Maldives 2016 budget – all you need to know

The People’s Majlis will vote tomorrow to pass the 2016 state budget, which currently stands at a record MVR27.5billion (US$1.7billion).

The budget committee is recommending that the budget be passed, without any changes except for an increase of MVR20million (US$1.2million) for the judiciary. The budget is expected to pass since the ruling Progressive Party of the Maldives holds a comfortable majority in the parliament.

The key facts below include comments from Finance Minister Abdulla Jihad, the main opposition Maldivian Democratic Party and human rights groups. The central bank Maldives Monetary Authority has not published its budget opinion yet.

The economy

The government expects economic growth to increase to 6.4 percent in 2016, despite a slowdown in the past two years.

The economy was expected to grow at 8.5 percent and 10.5 percent in 2014 and 2015, respectively. But rates stood much lower, at 6.5 percent for 2014 and 4.81 percent for this year. The opposition, however, says growth will decline further to 3 percent by the end of the year, the lowest in a decade.

The government blames the downturn to slow growth in tourism and fisheries sector. This year, tourist arrivals only registered a two percent increase, while bed nights decreased by 3.9 percent.

However, with several mega infrastructure projects, including a bridge between Malé and Hulhumalé, the government expects growth in the construction sector to spur economic growth next year. The government also expects the tourism sector to pick up because of promotion activities with the Visit Maldives Year 2016 campaign.

The deficit

With just 21.5billion (US$1.4billion) expected in revenue, the budget deficit will rise to MVR3.4billion (US$220million) or six percent of GDP in 2016.

The MDP, noting that the government had not been able to raise some MVR3.4billion (US$200million) in revenue from new measures even this year, has expressed concern that the same measures are included in this year’s budget.

If not realized, the 2016 deficit may reach MVR7billion (US$454million) or 12 percent of GDP, the party said.

The deficit for 2015 had risen from MVR1.5billion (US$100million) to MVR3.5billion (US$227million), or 6.9 percent of GDP.

Spending on wages

The expenditure for 2016 is a record MVR27.5billion, a 23 percent hike from the year before. A majority of this amount (59.1 percent) will be spent on recurrent expenses. A third of the budget will be spent on wages.

The government has instituted a freeze on hiring new civil servants to cut costs. But some MVR289.7million (US$18.8million) will be spent on 682 political appointees in 2016.

The finance ministry has revealed that a staggering 72 percent of the budget was spent on recurrent expenses this year.

Spending on infrastructure development

A third of the budget, or MVR9billion (US$584million), has been allocated for development projects. Of this, MVR1billion (US$64.9million) is earmarked for airport development and another billion is allocated for Malé and Hulhumalé.

Some MVR70.5million (US$4.6million) has also been designated to build solitary confinement cells, a death chamber and new prisons.

The Public Sector Investment Programme for the outer islands include 10 harbor projects, land reclamation in nine islands, improving roads in 19 islands, construction of some 3,485 flats, water and sewerage systems for 61 islands, shore protection for 34 islands, and improving waste management systems in 30 islands.

During the budget debate, many MPs complained that development projects allocated for 2015 never began, and have now “disappeared” from the 2016 budget.

President Abdulla Yameen has reportedly refused to allocate funds for new projects.

Presenting the budget last week, Finance Minister Jihad said that the government’s priority is development of Malé region, and consolidating small populations. The dispersion of the Maldivian people in 188 islands is an obstacle to economic development, he said, adding that the government does not get “value for money” for infrastructure projects in small islands.

The MDP has questioned why the government continues to spend on small islands if its goal is to relocate them to Hulhumalé. The party contends the government must spend on establishing a transport network between islands instead of relocation.

New revenue raising measures

The government’s plans to raise MVR4billion in additional revenue next year include:

• MVR1.5 billion (US$100million) from Special Economic Zones
• MVR400 million (US$26million) from home ownership programmes
• MVR462 million (US$30million) from leasing 10 islands for resort development
• MVR38 million (US$2.5million) from real estate taxes
• MVR56 million (US$3.6million) from introducing a three percent remittance fee from expatriates
• MVR25 million (US$1.6million) from leasing islands for fisheries and agriculture
• MVR30 million (US$2million) after reviewing the revenue stamp law
• MVR5million (US$324,000) after reviewing rents of state-owned enterprises

The MDP has raised concern over the inclusion of SEZ acquisition fees for a second time as a revenue raising measure, despite the government failing to generate revenue from the same this year. The failure to realize the revenue this year is “proof the government has not been able to gain investor confidence,” the party said.

Land sales taxes will be an added burden given the rising cost of housing, it added.

Meanwhile, human rights groups have criticized plans to levy fees on migrant workers remittances, noting the policy amounted to taxing the poorest of the poor.

The government and opposition both agreed on the need to introduce income tax, but a date has not been specified.

Debt

In 2016, debt will reach MVR36.3billion (US$2.4billion), or 65 percent of GDP. This figure includes MVR23.1billion (US$1.5billion) in domestic debt and MVR13.1billion (US$845million) in external debt.

International financial institutions including the World Bank have warned the Maldives against macroeconomic risks because of high levels of public debt driven by high and rising public spending.

The MDP meanwhile has noted the government has not budgeted for a payout to Indian infrastructure giant GMR for the 2012 abrupt cancellation of an airport development contract. The government estimates the figure to be around US$300million, but the GMR is claiming US$803million.