Maldives Monetary Authority (MMA) Governor Ahmed Munawar has warned that borrowing to finance recurrent expenditure is detrimental to the economy.

Presenting the MMA’s recommendations on next year’s proposed state budget to Parliament’s Budget Review Committee yesterday, Governor Munawar expressed concern over the government’s plan to raise most of the required funds by issuing treasury bonds in the domestic market.

“While debt is increasing year by year, it is not economically good to borrow to cover recurrent expenditures. However, it is good for development projects, for example,” he said.

Referring to the Fiscal Responsibility Act, Munawar said recurrent expenditure should grow in proportion to government revenue.

“It is a very important rule, that rule has to be maintained in government spending, especially recurrent expenditure. Increasing recurrent expenditure, especially increasing salaries of people, does not increase the outputs,” he said.

He said capital expenditure should be prioritized, advising the government to implement development projects in line with the availability of funds.

Governor Munawar also highlighted the importance of concessional and green financing for capital expenditure, although he acknowledged that prevailing conditions in global markets were making it difficult to secure funding through these channels.

The proposed budget for next year stands at MVR 59.7 billion, with MVR 52.6 billion earmarked for expenditure. Of this, MVR 42.7 billion is allocated to recurrent expenditure, accounting for approximately 71.5 per cent of the total budget.

Capital expenditure accounts for the second-largest share of spending, with MVR 9.8 billion allocated for the year.