1. Fiscal Rules (Strength – Medium; Effectiveness -Low)

16. The Fiscal Responsibility Law (FRL) which was enacted in 2013, contains fiscal rules for central government debt and total and primary balances. The debt rule specifies a limit on government debt plus government-guaranteed debt as a share of the previous year’s GDP (60 percent of GDP), to be achieved by 2017.¹¹ The budget balance rule specifies that the total deficit balance should be no higher than 3.5 percent of current year’s GDP and the primary surplus should be in surplus by January 2017.

17. The FRL contains numerical target limits for the sum of public and publicly-guaranteed debt and for the total and primary balances. The 2017 budget shows the planned levels for both total and primary balances are within the stipulated limits, but the revised expected total and primary balance for 2016 are estimated at -7.4% and -4.6%, respectively. The target for the maximum debt limit¹², at 60% of the previous year’s GDP by 2017, is unlikely to be met. Figure 3.B shows the recent evolution of the shares of debt and deficit in GDP. There are no limits on other government liabilities or on net worth.

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Evolution of Debt and Deficit (2011–2016 per GDP)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Sources: IMF (data on debt 2011–2016; and budget balances 2011–2014); GoM (budget balances, 2015–2016)

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18. For the 2017 planned budget, the government indicated that the fiscal rules did appear to guide the direction of planned fiscal policy. The fiscal parameters in the approved 2017 budget show a government estimated total budget balance of 0.5% of GDP and a primary surplus of 1.7%, based on government GDP figures, both within the specified FRL limits. Compared to its original budget ceilings for 2017, the government reduced planned current spending in the final budget by about 12 percent. This was also to protect PSIP expenditure.

19. However, the actual pace of debt and deficit reduction in recent years suggests that achieving the objective of a sustainable level of debt will be challenging. Public debt (excluding publicly-guaranteed debt) is estimated by the government to be around 64 percent of GDP at the end of 2016; including publicly-guaranteed debt this figure increases to an estimated 83 percent.

20. MOFT prepares a Fiscal Policy Statement annually and is developing a Medium Term Fiscal Framework (MTFF), covering a three-year period, to improve the analytical basis for setting fiscal policy. However, the fact that the FR is not presented to Parliament before the beginning of the budget process nor published limits its effectiveness at providing strategic guidance for the budget. The government has recognized the importance of a robust set of fiscal rules that are realistic and provide a balance of fiscal control and appropriate flexibility to take account of fiscal and political realities. Discussions on preparing an amendment to the FRL are currently ongoing.

21. The law includes a provision allowing rules to be suspended in exceptional circumstances, including natural disasters and economic downturns. The criteria for determining exceptional circumstances are set out in the law. In these cases, the suspension needs to be approved by the legislature. Suspension of the rules has not taken place since the law’s promulgation.

22. The FRL does not include explicit rules on capital expenditures. The limits on aggregate and primary fiscal balances include both current and capital expenditures. A clause requires the government to borrow only for national development projects and to facilitate improved productivity, but this is not necessarily restricted to capital expenditures.¹³ In the Maldivian context, setting out a specific minimum level for public investment expenditure, for example, would be unlikely to facilitate achievement of the desired result because of systemic weaknesses in public investment planning and implementation.

2. National and Sectoral Planning (Strength – Low; Effectiveness – Low)

23. The government does not currently have a national strategic plan for public investment, nor does it have a national planning process in place. Government’s investment plans are broadly based on its Manifesto pledges, set out in its 2013–2017 platform document.¹⁴ The Manifesto is a high-level document containing broad policy objectives, and is not considered a comprehensive national development strategy for guiding public investment planning. While some of the pledges in the Manifesto include intended expenditure allocation amounts, the document does not contain costing information for any of the policies or activities. The manifesto also includes some of the “Mega projects” that are under way (See Box 3.1).

