The Maldives Monetary Authority (MMA)’s recommendations on the proposed government budget for next year have flagged a number of concerns.
The issue of raising taxes
According to the MMA’s recommendation sent to the Parliament, the hike in GST and TGST is likely to push up the country’s inflation rate to around 5.4 percent. Of this, 2.2 percent is directly due to the increase in prices as a result of raising GST and TGST.
MMA stated that traders are likely to raise prices even further to boost profits in the wake of the GST hike. Therefore, there is a high probability that the price of commodities will go up by more than 2.2 percent.
In January next year, the TGST will be increased from 12 to 16 percent and GST from 6 to 8 percent. According to MMA, the main purpose of raising taxes is to meet expenses and reduce the deficit. However, this will not be achieved in the budget for 2023, as the allocated expenditure has also gone up.
Furthermore, MMA said the changes to the tourism sector caused by an increase in TGST need to be evaluated in advance. The central bank also urged to not depend on the increase in TGST as the sole way to meet the expenditure of the state.
Reality check on expected grants
MMA stated that MVR 2.5 billion worth of grants is estimated in the upcoming budget. However, the Maldivian government has consistently gotten MVR 800 million less than what was estimated in the annual budget for the last six years, excluding the year 2020.
While MVR 2.5 billion is allocated as grants in the next year’s budget, there is no outline of exactly how MVR 1.5 billion of this will be received, the MMA said.
According to the central bank, based on the experience of the past few years, if the budget had projected MVR 2.5 billion in grants, in actuality, a figure closer to MVR 1.7 billion would be received next year. With this, the state’s deficit is expected to rise again.
Revenue cannot meet recurring expenses
The state is expected to earn MVR 32 billion in total revenue next year.
According to MMA, the current fiscal situation in the country has resulted in high levels of debt. At this point in time, it is unlikely that the revenue will cover recurring expenses. The main reason for this is the rise in global oil prices, making it difficult for official reserves to provide foreign currency used for government projects, the MMA elaborated.
The central bank has requested the government to delay the execution of projects if they are unable to secure the required foreign funds before implementing them from the domestic budget. The MMA has also asked the government to identify the projects that will reap the maximum economic benefits and give priority to such projects.
MMA also advised the reduction of expenditure on PSIP projects. MVR 8.4 billion has been allocated for PSIP projects in the upcoming budget.
According to MMA, budgetary expenditure has been rising yearly, and it is becoming increasingly difficult to get the required finances to meet the expenses. Therefore, it was requested not to increase next year’s expenses, but to reduce the additional expenditure by obtaining financing.
Moreover, Budget 2023 estimates raising MVR 6.4 billion in foreign financing and MVR 4.7 billion from the domestic market next year. MMA, however, pointed out that there were serious challenges in obtaining the amount allocated from the foreign market.
