Many Maldivians would believe that a balanced budget every year would be great for the country and the economy as in most years in the past the government proposed a balanced budget to the parliament. But usually it is not balanced in practice. For example, the budget passed by the parliament in 2004 was a balanced budget of MRF4.98 billion 1/, but ended up in a deficit of MRF7.95 million 2/. In 2005 government proposed a deficit budget as the country was in the crisis of the tsunami. Otherwise it might have been a balanced budget too. A balanced budget was again proposed to the parliament this week and most probably would be passed. Is this going to be another deficit budget in the end or a truly balanced budget? What's so good about a balanced budget?
A balanced budget would make people believe that the government is able to manage the funds and keep the country safe from being indebted. Well, that's just a false signal when it comes to the Maldives' budget. In fact, more than one third of the 'revenue' (Inflow is a more appropriate word) are loans taken from abroad. So it has to be repaid at some point of time and hence it would cause a fiscal burden on the economy in coming years. And also, the 'balanced budget' end up in a deficit.
Why would the government emphasise so much on a balanced budget is not so apparent but it is time that people should question about the role of the budget in managing the Maldivian economy. Maldives' economy is growing rapidly in recent years (unless there is a global shock). Therefore one can assume that there would be lot of national savings. But, hey, government is not saving money. They ran a deficit budget for the past whole decade 3/. Furthermore total government debt is rising every year 3/. In years of sound economic performance a government should save money (i.e., have a surplus budget) or at least reduce the indebtedness. In my opinion, the budget is not used to manage the economy. So there is no role of fiscal policy (and even monetary policy) in manging the economy. We are fortunate so far that the current in the sea we sail are in the right direction.
It is not necessarily important to balance a budget over a single year. But it is important to balance a budget over the economic or business cycle. During the times of economic slumps, expenditure should be increased and fiscal deficit is one way to do it. In a boom, a budget should reflect the strong performance by, say, reducing the deficit or debts, or saving money.
It is not a problem that government has a deficit budget in an year. But when it continues for a long period, then the government should be concerned. In addition, proposing a balanced budget and ending up in a deficit in most years is a serious problem too. These variances and reasons for that should be identified and questioned. There must be some control over the expenditure.
1/ http://www.haveeru.com.mv/temp/budget.pdf
2/ Proposed Budget of Government of Maldives 2007
3/ Monthly Statistics November 2006, MMA
A balanced budget would make people believe that the government is able to manage the funds and keep the country safe from being indebted. Well, that's just a false signal when it comes to the Maldives' budget. In fact, more than one third of the 'revenue' (Inflow is a more appropriate word) are loans taken from abroad. So it has to be repaid at some point of time and hence it would cause a fiscal burden on the economy in coming years. And also, the 'balanced budget' end up in a deficit.
Why would the government emphasise so much on a balanced budget is not so apparent but it is time that people should question about the role of the budget in managing the Maldivian economy. Maldives' economy is growing rapidly in recent years (unless there is a global shock). Therefore one can assume that there would be lot of national savings. But, hey, government is not saving money. They ran a deficit budget for the past whole decade 3/. Furthermore total government debt is rising every year 3/. In years of sound economic performance a government should save money (i.e., have a surplus budget) or at least reduce the indebtedness. In my opinion, the budget is not used to manage the economy. So there is no role of fiscal policy (and even monetary policy) in manging the economy. We are fortunate so far that the current in the sea we sail are in the right direction.
It is not necessarily important to balance a budget over a single year. But it is important to balance a budget over the economic or business cycle. During the times of economic slumps, expenditure should be increased and fiscal deficit is one way to do it. In a boom, a budget should reflect the strong performance by, say, reducing the deficit or debts, or saving money.
It is not a problem that government has a deficit budget in an year. But when it continues for a long period, then the government should be concerned. In addition, proposing a balanced budget and ending up in a deficit in most years is a serious problem too. These variances and reasons for that should be identified and questioned. There must be some control over the expenditure.
1/ http://www.haveeru.com.mv/temp/budget.pdf
2/ Proposed Budget of Government of Maldives 2007
3/ Monthly Statistics November 2006, MMA