24. Some sectors (e.g., health, tourism, education) have prepared master plans¹⁵ but plans are not systematically prepared by all sector ministries nor do they include costing information. The current publicly-available plans are health and tourism.¹⁶ Some of these plans are longer-term in nature (e.g., the health plan covers a ten-year period from 2016–2025), while others, such as the Tourism Master Plan, cover the medium term (e.g., four years).¹⁷ A review of the documents and discussions with stakeholders suggest that the plans are not necessarily explicitly and comprehensively centered on the Manifesto pledges, nor were they systematically updated following its publication. In practice, relatively few sectors currently have such plans in place, and none of the plans contains information on the costs of the measures.

25. The sector plans do not include measurable targets for the outputs and outcomes of investment projects. The tourism sector master plan contains a desired outcome for each activity or objective but, in most cases, there are no indicators set out, nor baselines established, to measure progress towards the achievement of the desired outcome. The health master plan contains a monitoring and evaluation framework, with specific performance indicators for each outcome in the plan, but without any baseline figures or targets for the medium term.

3. Central-Local Co-ordination (Strength – Good; Effectiveness – Good)

26. There are limits on the total and individual borrowing of sub-national governments, but in practice local governments have not borrowed to date. The FRL enables the Minister of Finance to set the aggregate total debt of local councils annually based on national debt. The Minister of Finance has set the current limit at zero, and, in practice, local councils do not appear to be incurring debt. The Decentralization Act includes a clause permitting borrowing by local councils up to specified limits “stipulated in the Act” but no limits are included in the Act.

27. The FRL includes a limit for borrowing by individual sub-national governments. Individual local councils (comprising city councils, island councils, and atoll councils) may borrow, obtain a government guarantee or seek financing (e.g., from PPPs), including for development projects, in an amount up to a total of one-third of the council’s income of the previous financial year. However, in practice, no council has been approved to borrow.¹⁸

28. Local councils’ capital spending plans are coordinated with those of central government spending agencies. The Decentralization Act specifies the expenditure responsibilities assigned to local governments (e.g., municipal services), and the budget process to be followed by local councils. In practice, given the limited resources of local councils, the financing of public investment at the local level is provided from the central government’s budget. The central government agency responsible for liaising with local councils is the Local Government Authority (LGA). The projects put forward for financing through the central government in service areas for which local councils have delegated expenditure responsibility are determined jointly by the local council and the LGA.

29. Local councils prepare their public investment project proposals based on their five-year development plans, which reflect the needs of the local population. The project proposals are submitted to the LGA, which reviews the proposals of all local councils, particularly for consistency with the relevant council’s development plan. In a manner similar to other MDAs, LGA forwards the project proposals to the MOFT and from there to the President’s Office.

30. Capital grants are not provided to local councils. Because of the small size of many islands and the relatively limited capacities of some councils, central government undertakes the implementation of public investment on their behalf through the LGA. Block grants are provided to local councils for recurrent expenditures but the horizontal distribution to local councils is not determined through the use of a formula; the approved grant amounts to individual local councils (for recurrent expenditures) are set out in the budget document.

4. Public-Private Partnerships (Strength – Low; Effectiveness – Low)

31. The central government has entered into a number of contracts in recent years which may be broadly defined as public-private partnerships (PPPs)¹⁹; however, there is no government strategy for PPPs nor are there any published standard criteria. Currently, there are PPPs and/or contractor-financed projects in the sectors of health, housing, energy, and tourism, mainly for infrastructure development. However, there is no legislation nor regulations specifically covering PPPs²⁰, and there is a lack of clarity about the government’s definition of PPPs. The current financial regulations do not include explicit rules setting out the budgeting and accounting practices to be used for PPPs.

32. Fiscal oversight of, and technical support to, PPPs appears relatively limited. The Privatization and Corporatization Board (PCB), the government’s oversight body that deals with procedures for privatization, corporatization, evaluation and the monitoring of State businesses, does not have an explicit fiscal oversight role, nor does the MOFT.²¹ PPP proposals are approved by the Economic and Youth Council, a Cabinet subcommittee, but without an explicit requirement for review by MOFT. Financial and physical monitoring of PPP projects is overseen by the President’s Office, for major projects, but these reports may not systematically be provided to MOFT.

