Tag: T-Bills

Pensions office performs U-turn on benefit increase

After initially reporting that the promised pension increase from MVR2300 to MVR5000 could not be done this month, the Maldives Pension Administration Office (MPAO) today confirmed that it is working to transfer the MVR5000 by tomorrow.

The CEO of the office had yesterday told Haveeru that it had not received the additional funds for the increase and that it would therefore transfer the current MVR2300, giving the rest when the government released additional funds.

“They are doing this to fulfill a government pledge. This has nothing to do with the pension fund. We will not increase it to MVR5000 by taking money from that fund. What we will do is transfer it when the government provide us with it,” Manik was quoted as saying.

The state funded pension for all citizen’s above the age of 65 was introduced in 2009 at MVR2,000, and was later increased to MVR2,300 through an amendment to pension legislation.

A further increase to MVR5000 – starting from March 2014 – was an election pledge of President Abdulla Yameen, though changes to the amount disbursed from the existing pension funds will require another amendment to the act.

Cabinet minister Ahmed Adeeb has recently assured that the increase would take place in March as promised, saying that it can be funded through a sustainable model based on long term bonds and T-bills.

Adeeb also talked about the prospect of combining various funds such as housing, health insurance, and pension funds into a single fund.

The government had already allocated MVR470 million (US$ 30.5 million) in the state budget for the MVR2,300 allowance (US$149). These funds will now be invested in the retirement pension fund or in financial instruments such as T-bills in order to generate the monthly MVR5000 stipend, Adeeb has said.

Following Manik’s comments yesterday, Adeeb told Haveeru that the delay was due to the first of the month falling on the weekend and “because it is a new allowance”.

Yesterday, MPAO CEO Manik stated that eighty percent of the pension funds are already being invested in T-bills sold by the government to finance the budget deficit, and that discussions with the government are underway to invest the rest of the funds in bonds.

While the government maintains this to be a sustainable model of financing the increase in pensions, critics have argued that, with a MVR1.3 billion (US$84.3 million) deficit budget, the move will plunge the country further into debt.

“These are loans, and taking loans is acceptable to invest in to increasing productivity. But this is not such an investment, this is something the government is spending. Eventually people will have to bear the burden of this,” former Economic Development Minister Mahmud Razee has remarked.

Last December, the central bank and regulator – the Maldives Monetary Authority – advised the state to pay all due treasury bills and treasury bonds and to turn existing short-term debts into long-term ones.

Likes(0)Dislikes(1)

Tourist arrivals rose 17 percent in 2013

Tourist arrivals to the Maldives rose 17 percent in 2013 compared to the previous year, according to the latest Maldives Monetary Authority (MMA) monthly economic review.

“This was mainly due to the large increase in tourist arrivals from China, coupled with a slight growth in arrivals from Europe. Reflecting this, the total bednights and occupancy rate also recorded an increase during the year,” the MMA’s review stated.

The review did note, however, that the average duration of stay declined in 2013 compared with the year before.

Statistics from the tourism ministry show that 331,719 Chinese tourists visited the Maldives last year, which was a 44.5 percent increase from the previous year.

Chinese tourists accounted for 29.5 percent of all tourist arrivals in 2013.

The central bank also noted that real GDP (Gross Domestic Product) was expected to “accelerate to 4.5 percent in 2014, driven mainly by the tourism sector.”

In November 2013, the finance ministry revealed that the tourism industry’s GDP growth in 2012 declined by 0.1 percent following 15.8 percent growth in 2010 and 9.2 percent in 2011.

Despite negative growth in 2012, the finance ministry estimated that the industry would have expanded 5.5 percent in 2013 and forecast a growth rate of 5.2 percent for this year.

The average duration of stay has however fallen from 8.6 days in 2009 to 6.7 days in 2012 and 6.3 days in 2013.

According to the annual tourism yearbook published by the Tourism Ministry, the average occupancy rate of all tourist establishments in 2012 was 2.5 percent below the previous year at 70.6 percent.

The Maldivian economy is largely dependent on tourism, which accounted for 28 percent of GDP on average in the past five years, and generated 38 percent of government revenue in 2012.

