The deteriorating fiscal situation in the country has reached a ‘new normal’, with double digit deficits in the past two years.
Minister of Finance Ibrahim Ameer
The Government budget deficit is set to reach a whopping MVR 11 billion by the end of 2022, according to the Minister of Finance, Ibrahim Ameer. Answering to questions by MPs in the Parliament on 17 October 2022, Ameer has said despite the MVR 9.8 billion deficit approved by the Parliament for 2022, the actual deficit for the year will reach MVR 11 billion.
The deteriorating fiscal situation in the country has reached a ‘new normal’, with double digit deficits in the past two years; as the state had to continue its spending despite the revenue slowdown due to the COVID-19 pandemic since early 2020.
Total revenue fell by 34 percent in 2020 to only MVR 15 billion, as the tourism industry shuttered since March 2020. As a result, total deficit reached to MVR 13 billion in 2020 (24 percent of GDP), while Government started a major borrowing spree.
Tourist resorts re-started operations in mid July 2020 with the opening of the borders. Maldives being one of the very few countries in the world with the border open and welcoming foreign tourists, enjoyed a quick recovery path for the tourism industry.
With various efforts from the tourism industry, and the government, total arrivals in 2021 reached 1.3 million. With this, government finances also recovered, with a 29 percent increase in revenue, registering total of MVR 19.6 billion.
However, overall budget deficit was still at MVR 12.8 billion in 2021, which is 17 percent of GDP. The estimated budget deficit for 2022, approved by the Parliament is at MVR 9.8 billion (11 percent of GDP), which will increase further with the newly estimated deficit of MVR 11 billion.
Government’s fiscal balance is always an important factor for the overall macro economic stability and the health of the economy. Especially, with regards to recurrent expenditures, the general rule is to keep total recurrent expenditure at a level that can be financed from the tax revenue. In other words, we should never be borrowing or incurring debt to finance our consumption, or recurrent expenditures.
This has not been the case lately though, with recurrent expenditure exceeding the total revenue in the past three years. The result has been the staggering growth in the total debt of the government, which now exceeds the level of GDP.
