MMA warns about 2013 budget

Central bank, the Maldives Monetary Authority (MMA) has warned that the MVR16.9 billion proposed budget for 2013 could result in additional economic problems for the Maldives next year.

MMA pointed out two main issues in the report it sent to Parliament Budget Committee as advice on the proposed budget. They are the increase in deficit due to higher recurrent expenditures than 2012, and failure to receive income up to the amount included in the budget.

The advice, which includes about six points, states that state debt will increase to 40 percent of GDP as a result of obtaining loans worth $134.34 million to finance the budget deficit.

MMA said that $73.83 million had been allocated in the 2013 budget to pay off the loans, which would adversely affect the foreign reserves and balance of payments, which in turn will put pressure on the foreign exchange market.

“Budget deficit should be reduced, obtaining loans [especially short-term] to finance the deficit has to be ceased,” MMA said.

According to the 2013 budget, MVR1177.93 million will be obtained by the government as domestic loans. MMA noted that it would be difficult to obtain these funds from the domestic market.

Due to failure to obtain these funds when required, MMA’s Public Bank Account (PBA) which is used to manage state liquidity, has suffered short-term overdrawing – a problem that is likely to occur next year as well.

“Obtaining such large sums from the domestic market to finance the debt could result in significant hindrances to providing loans to private businesses,” MMA said.

MMA noted that recurrent expenses included in the 2013 budget is 14 percent and MVR1.48 billion more than the amount for 2012.

This is due to increase in employee salaries and allowances by MVR1.5 billion, which is an increase of 37 percent when compared with this year; and increase in operational recurrent expenses of government offices by 30 percent.

MMA said that while budget cash flow could not be managed this year, increase in recurrent expenses would result in the same problem next year.

Referring to the incomes, MMA said that the deficit will increase if implementation fails for the projects that require Parliament approval.

Moreover, even though the budget states that the government’s dividend receivable would be higher than last year, this is not likely to be the case.

“It is likely that the MVR11.6 billion will not be received as income. This Authority therefore advises the Parliament to encourage reduction of the MVR12 billion allocated in the budget for recurrent expenses,” MMA said.

In conclusion, MMA said that the monetary policy for next year should be tightened, and in order to make this practical, the 2013 budget should state the maximum amount allowed as the monthly overdraft balance for the PBA.

Budget review efforts by the Budget Committee are ongoing. Most Committee Members agree that the budget is too large, and have said that they will work to reduce it to MVR14 billion. No decisions have been made yet.