Meanwhile, in the fisheries industry – the second largest domestic industry – “the volume of fish exports increased by 48 percent while the earnings on fish exports rose by 14 percent” between January and November 2013 compared to the same period in 2012.

“This was contributed by the increase in both the volume and earnings on fresh, chilled or frozen tuna,” the MMA report stated.

It added that fish purchases rose by 21 percent from January to September 2013 compared to the same period the previous year.

Inflation

The monthly review noted that the International Monetary Fund (IMF) commodity price index increased by two percent in monthly terms during December 2013.

“This increase was due to the rise in food, metal and petroleum prices in the review period. In annual terms the IMF commodity price index increased by one percent, contributed by the increase in petroleum prices which off set the price declines in food and metal.The price of crude oil increased by three percent in monthly terms during December 2013, while prices rose by six percent in annual terms,” the review stated.

The rate of inflation in the capital Malé meanwhile decreased to 3.1 percent in December 2013, the MMA revealed, which was “largely due to the fall in fish prices.”

“Similarly, the rate of inflation in Male’ decelerated  marginally in monthly terms during December 2013, which was also due to the fall in fish prices,” the review stated.

Likes(0)Dislikes(0)

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.”

Likes(0)Dislikes(0)

President Waheed requests parliamentary approval for loans of over US$96 million

Parliament has begun debate on the MVR 16.9 billion (US$1 billion) state budget for 2013 submitted by Finance Minister Abdulla Jihad last week.

At the beginning of Tuesday’s sitting, Speaker Abdulla Shahid read out a letter from President Dr Mohamed Waheed Hassan Manik requesting parliamentary approval for loans and government guarantees in the coming year.

Parliamentary approval for loans is required under amendments brought to the Public Finance Act in 2010.

Speaker Shahid announced that the President’s request was sent to parliament’s Finance Committee for consideration and review.

Minivan News understands President Waheed requested parliamentary approval for loans amounting to over US$96 million.

Presenting the budget to parliament last week, Finance Minister Jihad explained that next year’s budget deficit was to be financed with MVR 971 million (US$62 million) as budget support and MVR 1.3 billion (US$84 million) from Treasury bill (T-bill) sales.

Of the MVR 971 million estimated as budget support, MVR 671 million (US$43 million) was expected as foreign loan assistance, Jihad said, with the rest to be made up from “domestic finance.”

Jihad told parliament’s budget committee on Sunday that a large number of T-bills were sold to Champa Brothers – at an interest rate of about eight percent – when the Maldives Monetary Authority 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 of 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.

Budget debate

Speaker Shahid announced that the debate would take place from 9:00am to 5:00pm with intervals until Thursday.

During Tuesday’s debate – which proceeded haltingly due to frequent loss of quorum – most MPs complained of the lack of funds allocated for development projects in their constituencies, such as harbours, water and sanitation systems, additional classrooms and upgrades to health centres.

In his budget speech (Dhivehi) last week, Jihad revealed that the public sector investment programme (PSIP) for 2013 included construction and repairs of harbours in 14 islands, establishing sewerage systems in 11 islands, water systems in three islands, 1,500 housing units in eight islands, 21 new mosques and upgrading the regional hospitals in Kulhudhufushi and Addu City to tertiary level.

Jihad said MVR 3.1 billion (US$201 million) was earmarked for the PSIP, with MVR 1.5 billion (US$97 million) from the state budget, MVR 21 million (US$1.3 million) from domestic loans, MVR 1.2 billion (US$77 million) as foreign loans and MVR347.6 million (US$22.5 million) as free aid.

Speaking first during Tuesday’s debate, MP Ali Waheed of the formerly ruling Maldivian Democratic Party (MDP) said there were no funds or projects in the budget for his constituency or the neighbouring island of Mahibadhoo in Alif Dhaal atoll.

The MDP parliamentary group deputy leader insisted that the government should continue implementing the former ruling party’s manifesto.

