Tag: state spending

Government rules out supplementary budget to plug 2013 shortfall, commits to T-bill sales

Finance Minister Abdulla Jihad has said the government has overcome the need to issue a supplementary budget to plug a shortfall in state spending for the current year, relying instead on short-term treasury bills (T-bills) to carry over its debts.

The comments were made as the Ministry of Finance today confirmed it had been officially requested to present the proposed annual 2014 state budget to parliament on October 30, with work ongoing despite the challenges posed by the upcoming Eid holidays.

Jihad previously told Minivan News that despite anticipating parliament would need to approve a supplementary budget after state offices were found to have exhausted their recurrent expenditure for 2013 by April, the government was now instead relying on T-bills to balance outgoings.

The finance minister last month said that the Maldives was relying on 28 day T-bills to help “roll over” debt one month at a time after parliament had failed to approve a number of measures to try and increase state expenditure not included in the 2013 budget.

T-bills are sold by governments all over the world as a short-term debt obligation backed by sovereign states. In the Maldives, they have a maximum maturity of six months, in which time they must be repaid.

The present government’s reliance on T bills has been slammed by the opposition Maldivian Democratic Party (MDP), which has previously questioned why there had been an increased reliance on short-term financing considering total state revenue rose 16 percent over the 12 months up to July 2013.

Borrowing fears

The Finance Ministry claimed in August that it had managed to reduce state spending since 2012, despite the MMA raising fears that the current “beyond appropriate” levels of government expenditure was leading to a vicious cycle of borrowing.

Early last month, the government said it hoped to secure longer-term financing measures to cover the shortfall in annual revenue as the number of 28-day T-bills sold by the state almost doubled in July 2013 compared to the same period last year.

According to the Maldives Monetary Authority (MMA) monthly review for August 2013, sales of T-bills for July 2013 has risen by 95 percent year on year.

The MMA stated that there had been a 163 percent in 28 day T-bills by July 2013 compared to the same time last year, despite sales of T-bills with a maximum maturation period of three month and six months declining by 63 percent and 83 percent respectively.

Sales of T-bills were also up 35 percent for July 2013 over the previous month, according to the MMA’s figures.

Budget issues

Finance Minister Jihad told Minivan News earlier this year that the state’s increased reliance on T-bills between July 2012 and July 2013 reflected the difficulties faced by the government in trying to raise budgeted revenue during the period.

He added that with only “a few people” in the private sector now interested in purchasing the short-term debt obligation from the government, T-bills has been sold as part of wider investments made by the state through the country’s pension fund.

Parliament in April rejected government-sponsored legislation to raise the airport service charge to US$30, which was among a raft of measures proposed by the Finance Ministry in the estimated 2013 budget to raise MVR 1.8 billion (US$116 million) in new income.

Other proposed measures include hiking Tourism Goods and Services Tax (T-GST) to 15 percent from July 2013 onward, leasing 14 islands for resort development, introducing GST for telecom services as well as oil, and “selectively” reversing import duty reductions.

Opposition’s T-bill concerns

Mahmoud Razee, former Economic Development Minister under the previous government, claimed T-bills should only be used by the state to help cover its operational expenses, rather than serve as a long-term means of financing.

“With income tax revenue having increased according to the Maldives Inland Revenue Authority (MIRA), why have [T-bill sales] gone up? Under the MDP government we were using T-bills to meet our cash flow,” he said. “This had nothing to do with the fiscal deficit.”

Razee argued that while the former government had itself sought foreign loans to balance the financial deficit while in power, the administration of former President Mohamed Nasheed had worked to avoid relying on T-bills for longer-term financial concerns like balancing the national fiscal deficit.

“The moment T-bills are increased, this directly affects loans that banks are able to give to the private sector, leading to the cost of borrowing increasing,” he said.

Razee claimed that the MDP government had attempted to try and extend income tax reforms introduced during its time in office to further boost revenues – a plan he said was cut short by the controversial transfer of power on February 7, 2012.

