Ministry of Finance projected that the state deficit would reach MVR 13 billion this year, as a result of economic repercussions caused by the global COVID-19 pandemic.
Finance Minister Ibrahim Ameer made the statement during a press briefing held Friday afternoon, to discuss the ministry's paper on the economic and fiscal situation of Maldives due to the coronavirus crisis.
The paper, which was compiled with the help of Maldives Monetary Authority (MMA), Ministry of Economic Development and Ministry of Tourism, details five scenarios on the economical outcomes of Maldives due to COVID-19. According to Ameer, it is believed that Scenario 3 is most likely to be realised, which projects the budget deficit to reach 13.7 percent (MVR 13 billion), compared to the MVR 5.9 billion originally stated in the 2020 State Budget. Earlier this month, the finance ministry had projected that the deficit would reach MVR 12 billion due to the pandemic.
The scenario also projects the total state debt sans guarantee to increase to MVR 70 billion, which accounts for 86.6 percent of Gross Domestic Product (GDP). An overall 115 percent drop is projected in the GDP, along with 81.3 percent for nominal GDP.
Moreover, state revenue is expected to nosedive to MVR 15.2 billion as per Scenario 3, nearly halving the revenue of MVR 29.9 billion projected in the 2020 budget.
The finance minister noted that expenses are expected to increase in the meantime, particularly in the sectors of health and disaster management in the fight against the spread of COVID-19. Ameer stated that government expenditures could be lowered from the MVR 37.8 billion approved in the budget to MVR 35.5 billion, if the government maintained the measures already taken to cut costs. With MVR 35.5 billion as a baseline, he detailed three possible scenarios to further bring down expenditures.
Ameer warned that Maldives is among the economies that would be worst hit by the COVID-19 pandemic, as the island nation is heavily dependent on tourism. Highlighting the global travel bans and restrictions currently in place, as well as the closing down of Maldives' borders on March 27 which brought the tourism industry to a deadlock, Ameer emphasised the importance of all state institutions and the parliament maintaining and adhering to the measures taken by the government to mitigate and overcome the negative repercussions on the economy.
As over 70 percent of the country’s GDP is attributed to revenue generated by the tourism industry, the economy continues to face severe repercussions due to travel restrictions imposed over the COVID-19 outbreak. It is estimated that the country will face a shortfall of approximately USD 450 million (MVR 6.9 billion) in foreign currency.
In a bid to counteract the financial impact of the COVID-19 pandemic on the local economy, the government has introduced a financial stimulus package with MVR 2.5 billion intended to prevent the closing down of local businesses and the loss of jobs.
Earlier, the government vowed to reduce state spending by MVR 1 billion. In this regard, the government had slashed the salaries of all political appointees and heads of state-owned enterprises (SOEs) by 20 percent. The parliament followed suit, approving a 20 percent cut on their members’ salaries as well.