Male, November 29 (newsin.asia): The Governor of the Maldives Monetary Authority, Ahmed Naseer, has said that since the expected total revenue (excluding grants) of the government is 1.3 times higher than the expected current expenditure, the revenue is sufficient to cover current expenditure, and funds raised from borrowings are used solely for capital investments.
On November 22, a national budget of MVR 27.9 billion (US$ 1. 8 billion) was approved for 2018, with a primary deficit of MVR 1.1 billion (US$ 64 million). Of the total budget, current expenditure accounted for 55%, while 45% was allocated for capital expenditure
The Maldives, a small geographically dispersed archipelago island nation with limited natural resources, is mainly reliant on tourism and fishing. Since its inception, the tourism sector has been a continuous success and dominated the Maldivian economy, accounting for at least a quarter of the country’s GDP.
In recent years, with the commencement of large public infrastructure projects, residential housing and establishment of new tourist ventures, the construction sector has also strengthened rapidly.
Economic transformation through infrastructure investment is currently one of the main priorities of the government’s fiscal policy. Accordingly, government policies are aimed at streamlining the current expenditure and reallocating government spending, while expanding the scope of capital investment.
Currently, real GDP growth of the Maldives is expected to reach 6.9% in 2017.
Need For External Borrowing
“However, a main challenge faced by the Maldives is the lack of a well-developed financial system. With only a few commercial banks dominating the sector, raising finance domestically for large infrastructure projects is a challenge. In addition, the graduation of the Maldives from Least Developed Country to Middle Income Country status has limited the availability of foreign aid. This results in resorting to external sources to finance these projects,” Naseer pointed out.
In order to facilitate external financing, a credit rating for Maldives was carried out by Moody’s and Fitch, where a rating of B2 and a B+ were assigned respectively.
The Maldivian economy, with the current administration taking office, embarked on an infrastructure scale up program in 2015 with the aim of addressing infrastructure bottlenecks and to diversify the economy.
The ongoing mega projects include the China-Maldives Friendship Bridge, 25-storey Dharumavantha Hospital, expansion of Velana International Airport and the development of Hulhumale’ phase II. Out of these projects, China-Maldives Friendship Bridge and Dharumavantha Hospital are expected to be completed within 2018.
“These projects will serve as future savings and will also increase the growth potential of the economy. For instance, there is currently a large foreign currency outflow abroad by Maldivians for medical services requiring specialized services not available in the country. With the opening of the new hospital it will help retain more foreign currency within the economy, Naseer said.
The completion of these projects will provide further new investment opportunities and increase the scope of revenue generating activities in the economy over the medium to long term, he added.
“In addition to ensuring that the proper technical approach has been taken in order to safeguard economic growth; the Government has also set up a sovereign development fund and set aside all the proceeds from the airport development charge, in order to address future repayments – this speaks to a very reasoned, responsible and structured fiscal, and development, policy”, Naseer said.
(The featured image at the top shows Ahmed Naseer, Governor of the Maldivian Monetary Authority. Photo: The Maldivian Independent)