33. There is no dedicated PPP unit in the government with relevant legal and technical skills, and value-for-money reviews are not systematically conducted. While a feasibility study would be expected to be carried out for PPP proposals, they are not systematically subject to value-for-money reviews before approval.

34. The accumulation of explicit and contingent PPP liabilities is not systematically controlled and recorded, however, some information on PPPs is included in the budget documents. A list of PPPs is included in an annex to the budget; however, it appears not to be comprehensive of all types of non-traditional financing of projects, such as contractor-financed projects, and the budget document does not provide information on government guarantees.²² Most PPPs are implemented by SOEs, and for those funded by government-guaranteed SOE loans, the guarantees are recorded by the Resources Mobilization and Debt Management Division (RMDMD) of MOFT²³; total (including future) PPP liabilities are not recorded by RMDMD.

5. Regulation of Infrastructure Companies (Strength – Medium; Effectiveness – Medium)

35. The regulatory frameworks provide for competition in some, but not all, public utility sectors. The legislative framework for public utility provision comprises broad legislation (e.g., the Public Utilities Act for electricity, water and sanitation), and a limited set of regulations. Regulations for private sector activity in some sectors (e.g., electricity and water) are not in place, though some draft regulations have been prepared. In practice, participation by domestic private operators takes place in the transport and telecommunications sectors,²⁴ but infrastructure and services in other sectors, specifically electricity, water, and sewerage, are provided by state-owned enterprises.

36. Prices for the main public utilities are set by semi-autonomous regulators, but they are not set on the basis of objective economic criteria. The Maldives Energy Authority, covering electricity, and the Environmental Protection Agency, covering water and sanitation, do not have complete institutional or financial independence. Although the agencies are separate institutions, they are institutionally under a Minister, and their budgets are determined using the normal government budget process. Neither is regulated by an Act. There is significant cross-subsidization in the setting of utility prices for consumers.

37. SOEs play a critical role in the economy and in the delivery of public services, through PCB, the government reviews the financial performance of SOEs but does not review or publish a consolidated report on their investment plans or financial performance. SOEs represent over 50 percent of GDP and 18 percent of the total workforce, there are around 97 SOEs.²⁵ Their economic impact is concentrated in 17 fully and 8 partially owned SOEs.²⁶ The MOFT, in conjunction with the President’s office, reviews the investment plans for projects requiring budgetary funding or a guarantee only, but does not systematically review the investment plans of SOEs. The government has made progress in recent years on improving oversight of SOEs with the establishment of the PCB, and further reforms are ongoing. A country case study of improving SOEs oversight is presented in Appendix 3 (Seychelles).

6. Multi-Year Budgeting (Institutional Strength—Medium; Effectiveness—Low)

38. The annual budget documentation contains multi-year projections of capital spending. Projections cover a three-year horizon (next fiscal year and two future years) disaggregated by ministry and project.

39. Despite capital spending projections being published in the budget, there are no multi-year or annual ceilings on capital expenditure, and no ceilings are set during the budget preparation process. Total expenditure and revenue scenarios over the medium term are laid out in the MOFT. The recurrent ceilings are then transmitted to MDAs in the Budget Call Circular. The lack of capital budget ceilings results in extensive requests from MDAs to MOFT for projects to be included in the capital budget. These are listed in order of priority with ongoing projects taking precedence over startups. This list is then subject to discussions between MOFT and MDAs to improve the quality of submissions, before all or most are passed on to the PO for the final decision to be made regarding inclusion in the budget. For the 2017 budget the initial list consisted of over 3000 projects, and the final list just 679 projects. The approved PSIP budget was MVR 8 billion for both foreign and domestically financed projects. MVR 4.37 billon was allocated for domestically financed projects.