Government-aligned Dhivehi Rayyithunge Party (DRP) MP for Kelaa, Dr Abdulla Mausoom, expressed concern with taking more loans to finance the budget deficit while the public debt was expected to reach MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.

Considering the high levels of debt, Dr Mausoom observed that his each of his constituents in Kelaa in the northernmost atoll of the Maldives “are indebted by MVR 85,000 (US$5510)”.

As a consequence of “unequal development of the country,” said Mausoom, there was no sewerage in the islands of Kelaa and Filladhoo.

The DRP MP criticised the administrations of both Presidents Maumoon Abdul Gayoom and Mohamed Nasheed for running up huge deficits and public debts, claiming that public debt “shot up like a rocket” during the three-year rule of the latter.

DRP MP for Kanditheemu, Mohamed Hussain, meanwhile protested over zero funds allocated for the island of Goidhoo in Shaviyani Atoll, part of his constituency.

The MP contended that smaller islands were neglected during formulation of the budget. He added that details of what was needed for the islands were shared with both President Waheed and Finance Minister Jihad prior to the drafting of the budget.

While he did not propose expenditure of more than half a million for the three smallest islands in Shaviyani Atoll, there was “a blank space next to Goidhoo” in the budget.

Local media reported that islanders of Goidhoo launched protests this week over the lack of funds allocated for development of the island.

Independent MP for Vaavu Atoll Velidhoo, Ali Mohamed, said his constituents in Foddhoo have been protesting at the island council for the past five days because the island’s pier was “crumbling” and damaged beyond use.

MDP MP for Ihavandhoo in Haa Alif atoll, Ahmed Abdulla, objected to infrastructure projects for the constituency approved in the budget for 2012 having come to a standstill.

MP Ahmed Abdulla claimed that MVR 10 million from a MVR 70 million loan from the Bank of Maldives had been disbursed but a planned sewerage project for Ihavandhoo did not commence this year.

Meanwhile, at the beginning of today’s sitting, Speaker Shahid said MPs should be “ashamed and embarrassed” that debate was only able to continue yesterday for two and a half hours out of six hours allotted in the agenda.

Yesterday’s debate was frequently interrupted by loss of quorum and was eventually cancelled around 4:00pm. At least 20 MPs are required to be in the chamber for sittings to proceed.

Shahid appealed for cooperation to let all MPs speak before the conclusion of the budget debate on Thursday.

Likes(0)Dislikes(0)

State budget of MVR 16.9 billion for 2013 presented to parliament

Finance Minister Abdulla Jihad submitted an annual state budget of MVR 16.9 billion (US$1 billion) for 2013 (Dhivehi) to parliament today, proposing a raft of measures to raise revenue and reduce spending.

Of the proposed MVR 16.9 billion of government spending, more than 70 percent was recurrent expenditure, Jihad noted in his budget speech (Dhivehi).

“As in other years, the highest portion of recurrent expenditure is expenditure on [salaries and allowances for government] employees,” Jihad explained. “That is 48 percent of total recurrent expenditure.”

As total expenditure would outstrip projected revenues of MVR 12.9 billion (US$836 million), Jihad said the resulting deficit would be plugged with MVR 971 million (US$62 million) as budget support and MVR 1.3 billion (US$84 million) from Treasury bill (T-bill) sales.

Of the MVR 971 million in budget support, MVR 671 million (US$43 million) was expected as foreign loan assistance, Jihad explained, with the rest to be made up from “domestic finance.”

New measures proposed to raise revenue is expected to account for MVR 1.8 billion (US$116 million) in income, Jihad said.

Jihad further claimed that the budget deficit at the end of 2013 would be MVR 2.3 billion (US$149 million), half the deficit in the current year.

On revenue forecasts, Jihad revealed that income from taxation would account for MVR 9.1 billion (US$590 million) while MVR 3 billion (US$194 million) was expected from other sources, such as resort lease rents, dividends from government companies and profits from the Maldives Monetary Authority (MMA).