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“Time for everyone to tighten their belts”: Finance Minister Jihad

Minister of Finance and Treasury Abdulla Jihad has said the state must brace to enact austerity measures in the long-term if authorities are to address the country’s fiscal deficit – with further budget cuts anticipated in all government departments over the next 12 months.

Jihad has told Minivan News that previous commitments by government institutions to cut their budgets by 15 percent would need to be followed by further reductions to state and civil service spending in next year’s budget, regardless of financial assistance secured from China and India.

The minister’s comments were made as Parliament’s Finance Committee – reconvening for the first time since July – agreed this week to provide an additional MVR 12 million (US$780,000) in budget to the Auditor General’s (AG’s) Office, according to local media.

Auditor General Niyaz Ibrahim said that under the existing state budget, an agreement was reached that an additional MVR 58.8 million (US$3.8 million) would be provided to the AG’s Office, though it was decided to request a smaller proportion of these funds, the Sun Online news service reported.

People’s Aliance (PA) party MP and Finance Committee Chair Ahmed Nazim was not responding to calls from Minivan News at the time of press.

However, Jihad claimed that the decision to provide the extended budget was a “concern” considering the state was not getting enough direct revenue at present to justify its spending.

“We need to be fair when it comes to the budget, everyone should have to follow the same rules,” he claimed. “Otherwise this would mean that I could only reduce the budget of the Finance Ministry in future. It is time that everyone should tighten their belts.”

According to Jihad, provisions for the extension of funds to the AG’s Office had been included in the state budget, but he claimed that the country needed to work together in reducing state spending where possible.

Regarding claims that further cuts to the state budget wuld be required during the next 12 months, Chairman of the Civil Service Commission (CSC) Mohamed Fahmy Hassan said that it had “managed” with the 15 percent cuts already made to its expenditure.

Fahmy added that as no request had so far been made by the government to reduce the size and budget of civil society organisations, it did not have concerns about potential job cuts.

“Our mandate is to provide human resources to the government. As long as there is no effect on the salaries or number of civil servants, we will not seek to intervene in the policy of government,” he said.

With state income lower and expenditure higher than predicted, this year’s budget deficit had been forecast to reach MVR9.1billion (US$590 million), equivalent to around 28 percent of nominal GDP.

Financial assistance

In the last few months, authorities in India and China had both pledged to provide financing to the Maldives. Finance Minister Jihad said that of these funds, US$25 million being provided by India would be put into “budget support” to try and address state spending. A large amount of the funding meanwhile from China, which would total US$500 million, was expected to be put towards development projects such as housing construction, the Finance Ministry added.

The Indian government had announced that it would be granting the Maldives an additional as part of the US$100 million standby credit facility agreed last year under the previous government.

China has also pledged funding to the government of President Dr Mohamed Waheed Hassan following an official state visit to the country.

The loans, equal to nearly one quarter of the Maldives’ GDP, are said to include $150 million (MVR2.3billion) for housing and infrastructure, with another $350million (MVR5.4billion) from the Export-Import Bank of China, reported Reuters.

Jihad has maintained that the state still needs to reassess where further spending cuts can be made going forward.

Just last month, the Finance Ministry forwarded proposals it claimed would cut MVR2.2billion (US$143million) form the national budget.

The austerity measures include raising Tourism Goods and Services Tax (TGST) to 15 percent,  terminating electricity subsidies in Male’, increasing import duties on alcohol and imposing a 3 percent  duty on oil, “reforming” the Aasandha health insurance scheme, and reducing the budget of every Ministry and independent institution by 15 percent – among other measures.

The original budget for 2012 envisioned that revenue would rise to MVR11.4billion (US$740million) with expenditure anticipated to be MVR14.5 billion (US$941million). This would have resulted in a budget deficit of around MVR3billion (US$194million), representing 10 percent of GDP.

However, several resort managers voiced concern at the time that the proposed revenue amendments would serve only to  affect the financial viability of the country’s tourism industry, while providing little improvement in service or support in return.

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