While the country is on track to meet its revenue goals, overspending in various areas has led to a high fiscal deficit and rising debt, reveals the Auditor General’s Report on Review of Budget Position Report 2023 and Mid-Term Budget Review 2023.
According to the report, the government’s revenue collection aligns with its targets, with 79% of the expected revenue already collected in the year’s first nine months. Tax revenue, particularly from higher GST rates, has performed well, surpassing expectations.
However, specific areas of revenue collection have encountered significant shortfalls, particularly in grants and donations, which have achieved only 19% of the budgeted amount.
Revenue
Import Duties Struggle Amidst Recovery Efforts
The report notes that despite an anticipated economic recovery and resolved international shipping challenges post-COVID, import duties still need to meet expectations.
The Budget Position Report 2023 (BPR 2023) forecasted an 8% increase in import duty revenue compared to 2022, with a target of MVR 3,790 million. However, only 65% of this target was realised in the first nine months.
The report states revised estimates now predict a shortfall, with expected revenues of MVR 3,511 million, 7% below the budgeted amount.
Dividend Income Falls Short
The Auditor General’s report further highlights potential delays in transaction recording from State-Owned Enterprises (SOEs).
The approved budget for 2023 anticipated MVR 1,104 million in dividends from SOEs. However, records indicate the Ministry collected only MVR 571 million in the first nine months, and data from the Ministry up to July 31st reported that MVR 593 million was collected, including dividends set off against payables.
Consequently, dividend income is projected to reach only MVR 581 million by year-end, falling 47% short of the budgeted target. Additionally, MVR 3,438 million remains receivable as dividends as of July.
Expenditure
On the expenditure side, the government has been spending more than planned, with 87% of the budgeted expenditure utilised by the end of September.
Finance costs have escalated faster than government revenue in recent years, reaching MVR 4,802 million by year-end, surpassing the budget by 40%. With finance costs consuming 15% of government revenues, debt and fiscal sustainability concerns loom large.
Domestic Lending Surpasses Allocations
The government’s domestic lending has significantly exceeded budgeted amounts. The budget allocated MVR 371 million for domestic lending, yet MVR 849 million was spent in the first nine months, more than double the allocation.
Treasury loan balances, a major component of domestic lending, stood at MVR 3,775 million as of August 2023. Repayment issues persist, with significant amounts in arrears, indicating challenges in maintaining fiscal discipline and recovery of loans.
Revised estimates suggest domestic lending will reach MVR 1,209 million by year-end, 226% above the budget.
Subsidy Expenditure on the Rise
Total expenditure on subsidies, including Aasandha healthcare payments, has exceeded the budget by 9% within the first nine months of the year.
Expenditure on Aasandha healthcare payments has surged to unsustainable levels, reaching MVR 1,554 million within the first nine months, exceeding the approved budget by 49%.
While Aasandha provides healthcare coverage to all citizens, parallel healthcare schemes covering the medical expenses of Maldives Police Services and Maldives National Defence Force have strained the budget. The initial budget of MVR 180 million was fully utilised within the first nine months, prompting the revised budget to increase the allocation to MVR 241 million.
Despite efforts to implement cost reduction measures, such as planned fiscal consolidation, these expenditures persist as a significant budgetary burden. The revised budget anticipates expenditures on Aasandha reaching MVR 2,306 million by year-end.
Moreover, fuel and electricity subsidy expenditures have soared to unsustainable levels following a recent hike in fuel prices. Although the budget allocated MVR 1,351 million for such subsidies in 2023, expenditures exceeded this by 67% in the first nine months. Due to the absence of planned cost reduction measures, the revised budget now forecasts MVR 3,067 million for fuel and electricity subsidies by year-end.
The report reads that this upward trend of rising subsidies, observed over the past few years, has been exacerbated by delays in implementing fiscal consolidation measures to counter the surge. As a result, the revised budget estimates a substantial increase of 47% over the approved budgeted amount, reaching MVR 9,736 million for Grants, Contributions, and Subsidies.
Heightened Losses and Contingencies
Monetary compensations paid by the government during 2023 have surpassed budgeted amounts, reaching MVR 436 million, exceeding the budget by 331%. Additionally, contingent liabilities from court cases related to state agencies stood at MVR 3,830 million as of December 31st, 2022, posing further financial risks.
Challenges in Public Sector Investment Projects (PSIP)
Expenditure on PSIP projects has surpassed the allocated budget, with MVR 9,261 million spent as of October 19th, 2023, against an allocated MVR 8,552 million. Some projects have incurred costs above budgetary limits, while others remain stagnant without financial progress.