On social and economic programmes, Jihad said MVR 2.5 billion (US$162 million) was allocated to the education sector, MVR 1.7 billion (US$110 million) for strengthening the judiciary, MVR 1.5 billion (US$97 million) for improving health services, MVR 2 billion (US$129 million) for social security and welfare and MVR 5.5 billion (US$356 million) for infrastructure projects in the atolls.

A public sector investment programme (PSIP) was formulated with MVR 3.1 billion (US$201 million), Jihad said, with MVR 1.5 billion (US$97 million) from the state budget, MVR 21 million (US$1.3 million) from domestic loans, MVR 1.2 billion (US$77 million) as foreign loans and MVR347.6 million (US$22.5 million) as free aid.

The PSIP projects include construction and repairs of harbours in 14 islands, establishing sewerage systems in 11 islands, water systems in three islands, 1,500 housing units in eight islands, 21 new mosques and upgrading the regional hospitals in Kulhudhufushi and Addu City to tertiary level.

Meanwhile, according to the latest figures from the Finance Ministry, government spending as of November 22 stands at MVR 10.9 billion (US$706 million), while revenues of MVR 8.5 billion (US$551 million) have been collected so far this year.

Jihad said in parliament today that total spending in 2012 is expected to be MVR 16.5 billion (US$1 billion) while revenues would be 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.

Revenue raising and cost-cutting measures

A recent mission from the International Monetary Fund (IMF) urged the government to implement a raft of measures to raise revenues, advising that strengthening government finances was “the most pressing macroeconomic priority for the Maldives.”

Finance Minister JihadEchoing the IMF concerns, Jihad told MPs that rising public debt was “a major challenge to the country’s economy,” revealing that the state’s debt would increase to MVR 31 billion (US$2 billion) by the end of 2013 – 82 percent of GDP.

If the deficit spending trend continues, Jihad warned that the Maldives would face severe difficulties in securing development loans and financial assistance.

Taking the IMF recommendations on board in formulating the budget, Jihad proposed a number of revenue raising and cost-cutting measures,

  • Review government subsidies to target assistance to the needy
  • Freeze hiring “as much as possible”
  • Reforming the universal health insurance programme ‘Aasandha’
  • Reducing the number of councillors and board members of government companies
  • Reducing expenditure for trips from government offices to the atolls
  • Reduce government expenditure on rent for government offices
  • Reduce overseas trips by government employees
  • Amending the Pension Act to abolish “double pension”
  • Reversing import duty reductions
  • Hiking T-GST (Tourism Good and Services Tax) to 15 percent from July 2013
  • Introducing GST for telecom services (currently exempt from the tax)
  • Introducing GST for oil
  • Increasing airport service charge for foreigners from $18 to $30
  • Amending the law on revenue stamps
  • Abolishing 22 loss-making government companies

Jihad appealed to MPs to approve the measures and warned of “bitter consequences for the whole nation” should deficit spending continue in the future.

The Finance Minister urged MPs to “put aside political differences and prioritise national interest” in recognising that the country could not “indefinitely” spend beyond its means.

“We have to accept that these measures will affect all of us to some extent,” he said. “However, if we do not begin taking these measures, we might have to face more severe difficulties as a result of steps we would be forced to take.”

Monetary policy

According to projections by the MMA, said Jihad, the current account deficit is expected be higher than 2012 by 15 percent.

The current account deficit is projected to widen to 28 percent of GDP in 2013, Jihad said.

Collaborative efforts from different sector would be needed to “solve the balance of payments problem facing the country,” Jihad added, as the imbalance in the foreign exchange market has been building for many years, resulting in a parallel or “black market” for dollars.

Policies have been proposed to increase exports and expand small businesses, Jihad said.

Following the submission of the budget today, a joint committee of the parliament’s Finance Committee and Economic Committee would convene to review the proposed budget before it is put for a vote.

The budget debate has meanwhile been scheduled for December 4, 5 and 6, Speaker Abdulla Shahid said today.

Likes(0)Dislikes(0)

India calls in debts of US$100 million; “not a major concern” says Finance Minister

Despite India requesting repayment of US$100 million in treasury bonds by February 2013, Finance Minister Abdulla Jihad has said his earlier fears that the Maldives would be unable to cover expenditure for the final months of 2012 were “no longer a concern”.

