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Cablegate: Maldives 2009 Budget Presented; 2008 Deficit Increases

VZCZCXRO1249
RR RUEHLMC
DE RUEHLM #1075/01 3330557
ZNR UUUUU ZZH
R 280557Z NOV 08
FM AMEMBASSY COLOMBO
TO RUEHC/SECSTATE WASHDC 8986
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHNE/AMEMBASSY NEW DELHI 2429
RUEHKA/AMEMBASSY DHAKA 1164
RUEHIL/AMEMBASSY ISLAMABAD 8163
RUEHKT/AMEMBASSY KATHMANDU 6379
RUEHKP/AMCONSUL KARACHI 2411
RUEHCG/AMCONSUL CHENNAI 8812
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION

UNCLAS SECTION 01 OF 02 COLOMBO 001075

SIPDIS

STATE FOR SCA/INS AND EEB/IFD/OMA
TREASURY FOR LESLIE HULL

E.O 12958: N/A
TAGS: ECON EFIN EAID MV
SUBJECT: MALDIVES 2009 BUDGET PRESENTED; 2008 DEFICIT INCREASES

REF: COLOMBO 133

1. (SBU) On November 25, Ali Hashim, Maldives Minister of Finance
and Treasury, presented the GORM budget for 2009, proposing a total
expenditure of Rf 13.6 billion (approx. USD 1.1 billion). Revenue
is estimated at Rf 7.9 billion (USD 0.6 billion), resulting in a
deficit of about Rf 5.8 billion (USD 0.45 billion) -- or 32% of GDP.
This is the first budget of the government of President Mohamed
"Anni" Nasheed, who was elected to office on November 11. However,
the budget is based, as MOF sources confirm, nearly entirely on
estimates provided by the previous administration because MOF had
merely twelve days to prepare before presentation to Parliament.


2. (U) The new government had hoped to present an interim budget to
cover the first quarter of 2009; however, the constitution did not
allow interim budgets. As a result, Hashim has asked parliament to
approve the current budget and give him permission to present a
revised budget in approximately three months time. He underscored
to parliament that his current budget proposal is not sustainable
and that revenue projections are too optimistic. He stressed the
need for a smaller budget with a smaller deficit. According to MOF
sources, one obvious line savings will be government ministries.
The new government has already reduced the number of ministries from
21 to 14.

3. (U) While detailed information on the budget is not yet
available to post, press reports indicate that Hashim is proposing a
new corporate tax aimed at raising Rf 225 million (USD 17.5
million). He would also like to extend the resort lease period by
15 years to 50 years, which is expected to raise an additional Rf
1.2 billion (USD 94 million). These two proposals will require new
legislation. In keeping with President Nasheed's election promises
to relieve the people of the high cost of living, the budget
reportedly also proposes to waive duties on essential foods, diesel
(used primarily for fishing boats) and medicines. These proposals
will cost the government Rf 430 million (USD 34 million).

4. (U) The request for a revised budget in 2009 notwithstanding,
the government faces a deficit of Rf 5.8 billion (USD 453 million).
In addition to funding from extended resort leases and corporate
taxes, Hashim plans to finance the remaining Rf 4.4 billion (USD 340
million) via foreign borrowing. The government expects that pledges
by international donors for loans and grants following the
establishment of a democratic Maldives will materialize and will
also contribute to financing the deficit; however, they have not
been included in the budget.

2008 deficit increases to
Rf 2.5 billion (USD 22 million)
--------------------------------

5. (SBU) Meanwhile, according to the MOF, the budget deficit in
2008 will increase to Rf 2.5 billion (USD 193 million, 16% of GDP)
by year's end from the 2008 budget estimate of Rf 1.5 billion (USD
117 million, 10% of GDP). This is a result of several large
projects, and their resulting fees, failing to materialize due to
delays. (Note: The revenue from these projects had been built into
the 2008 budget.) In order to reduce expenditures, in August the
previous administration asked ministries to cutback expenses by 20%,
which many did by reducing electricity usage, cancelling
international travel, and other general cut-backs. On November 25,
the new government directed ministries not to incur any expenses in
the coming weeks other than for salaries and essential expenses.
While there had been expenditure savings, it has not been enough.
Ever-increasing government expenditures, nearly 70% of GDP in 2008,
as outlined below must be reduced if the government is to ensure
macroeconomic stability.

2007 2008 2008 2009
est Rev. est
In million of Rufiyaa

Revenue 7.7 9.7 8.2 7.8

Expenditure 8.7 11.3 10.8 13.6

Deficit 1.0 1.5 2.5 5.8(a)

Deficit as a
% of GDP 7.9 10.2 16.0 32.0

COLOMBO 00001075 002 OF 002

----
GDP growth rate 6.6% 9.5% 5.7% 4.5%
Inflation 7.4% NA 12.4% 5.5%

(a) Financing requirement excluding revenue from new revenue
proposals is about Rf 4.3 billion ($340 million).

6. (U) Post will report additional information on the 2009 Maldives
budget as available.

© Scoop Media

 
 
 
 
 
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