Revenue and grants poised for 10.9 percent increase with reforms: Govt

The Ministry of Finance said on Wednesday the planned medium-term reform action will drop state expenditure by an average of 1.1 percent in annual terms, and increase revenue and grants by an average of 10.9 percent.

The ministry announced the fiscal strategy at the parliament sitting on Wednesday, which primarily focused on the following targets:

-          Reducing state debt (excluding guarantees) by 95 percent of the national GDP by end of 2026

-          Maintaining actual budget deficit below 5 percent of the national GDP every year

-          Make reforms for a comprehensive reduction of the state’s debt against GDP

-          Maintaining recurrent expenditure below state revenues (excluding grants)

Continuing with the current spending pattern without reforms will stretch the deficit gap in the budget further, with the state expecting just MVR 35.9 billion in revenues and grants for 2025 against a projected expenditure of MVR 57.4 billion.

The state projects that it will earn MVR 38.3 billion in revenues and grants in 2026 against a project expenditure of MVR 55.2 billion.

Delays in taking stringent reformative measures will further expand the deficit gap of the state, the ministry in its fiscal strategy. and forecast that the total state debt-to-GDP will increase by 138.6 percent in 2026 and jump to 139.4 percent in 2027.

The reforms include rate revisions of airport taxes and fees. Inflating the duty on unhealthy content, revising the GST Administration Act, expanding the tax base and revising the Green Tax rate.

While the state forecasts MVR 38.3 billion revenue in 2026, the ministry added that with the implementation of the planned reforms, the annual revenue would increase to MVR 44.3 billion for the same year.

Revenue forecast for the following years:

2027

-          Projected revenue without reforms: MVR 40.9 billion

-          With reforms: MVR 47.1 billion

2028

-          Projected revenue without reforms: MVR 43.8 billion

-          With reforms: MVR 50.5 billion

According to the fiscal strategy, state revenue will increase to 33.3 percent of the GDP by 2028 if the reforms are intact.

The ministry further revealed that the state intends to seek USD 50 million in 2024 and 2025 in grants.

Austerity measures in the fiscal strategy include the introduction of the targeted subsidy system, which would provide concessions exclusively to low-income earners, reforming state-initiated insurance, Aasandha scheme, revising the Public Sector Investment Program (PSIP) and strengthening state-owned enterprises (SOEs).

Expenditure forecast for the following years:

2025

-          Expected expenditure without reforms: MVR 57.4 billion

-          With reforms: MVR 46.5 billion

2026

-          Expected expenditure without reforms: MVR 55.2 billion

-          With reforms: MVR 45.5 billion

2027

-          Expected expenditure without reforms: MVR 56.8 billion

-          With reforms: MVR 46.6 billion

2028

-          Expected expenditure without reforms: MVR 59.8 billion

-          With reforms: MVR 49.2 billion

The ministry further projects the reforms will ensure sustainability in debt reduction, with debt expected at 103 percent of the GDP in 2026 and drop to 93.8 percent of the GDP in 2027.

While the state is required to repay USD 1 billion in servicing its debt in 2026, some international financial institutions have speculated the Maldives government may fail to service this debt.

 

The current administration, however, assured that it is capable of servicing the outstanding debt and has started taking strong reformative measures.