Post by Saruvash Adam and Sandeep Saxena[1]
The Maldives is the first small island state, and after Philippines the second Asian country, to have undertaken a Fiscal Transparency Evaluation (FTE). The FTE was conducted as part of ongoing efforts by the Maldives government to strengthen public financial management. In recent years, the country has pushed for fiscal transparency with the introduction and regular publication of several reports on a wide range of fiscal matters. The objective for the FTE was to take stock of the current situation and identify opportunities for further improvements.
The FTE report—recently published by the IMF —highlights the progress achieved in improving fiscal transparency in recent years and in delivering on its ambitious policy agenda, while responding to current challenges within a tight fiscal environment. The report evaluates the Maldives’ fiscal reporting, fiscal forecasting and budgeting, and fiscal risk analysis and management practices against the standards set in the IMF’s 2014 Fiscal Transparency Code.
According to the report, the progress achieved by the Maldives is reflected in favorable assessments in many areas. Performance in fiscal forecasting and budgeting is stronger relative to other areas. The evaluation assigns “Good” or “Advanced” ratings to 6 of the 12 indicators in this area. Budget unity emerges as a key strength. Legislative control over public spending is strong, supported by a relatively comprehensive legal framework for budgeting. Timely publication of budget related information enhances transparency.
Fiscal reporting practices are at different stages of development. Fiscal reports cover almost the entire general government operations and the budget and accounting classification system provides a normative framework that can support diverse reporting needs. Noteworthy is the progress achieved with the high frequency of budget execution reporting—where the practice scores an “Advanced” rating—providing policy makers with near real-time information on budget execution. Of special note are the COVID‑19 reports that have provided weekly updates on the performance of the government’s economic response package, including increases in health and social spending.
Consistent with the experience elsewhere, fiscal risk analysis and management is a weak area. Public finances in Maldives are exposed to significant fiscal risks that require careful identification, analysis, management, and monitoring. Excessive reliance on revenue from the tourism sector, a high level of debt, and exposure to climate change and natural disasters pose considerable fiscal risks. The performance of the state-owned enterprises (SOEs) also poses sizeable risks to the budget.
The report notes areas where the Maldives could do better. Prominent among these are the gaps in the timeliness of audited annual financial statements and the comprehensiveness of the reported assets and liabilities, credibility of the medium-term fiscal strategy and the budget framework, transparency around the procurement of major investment projects, and a comprehensive view of fiscal risks to inform a holistic and coordinated approach to fiscal risk management. However, in several areas the ongoing reforms make it possible to gain quick wins with relatively minor additional efforts.
The action plan included in the report complements and further reinforces the country’s ongoing efforts to improve fiscal transparency. Responding swiftly, the government has already published its first ever fiscal risks statement—one of the main FTE recommendations that would improve the Maldives’ score in the FTE’s fiscal risk pillar—reflecting its continued drive to reform and enhance the transparency of fiscal management.
To know more about the IMF’s Fiscal Transparency Code, please visit Fiscal Affairs Department’s website. http://www.imf.org/external/np/fad/trans/index.htm.
[1] Saruvash Adam is Chief Financial Budget Executive in the Maldives’ Ministry of Finance, Sandeep Saxena is Senior Economist in the IMF's Fiscal Affairs Department.
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