20220113-IMF-Maldives_Technical_Assistance_Report-Revising_the_Fiscal_Responsibility_Act_99页_1mb

Summary of the Technical Assistance Report on Revising the Fiscal Responsibility Act in Maldives

Core Content

This report, prepared by the International Monetary Fund (IMF), evaluates the performance of the 2013 Fiscal Responsibility Act (FRA) in the Maldives and provides recommendations for its revision. The report highlights the need for a more flexible and credible fiscal responsibility framework to ensure fiscal sustainability and transparency.

Main Objectives of the FRA

• To reduce public debt and achieve fiscal stability.
• To establish minimum standards for fiscal transparency and accountability.
• To require the government to prepare and publish medium-term fiscal and debt strategy reports.

Key Findings

• The 2013 FRA's numerical targets for public debt and fiscal deficits were overly ambitious and not met.
• Public debt increased from 52% of GDP in 2009 to 77% of GDP in 2019.
• The FRA failed to enforce its fiscal rules and included ambiguous definitions and insufficient accountability mechanisms.
• The escape clause in the FRA was not clearly defined, and the Minister of Finance was not required to report on the implications of deviations from fiscal targets.

Main Recommendations

1. Revising the Fiscal Responsibility Act (FRA)

• Replace the rules-based approach with a principles-based framework, which allows for more flexibility in responding to macroeconomic developments.
• The new FRA should focus on fiscal principles rather than numerical rules, while still requiring the government to set quantified fiscal objectives.
• Introduce a Charter of Fiscal Responsibility that specifies medium-term fiscal targets for public debt, fiscal balance, and government guarantees. These targets should align with the principles of the FRA and be updated without amending the law.
• The Charter should include five-year fiscal anchors, with three-year operational targets derived from them.
• Include transitional provisions to allow for delayed implementation of certain provisions due to capacity constraints and macroeconomic uncertainty.

2. Improving Fiscal Policy Intentions Reporting

• The Minister of Finance should submit a Fiscal Strategy Report to Parliament by end-June, which should be approved by Resolution.
• The report should be updated in October with the annual budget documentation and include:
  • A fiscal risk statement.
  • An annual statement on tax expenditures.
  • A Debt Sustainability Analysis (DSA).
• The DSA should be used to determine feasible and realistic values for the key fiscal objectives.

3. Enhancing Ex-post Fiscal Reporting

• The FRA should require the submission of a Final Budget Outcome Report along with annual financial statements.
• The Minister of Finance must appear before a parliamentary committee to explain:
  • The contents of the Final Budget Outcome Report.
  • The reasons for deviations from approved revenues and expenditures.
  • Whether the fiscal and debt outcomes will result in deviations from the fiscal targets in the Charter and operational targets in the Fiscal Strategy Report.
• Key fiscal reports should be published once approved by the Cabinet of Ministers.

4. Strengthening Fiscal Oversight Institutions

• The Peoples' Majlis (Parliament) and its Public Accounts Committee should be empowered to monitor compliance with the Charter and Fiscal Strategy Report.
• The Auditor General's Office (AGO) should be required to audit the Minister of Finance’s compliance with the FRA's accountability requirements.
• The Ministry of Finance (MOF) should report annually to Parliament on the actions taken to implement the budget-related recommendations of parliamentary committees and the AGO.
• Enhance the technical and staffing capacity of the MOF, AGO, and relevant parliamentary committees to support the implementation of the new FRA.

5. Fiscal Transparency Measures

• The FRA should require the government to present various ex-ante and ex-post reports to Parliament and publish them on the MOF website.
• These reports include:
  • The Fiscal Strategy Report (with medium-term fiscal and debt targets).
  • The Fiscal Risk Statement.
  • The Statement of Tax Expenditures.
  • The Debt Sustainability Analysis (DSA).

6. Other Recommendations

• Ensure consistency in the Public Financial Management (PFM) legal reform agenda and consider adopting the FRA and the Public Debt Act in the same parliamentary session in 2021.
• Review and amend the Public Finance Act and Financial Regulations where necessary.
• Remove cash flow planning provisions from the 2013 FRA and transfer them to the Public Finance Act or financial regulations.
• Consider transferring Article 32(a) of the 2013 FRA (restrictions on advances from the Maldives Monetary Authority) to the Public Finance Act.

Conclusion

The report emphasizes the importance of political commitment and institutional capacity in the successful implementation of the new FRA. It advocates for a principles-based and flexible framework that supports fiscal sustainability and transparency, while also ensuring accountability and effective oversight by Parliament and the Auditor General’s Office.