Budget deficit to rise to MVR 14 billion unless tax hikes, cost cuts
The government has now sent a bill to parliament to increase the GST rate from 6% to 8% and the T-GST rate from 12% to 16%.
Government expects budget deficit to reach MVR 14 billion next year if steps are not taken to increase revenue and cut expenditure, the proposed state budget 2023 showed on Monday.
Finance minister Ibrahim Ameer on Monday presented a budget of MVR 42.68 billion for the next year.
In the budget presented for 2023:
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Total budget of MVR 42.68 billion
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Revenue and grants are estimated at MVR 32 billion
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The budget deficit for next year is expected to be MVR 8.4 billion
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This is a deficit of 8.1% in terms of productivity or GDP
If the government does not increase GST and T-GST as planned and cut public expenditure, the budget deficit is estimated to reach MVR 14 billion. Therefore, the government's target, as per the budget, is:
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Changes in revenue and expenditure policies will reduce deficit to 6% of GDP
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While income-raising measures will likely reduce the deficit by 3% of GDP, cost-cutting measures will reduce the deficit by another 3% of GDP
The government plans to increase revenues and cut costs by:
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Generating MVR 3 billion in revenue by increasing GST and T-GST
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Revising the subsidy regime and saving MVR 3 billion through bulk import of medicines and medical consumables
The government has now sent a bill to parliament to increase the GST rate from 6% to 8% and the T-GST rate from 12% to 16% from next year. A parliamentary committee of the whole house is currently reviewing the bill.
The budget
The government plans to finance the deficit through external sources:
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Foreign loans – 36%
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Selling 'blue bonds' - 7%
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Bilateral and multilateral assistance - 13%
The government also plans to finance the deficit through internal sources:
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By selling financial instruments such as T-bills to the domestic market - 41%
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Recovery from subsidiary loans - 3%
