President Mohamed Nasheed has reiterated the government’s commitment to strengthen the national economic fundamentals, increase productivity and address the bottlenecks to economic activities. He made this statement in his address on the economic and fiscal policy of the government during a meeting with the Maldivian business community. The meeting was held this evening at Muleeaagé.
In his statement the President spoke on the state of the economy and the economic forecasts as well as the government’s short term fiscal policy, exchange rate, and monetary policy.
President Nasheed also outlined the measures to be taken to increase the government revenue.
Stating that the economy of the Maldives was facing a critical economic situation, the President said a dramatic fall in fiscal revenue since the latter part of 2008 combined with large fiscal and external imbalances had led to budget deficits of worrying proportions.
Speaking in this regard, the President said that the Maldives could face a severe fiscal and balance of payments crisis in the months to come, unless a substantial policy adjustment is put in place.
He said that the government was therefore, committed to implementing a policy program to stabilize the economy and put it back on a path of sustainable and equitable growth.
He further added that the key elements of the policy program include: bringing public finances on a sustainable path, including through a continuous reduction in public debt from 2010; mustering adequate multilateral and bilateral assistance; and, strengthening the liquidity and capital position of the banking system.
Focusing on the short term fiscal policies, the President said the government‘s aim was bringing its finances back to a sustainable medium-term trajectory.
“Without corrective action, the fiscal deficit would soar to about 33 percent of GDP. We have begun the implementation of the reform measures following the austerity measures announced by the cabinet on 12th August”, said President Nasheed.
These reforms aim, the President said, to reduce the fiscal deficit to 28 percent of GDP in 2009, and to 15 percent of GDP in 2010.
In his statement, the President stressed that the government would also take decisive actions on the revenue side. He said that the government has already announced important tax reforms and added that the aim was to broaden the overall tax base and reduce reliance on import taxes.
Furthermore, the President said by early 2010, a new “green tax” per incoming tourist at the airport will be introduced. O tax measures include introducing a new business profit tax on all enterprises earning above a certain threshold, switching to an ad valorem-based tourist tax with expected effect in 2010, introducing a goods and services tax in 2011, amending the land law and charging a rent fee on an equal basis.
In his address, the President also highlighted the actions the government was taking to improve public financial management over the medium term.
In this regard, a single treasury account at the Maldives Monetary Authority has been introduced. The government was also completing the transition to a new Public Accounting System that will enhance budget execution, internal control, cash management, accounting and fiscal reporting.
The President also said that the government was in the process of establishing effective debt management units, accompanied by transparent procedures on borrowing, lending, and the provision of government guarantees.
In his address, the President said that he was confident that the overall result of the policy program would be fruitful and urged the people to give their support for the benefit of the whole nation.