If current trends in government expenditure continue, the budget deficit may increase four-folds, the main opposition Maldivian Democratic Party (MDP) has said.
The estimated deficit for 2015 is MVR1.3billion (US$84million), but the figure may increase to MVR6billion (387million), members of the MDP’s economic affairs committee said today.
Ilyas Labeeb, the committee chair, said statistics published by the state indicate that the government had earned MVR7billion from January to May, but spent MVR9.2billion in the same period.
“This MVR2.2billion excess in the first five months already beats the total estimated deficit MVR1.3billion,” Ilyas said.
The parliament had passed a record budget of MVR24.3billion (US$1.5billion) for 2015. The finance ministry at the time said it expected to raise MVR21.5billion (US$1.3billion) in revenue.
The MDP released today a brief report on the state of the Maldivian economy, in which it claimed the government will not be able to meet its target of 1.4million tourist arrivals. The report also expressed concern over the government’s failure to bring in investments under a landmark Special Economic Zone (SEZ) Act passed last year.
The MDP also criticised the government’s failure to deliver on several key campaign pledges, including cash hand outs to fishermen, resort shares for resort workers, and the creation of 94,000 jobs by the end of President Abdulla Yameen’s five year term.
On tourist arrivals, the MDP noted the Maldives had welcomed 609,105 tourists in the first five months. This figure includes arrivals from cruise liners.
The Maldives will need to attract more than 800,000 tourists from June to December to meet the 1.4million arrivals target. This is unlikely as the Maldives had only welcomed some 600,000 between June and December 2014 and tourist arrivals only increased by 1.3 percent this year, the MDP said.
Average stay has meanwhile declined from 6.2 days to 5.8 days this year, and resort occupancy rates have declined from 76.3percent to 71.2percent. The MDP also noted a 2.3percent decline in tourist arrivals from the EU, noting European tourists spend more than tourists from other countries, namely China.
The ruling Progressive Party of the Maldives (PPM) is neglecting the emerging guesthouse tourism sector, the MDP said.
On fisheries, the party noted a 12 percent decline in fish exports and criticised the PPM for failure to commence work on infrastructure projects such as building ice plants, additional harbours and workshops for the fisheries sector.
The MDP also noted the government had failed to attract foreign direct investment, despite the major tax breaks and incentives in the SEZ Act.
It is unlikely that the Maldives will attract investments in SEZs because its comparative advantage lies in tourism and fisheries, the MDP said. The government’s heavy dependency on SEZs is resulting in failed economic policies, the party added.
The SEZs will ultimately become money-laundering centres for international criminal organizations, the MDP said, and reiterated the need for judicial reform and transparent economic policies to attract investment.
The government is yet to raise the US$100million expected in SEZ acquisition fees.
Despite record levels of income from taxes, increased recurrent expenditure was forcing the government to rely on T-bill sales. By the end of June, the government had accumulated MVR12billion in T-bill debt, the MDP said.
Between January and May, the government had spent MVR6.57billion on recurrent expenditure, an increase of 8 percent as compared to the same period last year. While Fiscal Responsibility Act requires the government to maintain the budget deficit at three percent of GDP, the figure could go up to eight percent due to increases in expenditure, the MDP said.
Most of the T-bill debt is held by commercial banks, meaning there is less money for loans for the private sector. The MDP said loans for the fisheries, tourism and construction sectors have decreased this year. If this continues, small and medium enterprises (SMEs) will suffer, which will in turn affect the middle-class, the party warned.
The PPM had only created 1000 jobs in its first 1.5 years in government, the MDP said, adding that it is unlikely that the government would be able to create 94,000 jobs since there are no incentives for SMEs and guesthouse tourism sector.
President Yameen last year claimed the government had created 17,000 jobs, but did not give details. Foreign Minister Dunya Maumoon recently said the figure was 5,000.
Ibrahim Ameer, the deputy chair of the economic committee, also expressed concern over the government’s decision to lower the Minimum Reserve Requirement (MRR) for commercial banks at the Maldives Monetary Authority (MMA) from 20 percent to 10 percent.
“When the government expenditure is rising at an unsustainable rate, lowering the MRR, especially in a country where there is no insurance for bank deposits, can result in a disaster that could be triggered by the slightest shock and panic,” Ameer said.
He went on to criticise the fact that the decision to lower MRR was announced by Vice President Ahmed Adeeb, claiming the move demonstrated that the central bank, the Maldives Monetary Authority’s (MMA) “independence has been compromised”.
“MMA is now being operated by the government, the institution’s technical capacity has been undermined, the central bank has been compromised,” he said.
Adeeb has previously stated that the decision to reduce MRR means commercial banks will have more funds to provide loans for private businesses – “a distortion of the truth,” according to Ameer.
Ameer claimed that the money freed will have to be invested in T-bills due to the increasing deficit.
The MDP also called on the government to reduce its expanding role in the economy, noting the move increases corruption and blocks opportunities for private businesses.
Additional writing and reporting by Zaheena Rasheed.