The World Bank has welcomed proposed changes to Goods and Services Tax (GST) and has expressed support to the Government of Maldives in implementing economic reforms.
The Maldives Public Expenditure Review (PER) report published by World Bank noted the economy of Maldives is on the verge of recovery after an unprecedented shock caused by the outbreak of COVID-19. The report said key reforms can enhance the quality of public spending, strengthen debt management and debt transparency and collect more revenues to finance the development needs of the Maldives.
Furthermore, the report highlighted much of the increase in public spending and debt over the past five years has financed investments in basic services and infrastructure, especially housing. and while these investments can boost long-term growth, making public spending more efficient, transparent, and targeted towards the neediest groups, it is essential to contain the rapid rise in spending and debt. Such reforms are particularly important because economy is highly vulnerable to external shocks such as a global recession and climate change-induced natural disasters, noted the World Bank.
Regarding the report, Minister of Finance Ibrahim Ameer said the report supports the efforts to reduce the risks to public finances and ensure that public money is well spent in order to secure a more resilient and prosperous future for all Maldivians.
Many of the reforms proposed in the PER intend to make the distribution of public spending more equitable. In the housing sector, for example, implementing income-based targeting would help improve the financial viability of the Rent-to-Own program while also promoting home ownership. As for public sector wages, the National Pay Commission could consider consolidating or eliminating most of the allowances that drive inequity and cap the overtime allowance. The new Public Service Pay Framework is a key first step in the right direction but strengthening wage bill controls and other related reforms is also needed to ensure that the reform is successful. Finally, reforms to eliminate double pensions in the civil sector and improve the coverage of the pension system are needed to ensure that both current and future retirees can benefit from the generous scheme.
The PER is a core analytical product of the World Bank which assesses the quality of government spending and identifies key fiscal reforms that countries need to undertake to achieve better growth and development outcomes. It is the first PER for the Maldives since 2002.