Jihad told Minivan News that India was also yet to provide a final US$25 million installment of a promised loan, one Jihad said just last month was vital to ensure the Maldives could cover its wage bill.

The Maldives is now required to pay US$50 million in T-bond payments to India by next month, with a second payment due in February, local media has reported.

The Finance Ministry said the debt would be repaid through state reserves, which Sun Online reported could fall to US$140 million (MVR2.2 billion) once the payments to India are settled.

Concerns over state reserves are shared by the International Monetary Fund (IMF), which earlier this month called on the Maldives to introduce a raft of new measures to try and raise revenue and cut spending to alleviate a ballooning fiscal deficit.

“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, following its visit to the Maldives.

Finance Minister Jihad said that as part of trying to balance the country’s expenditure, the Economic Ministry was attempting to secure private sector funding to make up any shortfalls in budget support resulting from a lack of funds anticipated from India. However, he did not give further details on the nature of the private sector groups presently being sought.

Jihad claimed that a “significant” part of the private sector focus would be through issuing treasury bills (T-bills) to the private sector as recommended earlier this year by the IMF.

“When we opened up treasury bills to the private sector initially there was no response,” he said. “However, there have now been consultations with private groups.”

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

Meanwhile, Jihad said the Finance Ministry had received no notice from Indian authorities regarding when it may receive the final US$25 million installment of a US$100 million loan agreed late last year.  The finance minster said his department had been given no ultimatum or conditions to be met by Indian authorities in order to receive the money.

“I don’t know why the delay [in receiving the funds] has happened. You would need to ask the Indian High Commission about that,” he said.

The  US$25 million was agreed as part of the $US100 million standby credit facility signed with Prime Minister Manmohan Singh in November 2011.

Diplomatic tension

Tensions between India and the Maldives has risen in recent months as divides within the coalition government of President Mohamed Waheed Hassan began to appear over opposition to a contract signed by the previous government, to develop and manage the country’s main airport with Indian infrastructure group GMR.

The divides have threatened to spill into a major diplomatic incident in recent weeks, after the President’s Office issued a release distancing itself from the comments of its own spokesperson, Abbas Adil Riza, who had accused India’s representative in the Maldives of being “an enemy and a traitor to the Maldivian people”.

The dispute between the government and GMR – currently being heard in an arbitration case at Singapore’s High Court – has become increasingly acrimonious with ongoing demonstrations across Male’ and even the water ways surrounding the airport.

The demonstrations have been backed by certain parties within President Waheed’s coalition government, who have set him an ultimatum of reneging on the contract by the end of the month.

While the GMR contract is not implicitly backed by other coalition parties, several senior party figures have opted against plans to “take to the streets” in calling for the airport to be “renationalised” or acting in a manner that could potentially damage future foreign investment in the country.

The GMR contract, which was overseen by a number of organisations including the International Finance Corporation (IFC) – a member of the World Bank group – represents the largest ever foreign investment in the Maldives. President Waheed himself told Indian media that his government was committed to protecting foreign investments in the Maldives, despite questioning elements of the deal.

Foreign borrowing

Earlier this year, President Waheed reportedly said he would not resort to borrowing from foreign governments in order to finance government activities.

“I will not try to run the government by securing huge loans from foreign parties. We are trying to spend from what we earn,” he was reported to have told the people of Nilandhoo.

“The Maldivian economy is fine. Don’t listen to whatever people say. We don’t have to [worry] about the Maldivian economy being in a slump,” he was quoted as saying at the time during a rally in Meedhoo.

Despite Waheed’s reassurances, October saw a number of state owned institutions face disconnection from the capital’s power grid as bills amounting to around MVR 150 million (US$9.7 million) were owed to the State Electricity Company (STELCO).

Responding to the institutions’ blaming of his ministry, Jihad at the time told Sun that the finances were simply not there.

“We are not receiving foreign aid as was included in the budget. How can we spend more than we receive? That’s why those bills are unpaid. We can’t spend money we don’t have,” he told the paper.

