In his weekly radio address, President Mohamed Nasheed has said the International Monetary Fund (IMF) in a report released this month praised government’s handling of the economy.

The President outlined some of the areas of action lauded in the IMF report:

- Easing of dollar liquidity shortages experienced in 2009
- Painful expenditure-reducing measures including public sector wage cuts and reducing electricity subsidies
- Increasing airport tax rate
- Proposing a draft bill on goods and services tax on tourism

Although the IMF report had noted that the economy stabilised, he said, “we cannot be complacent about implementing the economic programme”, adding that “the IMF urges to continue with the cost cutting measures”.

Failure to do so, according to the report, he noted, would result in large fiscal imbalances and macroeconomic instability.

The IMF notes, in particular, opposition political pressure on the government to restore public sector wages, which the IMF warns would worsen the country’s budget deficit and risk economic stability.

Speaking on the dire situation prior to 2009, the President noted that IMF’s November 2009 Public Financial Management Performance (PEFA) report, which focuses on the fiscal performance during 2005-2008, identified several failures in financial management in the previous government.

The President, in particular, pointed out that according to the report, there were “significant variations between the estimated budget figures and actual revenues” leading to an unsustainable fiscal situation. In the meanwhile, he said, government debts had trebled standing at 54% of GDP in 2008.

He discussed steps his administration had taken in line with the recommendations in the PEFA report, including the “implementation of a Public Accounting System enabling audited full-fledged financial statements”, “introduction of Treasury Single Account, reducing expenditure”, and “clear linkage of budget figures to underlying policies in the Strategic Action Plan”.

According to the IMF report, “strengthening the Auditor General’s role has also improved external audit of public finances, while the oversight of the People’s Majlis, which receives audited financial statements, [has also improved management of public finances]”, said President Nasheed.

He concluded, “Government sees that with an improved economy [as a result of cost-cutting measures and addressing the failures in financial management], what the people earn will increase”.