MMA chief slates government’s revenue raising measures

The Governor of the Maldives Monetary Authority (MMA) Fazeel Najeeb has criticised the proposed 2014 state budget for containing tenuous revenue-raising measures, expressing concern that the MMA may have to print money should the government fail to realise expected revenue.

The Ministry of Finance and Treasury has proposed a record MVR 17.5 billion (US$ 1.1 billion) budget for 2014 with a projected deficit of 2.2 percent of GDP. The government expects MVR8.5 billion (US$ 552 million) from taxation and a further MVR3.5 billion (US$ 224 million) from new revenue raising measures.

These measures include hiking Tourism Goods and Services Tax (T-GST) from 8 to 12 percent, revising import duties, a continuation of the tourism bed tax, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, introducing GST for telecommunication services and charging resort operators in advance for resort lease extensions.

The Majlis must amend existing legislation to realize the additional MVR 3.5 billion.

Najeeb told the People’s Majlis Budget Committee last night the government must not proceed with new development projects unless and until the revenue is realized.

“If not, ultimately the government will come to the MMA to find the cash to proceed with those projects. And then again we have more rufiyaa in the economy to chase after the few dollars,” Najeeb said.

Najeeb noted the proposed measures relied heavily on taxing the tourism sector and said adding new taxes to a nascent tax system introduced in 2010 may create problems. He further said that making resort owners pay lease extension fees upfront was robbing the state of future revenue for a “temporary benefit.”

The government had also proposed revising import duties and increasing departure charges to finance the 2013 budget, Najeeb said. However, the Majlis had failed to approve them, resulting in the MMA having to print the money, he added.

According to MMA figures, the central bank has printed over MVR1.7 billion (US$ 109,677,419) this year alone. Najeeb claimed the MMA had been forced to print the money so that the government could pay overdue bills.

The World Bank has criticized the measure in a new report and said monetisation poses “macro-risks” including the devaluation of the rufiyaa.

The report also notes that the government is increasingly relying on short-term commercial borrowing in the form of selling treasury bills (T-bills) to the banking, private sector, and high net worth individuals at steep interest rates.

Speaking on the matter, Najeeb said the Maldives was accumulating debt “without stop” due to short term T-bill sales. He suggested capping T-bill sales and obtaining Majlis approval to sell T-bills beyond the capped amount.

According to the MMA’s figures, the government has accumulated MVR8.5 billion in T-bill debt at the end of November.

Najeeb said the short-term debt had become a “burden” on the state and suggested negotiations with creditors to change short-term debt to long-term debt. Noting that the economic growth is not keeping pace with state expenditure, Najeeb stressed the need for economic diversification and reduction of the government size.

President Abdulla Yameen had pledged to reduce state expenditure on assuming office but has so far only made modest cuts limited to halving the presidential salary and reducing salaries of state and deputy ministers.

Foreign reserves are critically low at US$341.8 million, or approximately 2.5 months of imports, while public debt stands at 81 percent of GDP, the World Bank has said. Debt is projected to rise further to about 96 percent by 2015.

“This debt path is unsustainable and suggests there is little room for additional borrowing,” the World Bank has warned.


Government delays revisions to budget for third time

The Ministry of Finance and Treasury has delayed submitting revisions to the 2014 state budget for the third time.

On October 30, Minister of Finance and Treasury Abdulla Jihad presented a MVR 16.4 billion budget for 2014 with a projected deficit of 2.5 percent of GDP to parliament.

However, with the inauguration of President Abdulla Yameen Abdul Gayoom on November 16, opposition Maldivian Democratic Party (MDP) called for the state budget to be revised to include the Progressive Party of the Maldives’ (PPM) campaign pledges.

Jihad – who was reappointed under President Yameen – asked the People’s Majlis budget committee to allow the government to present a revised budget on November 25. The budget committee has suspended work until a new budget is submitted.

The Finance Ministry then delayed submitting revisions until November 28. The government was unable to meet its own deadline and further delayed submissions to today.

Local media reports the government is facing difficulties in cutting costs and will present revisions on December 5.

Yameen has expressed concern over the economic vulnerability of the Maldives and pledged to reduce state expenditure by MVR 1 billion.