Since coming to power in February, the government has committed to reimbursing civil servants for wage reductions made during the austerity measures of the previous government, amounting to Rf443.7 million (US$28.8 million), to be disbursed in monthly installments over 12 months from July.

A MVR 100million (US$6.4 million) fuel subsidy for the fishing industry was also approved by the Majlis Finance Committee, with the hope of stimulating the ailing sector.

The overall deficit for government expenditure has already reached over MVR2billion (US$129million). Jihad has told the Majlis’ Finance Committee that he expected this figure to rise to MVR 6 billion (US$387 million) by year’s end – 28 percent of GDP – alleging that the previous government left unpaid bills equal to over one third of this anticipated deficit.

Former Minister of Economic Development Mahmood Razee has previously told Minivan News that this increased expenditure in the face of a pre-existing deficit represented the government “ignoring reality.”

“If they don’t get the loan, they will have to cut travel expenses, stop certain programs – take drastic measures or get another loan,” said Razee, claiming that the only alternative would be to sell treasury bills.

Following reports in August that the government was attempting to raise funds through the sale of treasury bills, former Finance Minister Ahmed Inaz claimed such a measure would not address IMF concerns about state spending, prolonging economic uncertainty.

In August, the current Finance Ministry announced its own austerity measures intended to wipe over MVR2.2billion (US$143 million) from this year’s budget deficit though few of these propositions have as yet been followed through.

Likes(0)Dislikes(0)

Finance minister anticipates wage payment problems without Indian financing

Minister of Finance and Treasury Abdulla Jihad has told local media that the country may struggle to cover state wages and bills unless US$25 million in proposed financing from India is secured by next month.

Jihad reportedly told Parliament’s Finance Committee that balancing the national budget for the next two months would be “extremely difficult” without the US$25 million to support a US$17 Asian Development Bank (ADB) loan taken as budget support for the current month, according to the Sun Online news agency.

The Indian government had announced that it would be granting the Maldives an additional US$25 million as part of the US$100 million standby credit facility agreed last year under the previous government.

Jihad also told the committee that state reliance on Treasury Bills (T-bills) presently amounted to MVR5.3 billion, an additional deficit he said would need to be covered unless the short-term financing mechanism can be prolonged.

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

Sun quoted Jihad as saying that MVR300 million in T-bills had been received by the Madlvies Monetary Authority (MMA), though these were presently being held by the Finance Ministry owing to a “lack of sufficient cash flow”.

Jihad told Minivan News last week that the Maldives would need to brace for long-term austerity measures in order to address the country’s fiscal deficit – with further budget cuts anticipated in all government departments over the next 12 months.

Likes(0)Dislikes(0)

Former finance chief questions timing of MMA private sector T-bill reform

Former Finance Minister Ahmed Inaz has questioned the timing of the Maldives Monetary Authority’s (MMA’s) decision to offer Treasury Bills (T-bills) to the wider private sector claiming it would compound the country’s budget deficit rather than directly address state debt.

Inaz, who served as Finance Minister under the administration of former President Mohamed Nasheed, said that until the present government put a lid on its expenditure to levels agreed in the national budgets of the last two or three years – extending T-bills to the wider private sector in the current climate would only prolong economic uncertainty.

The comments were made as local media reported yesterday that the Maldives Monetary Authority (MMA) had opted to allow “private groups” to purchase T-bills.

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

The economy, particularly national debt, has become an increasingly important issue for the coalition government of President Dr Mohamed Waheed Hassan.

Parliament’s Financial Committee in May released projection that the Maldives’ budget deficit will reach 27 percent of the GDP by the end of 2012, a 175 percent increase on earlier forecasts.

In recent weeks, the government has downplayed delayed payments of civil servant salaries as being the result of a banking “administrative error”, while also admitting to facing “economic difficulties” in covering months of outstanding premium payments resulting from the Aasandha universal healthcare programme.

Yesterday, Abdulla Yameen, parliamentary leader of the government-aligned Progressive Party of Maldives (PPM) told local media that the country was in “dire need” of financial assistance from the international community to help set right the economy.

