Parliament on Tuesday night approved an MVR1.7 billion (US$110 million) supplementary budget submitted by the finance ministry last week.
It was passed unanimously with 71 votes following a committee review and floor debate over three sittings since Monday night.
Additional funds were needed to improve public services, continue infrastructure projects and carry out programmes and projects pledged in the ruling party’s manifesto, according to the finance ministry. Grant aid has also exceeded forecasts by MVR716.8 million, which needed to be allocated through the supplementary budget, the ministry said.
The constitution requires parliamentary approval to add new expenditures to the budget passed for the year.
Main components of the supplementary budget:
- MVR350 million as a capital injection to the SME Development Finance Corporation
- MVR300 million for student loans and scholarships
- MVR294.5 million to begin projects to upgrade hospitals in five regions to tertiary-level (total cost would exceed MVR800 million)
- MVR225 million for the contingency budget to finance unforeseen expenditure
- MVR189.4 million as subsidies to lower cost of public services, including MVR130 million as revenue loss for the Male Water and Sewerage Company, MVR35 million for Island Aviation Services to reduce domestic airfare and MVR24.4 million to reduce the cost of electricity
- MVR150 million for the Aasandha company to restart stalled projects at the Hulhumalé hospital
- MVR94.5 million for projects to be financed from MVR100 million grant aid from India
- MVR81 million to expand the school breakfast programme
- MVR18.7 million for the newly-formed Bar Council and Maldives National Arbitration Centre
Appearing at the budget review committee on Sunday, Finance Minister Ibrahim Ameer said the additional expenditure would be financed through the sale of treasury bills and from grant aid provided as budget support by Saudi Arabia and India.
The extra funds will be used to deliver manifesto pledges and improve living standards, Ameer said, adding that “meaningful change” was needed instead of “bandaid” solutions.
As a result of open bidding, adhering to public finance laws and avoiding corruption in the tendering process, Ameer claimed that costs would be significantly lower. A water and sewerage project completed for MVR70 million by the previous government could now be carried out for MVR30 million, he told MPs on Monday night.
Addressing criticism over the slow rollout of projects, Ameer noted that only MVR1.9 billion out of MVR3.5 billion allocated for projects in the first year of the previous administration had been spent during 2014. Spending remained below target during the past five years, which was indicative of poor planning and lack of “budget credibility,” Ameer said.
Asked repeatedly about the failure to commence projects during the past eight months, Ameer assured lawmakers that the total budget allocated for the Public Sector Investment Programme would be utilised before the end of the year.
Large projects worth MVR2.6 billion have been awarded through the national tender process, which are expected to commence during the fourth quarter, he added. Some MVR3.3 billion was earmarked for new projects in the 2019 budget.
Speaking at the parliament floor during Monday night’s debate on the committee report, Ameer said the government’s policies were not adequately reflected in the budget as it had been formulated before President Ibrahim Mohamed Solih took office on November 17.
– Productivity and deficit –
Economic growth is expected to remain strong as the tourism industry’s performance was exceeding expectations with 19 percent growth in arrivals during the first half of 2019. Due to rapid growth of the construction industry in recent years, “investment is turning into consumption,” Ameer explained, predicting real estate business to flourish in the near future.
The government will continue building infrastructure as segments of the population lacked essential services and because a slowdown in the construction boom could cause an economic downturn, Ameer said.
Inflation – which was at 1.6 percent at the end of June – is not expected to rise due to the supplementary budget, Ameer contended, a stance that was later backed by central bank officials. The inflation rate is estimated to be 0.7 percent at the end of the year.
The forecast for government spending in the record 2019 budget was MVR27 billion. As a result of extra spending, the fiscal deficit is projected to increase from MVR4 billion to MVR4.9 billion or 5.6 percent of GDP. Public debt would grow from the estimated 61.3 percent to 61.6 percent of GDP.
Ameer also assured that selling T-bills in the domestic market would not “crowd out” lending to the private sector. The bulk of T-bills issued during the year has been bought by India through the State Bank of India, he noted. Upon maturity, the T-bills would be paid for by the Indian government. “Therefore, these T-bills would become grant aid next year,” he said.
Citing the central bank, Ameer said there was “excess liquidity” in the domestic financial market and expressed confidence in raising funds to plug the deficit.
The deficit has mainly been financed through US$150 million provided by India, he noted.
Deputy Governor Aishath Zahira meanwhile told the committee that the central bank plans to draw US$50 million through a separate currency swap deal signed with the Reserve Bank of India last month. But the facility would only be used if the foreign currency reserve needed to be shored up, she said.
The reserve currently stands at US$602.2 million, according to the central bank.