The government says that the Maldives economy is strong. This is what the government would have the people believe through its extensive media propaganda.
But the picture is different when you look at the Maldives economy from the eyes of a foreign donor. In fact, international aid agencies have made many criticisms against the government's economic and fiscal policies and called on the government to adopt corrective and remedial measures.
The government claims that the 12.3 billion Rufiya budget, unprecedented in the country's history, is a balanced budget. But compared to earlier budgets, the balancing act with regard to this budget seems to have been set differently.
When the budget was referred to the People's Majlis or parliament, it was criticized by many. There were many amendments proposed to the budget. But the budget was passed without taking into account any of the criticisms or proposed amendments.
Those who defended the budget can claim that the budget was designed to usher in further benefits to the economy; however, some critics pointed out many loopholes in the budget.
This year's budget amount is 45 percent more than last year's. Some 6.79 billion Rufiya is expected to be spent as recurrent expenditure with 1.9 billion Rufiya to be expended for running various government agencies. Salaries for civil servants themselves will incur Rf1.22 billion. Compared to last year's figures, this would mean a 4.3 percent increase in civil servants' salaries expenditure, and a 23 percent increase in government agencies' administrative expenditure.
Some 93 percent of the direct revenue generated for the government through foreign grants and other sources, excepting loans for development projects, is to be spent as recurrent expenditure. This would mean that the Maldives will require to get foreign loans or foreign grants for all the capital investments the country will have to make this year.
The capital expenditure for this year estimated at Rf5.54 billion is a figure that is 188 percent more than last year's figure. This would mean that there will be Rf3.6 billion in circulation in the economy more than last year.
Some experts and the government claim that though the capital expenditure is higher, that if this goes towards economic development projects, the economy would see faster development. Some are also of the view that the rise in recurrent expenditure as a consequence of the increase in capital expenditure is also not much of a problem.
However, others warn that if it is only cosmetic changes that the government seeks, this would mean trouble, and that inflation may go up.
But even at the onset, the controversy surrounded on the sources from which the government can generate revenue. Some are concerned that the sources on which the government hopes to generate revenue from are not that strong. Others claim that it is ridiculous that the government has included both foreign loans and foreign grants when balancing the budget. The Maldives National Chamber of Commerce and Industry even criticized the government in a press release, attacking the government's taking of extensive foreign loans. The budget is planned in a way such that 35 percent of the government revenue will be gained from foreign loans.
The sources to generate Rf1.4 billion for the government are also shaky. For instance, the government claims that it can generate Rf32.25 million from the rent of Hudhufushi island as a resort and a further Rf35.5 million from the fine imposed on the resort after its developer failed to complete the resort on time. However, Hudhufushi is one of the problems that are plaguing the government with no end in sight.
The other proposals include drawing huge amounts in advance and other areas for which only the parliament has power to authorize.
However, state minister for finance, Abdulla Jihad had said in January that he was confident that the government can generate the proposed revenues, and that the sources for finance were also strong. He said that there were many measures that the government can take immediately to start generating revenue.
"Not including increasing customs duties and extending the lease period of resort islands, there are many other measures that the government can take to increase revenue. We will propose to the parliament during the first session to adopt other measures that the parliament can take," Jihad had said.
However, during the first quarter of the year, no implementation has taken place of any of the measures that were supposed to generate revenue for the government.
On the other hand, what we are now seeing is one government agency begging the other for favors in order to keep the budget balanced. For instance, the government has decided to take Rf191 million from the Maldives Tourism Development Cooperation as advance lease for the islands on which the company is building resorts. The MTDC, a fully government controlled company, has already paid Rf77 million to the government.
Some economic experts say that the proposed measures are not in line with modern economic practices.
"It will be quite difficult to get the parliament to approve individual motions to increase taxes on tobacco, vehicles and expatriate work permits. What they can now do is try to get government revenue increased by adopting the tax bill," an analyst said, adding that he does not understand why the tax bill is getting delayed.
The analyst, who asked not to be named, said that Maldives may have to face dire consequences if the government is allowed to go on drawing huge sums in advance.
"An advance is something that has to be kept as a reserve for later use. It is not something that is to be spent now."
While the government is dragging its feet in taking taxes, it has also not come up with any law or regulation by which, as an Islamic country, it can forcibly take "zakath" or the Islamic charity that is required to be taken from the wealthy.
This week many members of parliament expressed concern that the government wanted to go ahead in taking indirect taxes rather than levying direct taxes.
While direct taxes may not be popular among the general public initially, analysts expect people to accept and get used to it if there is accountable and transparent governance.
Years ago, there was much controversy when the government proposed to take a bed tax from resorts and hotels, and a tax on banks' profits, but now the measures are an accepted norm here.
The government cannot also depend on foreign loans and grants. Much of the US$400 million that is required to recover from the tsunami still remains to come, and therefore, the government should not expect this foreign aid to be forthcoming. This is not to mention the burden the government will have to take if the Maldives tsunami recovery program have to be contracted to the private sector.
Jihad himself agreed that while most of the goals of last year's budget were met, what remained unrealized were the projects that were to be carried out with foreign loans or grants.
The main opposition Maldivian Democratic Party has claimed that this year's budget was designed to give a cosmetic uplift to government's incoherent and shaky economic policies.
"Which country in the world will balance its budget by dedicating 35 percent of the budget to taking loans?" MDP's acting president and former SAARC Secretary General Ibrahim Hussein Zaki had questioned.
"The loans themselves are short term loans with high interest taken from commercial banks; 32 percent of the loans have to be paid to commercial banks within five years at six or seven percent interest rates. This is quite baffling," Zaki had said.
The United Nations decided to keep Maldives as a Least Developed Country (LDC) while it was on the verge of graduation due to the tsunami of December 2004. However, perception remains that Maldives is a well-off country, and as long as this perception remains, we can expect little foreign assistance now or in the future.
If the government fails to earn revenue from its proposed sources, the budget will surely tilt, and economic progress will be slowed down if capital expenditure is not spent wisely and shrewdly.
Source: Haveeru ( Translated from an article by Ahmed Saeed)
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