Yameen and fellow PPM MP and Spokesperson Ahmed Mahlouf were not responding to calls from Minivan News today to clarify the comments.

T-bill extension

Finance Minister Abdulla Jihad said the decision to extend the availability of T-bills to private enterprise was a condition outlined by the Asia Development Bank (ADB) to secure loan funding. He was unable to give the exact amount of the loan at the time of press.

According to Jihad, T-bills had been previously only open to private financial institutions, a market place that he said was presently “saturated” in terms of demand, limiting the amount of T-bills the institutions were willing, or had the capacity, to purchase.

“The issue was to open the market to private groups,” he said.

In regards to criticism from the previous administration about state spending, the Finance Minister pointed to a recent order for all government institutions to immediately reduce their budgets by 15 percent – a pledge Jihad stressed had been successfully realised.

However, former Finance Minister Inaz said by that extending the T-bill scheme without addressing wider concerns of groups like the International Monetary Fund (IMF) over government expenditure, authorities were only prolonging current economic instability rather than tackling the present spending shortfall.

“My reaction to the MMA’s proposals is that issuing T-bills to the private sector or these private groups is not going to help the situation. The budget deficit should be reduced at all costs. Then these T-bills could be introduced as a way to meet capital expenditure,” he said.

“Expenditure should of course not be reduced to a level that would kill off independent institutions and the democratic reform of recent years. But the best way forward is to maintain expenditure say to the levels set in the 2010 or 2011 budget, while increasing income.”

While accepting that current political tensions between the government and the now opposition Maldivian Democratic Party (MDP) made it difficult reach parliamentary agreement, Inaz said that the Majlis would need to agree on any changes to the state budget.

Inaz also called on policy makers to adopt a “broader mindset” by reviewing the present government’s decision, announced earlier this year, to restore import duties and reduce GST.

He believed that taxation measures such as the GST remained the easiest solution to boosting revenue.

Inaz contended that a focus on more direct taxation would allow the government to serve as a facilitator to encourage the private sector to generate economic activity.

T-Bill reliance under Nasheed

Despite concern over the timing of the MMA’s proposals, Inaz conceded that the previous administration had itself relied on debt financed through the sale of T-bills that amounted to about Rf 1.4billion in 2011. However, he claimed that the final budget passed under the Nasheed government in December 2011 was designed to reduce the nation’s budget deficit, while also cutting down on short-term debt obligations such as T-bills.

“The T-bills issued in 2011 amounted to Rf1.4 billion (US$90.8 million). We foresaw the need growing every year, but this is very difficult to maintain as the maximum maturity for T-bills is six months, during which time they must be paid back,” he said

However, Inaz added that before the controversial transfer of power in February that brought President Waheed into office, the Nasheed government had pledged to reduce its reliance on T-bills by focusing on generating revenue through economic reforms such as GST.

“This year though we were set to reduce our reliance on T-bills to about Rf 700 million (US$45.4 million) with a view to cutting back completely through repayments in the next two years or so.”

Local media reported in April last year that government debt accrued through the sale of T-bills to banks and financial enterprises was estimated to be equivalent to more than a third of this year’s Rf 12 billion (US$778.2 million) national budget, according to Maldives Monetary Authority (MMA) figures released at the time.

Likes(0)Dislikes(0)

Treasury Bills debt stands at over a third of annual budget: report

Government debt accrued through the sale of Treasury Bills to banks and commercial enterprises in the country is estimated to be equivalent to more than a third of this year’s Rf12bn national budget, according to Maldives Monetary Authority (MMA) figures.

Haveeru has reported that at present, Rf5bn of debt has been generated through the MMA’s sale of T-Bills, which are sold frequently to national businesses at interest rates recently set around 4.57 percent, 5.34 percent and 5.53 percent.

According to the report, Treasury Bills have been sold by the government since September 2006 initially as a short-term attempt to settle outstanding national debt.  An estimated Rf1.3bn is expected to be raised through the sale of T-Bills under the current national budget.

Likes(0)Dislikes(0)