“State debt is sky high. The state budget’s expenses are extremely high. Hence, we have to prioritise reducing state expenditure. I will start work very soon to reduce budget expenses,” Yameen said during his inauguration speech.


Government to cut costs, include new pledges in revised budget

The People’s Majlis Budget Committee has asked Finance Minister Abdulla Jihad to submit a revised budget on Monday November 25, following new President Abdulla Yameen Abdul Gayoom’s request to cut costs in the state budget for 2014.

Jihad – who also held the post of Finance Minister under former President Dr Mohamed Waheed Hassan – had presented a MVR 16.4 billion budget for 2014 with a projected deficit of 2.5 percent of GDP to parliament on October 30.

Speaking at the Majlis Budget committee today, Jihad asked for five days to revise budget to reduce state expenditure and include the Progressive Party of the Maldives’ (PPM) pledges made during the presidential election.

Yameen has expressed concern over the economic vulnerability of the Maldives and pledged to reduce state expenditure by MVR 1 billion.

“State debt is sky high. The state budget’s expenses are extremely high. Hence, we have to prioritise reducing state expenditure. I will start work very soon to reduce budget expenses,” Yameen said during his inauguration speech.

Jihad said today that state debt would reach MVR 30 billion (US$1.9 billion), approximately 78 percent of GDP.

During this week’s budget debate, opposition Maldivian Democratic Party (MDP) MPs maintained their call for the PPM’s pledges to be included in the new budget. These include providing “unlimited” health care under the state’s health insurance scheme Aasandha, designating a General Practitioner to each family, MVR 10,000 (US$650) for fishermen regardless of fish yield, MVR 8000 (US$518) for farmers and increasing old age pension from MVR 2300 (US$150) to MVR 5000 (US$325).

MDP Parliamentary Group Leader Ibrahim ‘Ibu’ Mohamed Solih said he was concerned that government MPs were advocating against the inclusion of funds for pledges in the new budget.

The Majlis will insert the funds necessary for the pledges if the government fails to do so, MP Rozaina Adam warned.

At today’s Budget Committee meeting, Jihad said the government is currently reviewing methods to decrease recurrent expenditure of MVR12 billion (US$778 million) which accounts for 73 percent of the budget.

He appealed to the Majlis to pass revenue raising measures which include hiking T-GST from 8 percent to 12 percent, revising import duties, delaying the abolishing of tourism bed tax for one more year, raising airport departure charge from foreign passengers from US$18 to US$30, leasing 12 islands for resort development and introducing GST for telecommunication services.

President Yameen also wants to revise the local council framework to reduce the numbers of island and atoll councilors, Jihad said.

The current model of more than 1,000 elected councillors established by the Decentralisation Act passed in 2010 by the then-opposition majority parliament was branded “economic sabotage” by the ousted Maldivian Democratic Party (MDP) government, which had proposed limiting the number of councillors to “no more than 220.”

The PPM had also advocated against increasing any airport taxes with PPM aligned Dhivehi Qaumee Party (DQP) annulling an Airport Development Charge (ADC) through the courts when Indian Infrastructure giant GMR was in charge of managing the airport. The GMR was booted out of the country in 2012.

Speaking at a rally to celebrate PPM’s presidential win last night, Yameen vowed to take only half the presidential salary of MVR 100,000 (US$6500) and decrease political posts at the President’s Office.

“The reason behind this is that Dr Jameel and I both live a simple life. No matter what has been said about us we are not wealthy. We want to be an example to others and lead by example,” Yameen said.

Highlighting the state’s dire financial state, Yameen asked his supporters for time and patience. He has previously said it would take two years to straighten the financial affairs of the country.

However, in the same speech, Yameen said he had ordered Jihad to include MVR 300 million for youth development in the 2014 state budget and pledged that the government will include the same amount in the state budget every year.

Meanwhile, the Majlis Finance Committee last night decided they will await instructions from the new government before approving loans sought by Dr Waheed’s administration. These loans include funds for budget support, building harbors in 22 islands, and funds for a Malé City electricity project.

“I do not think we should pass these loans when President Abdulla Yameen has said he wants to cut costs and reduce state debt,” Dhivehi Rayyithunge Party (DRP) MP Visam Ali said.


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.