, the report noted that average duration of stay declined from 6.0 days in July last year to 5.7 days this year.

“With the increase in bednights, the occupancy rate also rose to 69 percent in July 2014 from 66 percent in the same period last year,” the review stated.

Fish purchases meanwhile declined by 44 percent to 2,124.7 metric tonnes compared to July 2013, the report revealed.

While the volume of fish exports fell by 54 percent, earnings on fish exports declined by 41 percent, which was “contributed mainly by the fall in export of frozen yellow fin tuna.”

The rate of inflation in the capital decreased to 2.4 percent from 3.5 percent in July 2013 and 3.6 percent the previous year, the review found, which was due to “the slower growth of food prices, especially fish, and the moderation in the growth in prices charged for rent and health services.”

The review noted that the trade deficit widened by 38 percent in July compared to the same period last year “due to the 27 percent increase in imports and the 34 percent decline in exports.”

Gross international reserves rose four percent from the previous month and 42 percent in annual terms, the review stated, amounting to US$497.6 million at the end of July.

“This mainly reflects the temporary increase in foreign currency transfers by the commercial banks in the review period,” the central bank explained.

“As for reserves in terms of months of imports, it also increased in both monthly and annual terms and stood at 3.2 months during the review month.”


China offers Maldives US$8.2 million in grant aid: President’s Office

The President’s Office (PO) has announced China will give the Maldives 50 million yuan (US$8.2 million) in grant aid “for the implementation of developmental projects and the advancement of public services.”

The announcement was made following a meeting between Foreign Minister Dunya Maumoon and President Abdulla Yameen with the Chinese Ambassador to the Maldives, Yu Hongyao.

The grant aid comes at a time the Maldives is facing dire economic circumstances, with the government unable to afford its huge recurrent expenditure on a bloated civil service and failing to pay millions of dollars owed to state-owned companies for services such as oil and electricity.

The State Trading Organisation (STO), the country’s main importer and wholesaler which brings in most of the Maldives’ basic commodities such as food and oil, warned of oil shortages in November after it was unable to pay a US$20 million debt to suppliers.

The central bank eventually bailed out the STO by drawing on the Maldives’ dwindling foreign currency reserves, but warned the country was on the verge of needing to print money, while state debt reached MVR 30 billion (US$1.9 billion).

The US$100 million fishing industry is about to be hit in 2014 by the decision of the country’s top export partner – Europe – refusing to extend the Maldives’ duty-free status due to its failure to ratify international conventions on freedom of religion and women’s rights.

The government this week said it would look to sell fish to the Arab and Malaysian markets by certifying Maldivian fish as ‘halal’.

The Maldives’ other major industry, tourism, meanwhile flat-lined in 2012 with the number of tourist bed nights falling 0.1 percent, even as annual arrivals continued to increase, this week topping one million.

The Tourism Ministry revealed that Chinese tourists now represented 30.8 percent of the total arrivals to the Maldives, the highest arrival from a single source market, however the Finance Ministry observed that this had not been matched with new revenue.

“As the most number of tourists to the country now come from China, we note that the low number of nights on average that a Chinese tourist spends in the Maldives has an adverse effect on the tourism sector’s GDP,” read the Finance Ministry’s ‘Fiscal and Economic Outlook: 2012 to 2016’ report.

The enthusiasm of the Maldives’ usual aid partners dwindled over two years of democratic uncertainty following President Mohamed Nasheed’s ousting by mutinying police in February 2012, while others – particularly Scandinavian countries lost interest once the Maldives graduated from ‘least developed’ to ‘middle income’ in 2011.

This was to some extent offset by extensive funding for climate change adaption and mitigation efforts across the country, ranging from waste management to desalination projects, that followed the Maldives’ grandstanding at international climate events.

President Yameen has pledged to tackle the Maldives’ economic woes by exploring and drilling for oil, as part of the Progressive Party of the Maldives (PPM) campaign pledges.


State reserves shrink to MVR 4.9 billion

State reserves have shrunk to MVR 4.9 billion (US$317769131), according to Maldives Monetary Authority (MMA) statistics as reported by local media.

This is essentially only enough for one month of imports.

Between November and December 2012 reserves dropped 14 percent, or MVR 849.7 million (US$55103761). In comparison with the start of 2012 – when the State reserve was MVR 5.3 billion (US$343709468) – January 2013 has seen an eight percent decline.

MMA statistics explain the reason for the downward slide at the end of 2012 is due to depletion of State funds in local and foreign banks, according to Haveeru.