Keeping expenditure in check, and long-term oriented fiscal reforms have never been on the agenda of the Solih administration, as evidenced from the most recent 2023 fiscal numbers. With increased tax rate from 12 to 16 percent from the tourism sector GST, and the GST rate of all other sectors from 6 percent to 8 percent, from 01st January 2023, the total revenue has reached to over MVR 6.4 billion (USD 412 million) as at 09 March 2023. Last year, during the same period, the total revenue recorded was MVR 5.2 billion (USD 340 million). This is a 21 percent increase in total revenue of the government.
However, unsurprisingly, the Solih administration has spent an eye-watering MVR 7.7 billion (USD 500 million) as at 09 March 2023, which is 19 percent higher than the same period last year.
As of 09 March 2023, the weekly spending rate of Solih is at MVR 110 million per week, compared to MVR 92 million per week same period last year.
How did Solih spend the increased tax revenue? It might be too early to see any exact pattern in the spending, with the published data as at 09 March 2023, over 73 percent of the spending has been on recurrent expenditure.
The administrative expenses have increase by about MVR 706 million (24 percent ) to reach MVR 3.6 billion. Notable areas of significant increase during the first 10 weeks of the year are, the Special Budget under the Ministry of Finance, which has recorded over to MVR 2.8 billion. Spending through National Social Protection Agency (NSPA) has reached 626 million from MVR 427 million last year same period. Maldives Police Services has also a significant increase in spending to reach MVR 349 million compared to MVR 228 million last year.
Recovery from COVID pandemic
COVID-19 hit hard the Maldives economy, when the tourism industry and almost the entire economy came to a stand still in April 2020. The monthly government revenue fell to MVR 673 million in April 2020 from MVR 1.4 billion in March.
With not enough government revenue, and with non-existent fiscal reserve at hand, the Minister of Finance had no other option except for accumulating debt. The total debt as a result climbed to MVR 86.5 billion by the end of 2020 from MVR 68 billion in 2019. With GDP shrinking to MVR 57.6 billion in 2020 from MVR 86 billion in 2019, the total debt to GDP climbed to a staggering 150 percent of GDP. Well, that is still manageable, as the tourism sector was recovering, and so were all industries in the economy. Government revenue has started to increase as well.
By the end of 2021, Maldives has attracted over 1.3 million tourists, and by end of 2022 achieved the pre-pandemic level of arrivals, by recording over 1.67 million arrivals.
Despite the over MVR 21 billion total revenue in 2021, the Solih administration ended up spending over MVR 32 billion – all under the guise of COVID pandemic. Similarly, total revenue in 2022 reached MVR 28.5 billion, however, government spent over MVR 39.9 billion the same year. As a senior official at the Ministry of Finance who preferred to be unnamed commented “rather than using the pandemic as an opportunity to bring about long term fiscal reforms, the government saw the pandemic as an opportunity to appropriate funds as they wished - to gain the biggest political advantage”.
As per the approved budget for 2023, there will be over MVR 8.6 billion fiscal deficit by the end of the year, and a total foreign financing requirement of over MVR 4.7 billion (USD303 million).
While the government has a fiduciary responsibility to uphold the highest standards to use taxpayers’ money according to the intended purpose and legislation - it has to be spent in a manner that brings about long term fiscal sustainability. This means, increased tax revenue to be utilized in a way that can reduce the existing and future debt levels of the country – instead of wasteful spending to achieve political ambitions.