40. The MOFT establishes current expenditure ceilings for the budget year by spending category and Ministry. The balance of the resource envelope is assumed to be for ongoing and new capital projects, but this is not allocated by ministry or project nor communicated to the ministries. The lack of a concrete ceiling combined with unconstrained bidding undermines prioritization and leads to a situation where the demand for capital spending exceeds the balance of the resource envelope.

41. The full capital cost of major projects is published in the budget documentation, however, life cycle costs are not. The recurrent implications of capital projects are not included, despite these figures being a requirement of the original PSIP forms submitted by MDAs to the MOFT during the budget process.

7. Budget Comprehensiveness (Institutional Strength—Medium; Effectiveness—Medium)

42. The budget presents a relatively comprehensive picture of capital investments. While significant capital spending is undertaken by SOEs, most is captured in the budget documentation. Most capital projects are included in the budget documentation, although some capital projects are initiated during the year with the approval of the PO. In addition, some SOEs initiate projects using their own resources, which are not captured in the documentation. It should also be noted that spending under guarantees is captured but the potential liabilities stemming from government guarantees are not comprehensively recorded (see Appendix 4 for list of selected government guarantees).

43. The largest SOE by value of PSIP implementation works is the Maldives Transport and Contracting Company (MTCC). It currently implements works on behalf of the Ministry of Housing and Infrastructure and also by request from other ministries and the PO. It can on occasion be asked to implement projects not budgeted for (making virements from other projects), but in general all its operations are on budget.

44. Externally financed capital projects are included in budget documents and integrated into ministerial budgets. The budget documents contain information on the projects funded by both external and domestic funders. The information is presented by project and by line ministry. The budget documents also contain information on loan-financed components of projects. However, these are presented separately from government-funded projects making it difficult to identify total costs where there is a blend of financing from both sources. Development partner grants are provided in detail in budget documents, although whether they are fully or partially capital in nature is not easily identifiable. Figure 3.C below shows the PSIP budget divided by domestic and foreign financing, the importance of foreign finance is decreasing in recent years. As discussed in Section D foreign financing has a lower execution rate than domestically financed projects.

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Budgeted PSIP Expenditures: Domestic and Foreign Financing (MVR million)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Source: MOFT, MTEF 2008 – 2019

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45. The absence of consolidated information on capital investments weakens fiscal transparency. The projections of capital spending presented in various budget documents do not include cross-references to funding sources or projects. There is no indication of whether a government-financed project cofinances a loan project or if a loan-financed project is partially government-financed. Similarly, the donor financed projects make no reference to the government’s financial participation. Consequently, it is difficult to obtain a full picture of the capital investments funded by different sources. There is no comprehensive list of projects that have received government guarantees. The lack of a transparent presentation that identifies project funding sources complicates tracking total project costs and can distort overall fiscal analysis.

46. Information on most PPP transactions is integrated into the budget documentation. PPPs in the Maldivian context represent a mix of PPPs and small-scale projects which appear more like charitable initiatives by the private sector, e.g., the building of mosques. None have been agreed or initiated in the last two years. PPPs, as understood in the international context (shared risk between private and public sectors), are now designated as Contractor Financed Projects. Budget documents contain information on all contractor financed projects, integrated into the domestic capital budget, as they all have to pay an instalment from the domestic budget. Information is limited to location, status and total project costs for the forthcoming budget year for each PPP. Some PPPs are not included in budget documentation as the MOFT is dependent on MDAs to send in the required information, which is not necessarily the case.

8. Budget Unity (Institutional Strength—Medium; Effectiveness—Low)

47. Capital and current budgets are presented together in the budget, however the budget preparation process is divided between the MOFT and the Office of the President. Whereas the MOFT is responsible for proposing the overall fiscal envelope and the parliament takes the final decisions regarding budget allocations, the actual preparation of the capital budget is separated from current budget preparation. A general budget circular that outlines the budget submission requirements is sent out by the MOFT, requiring MDAs to submit recurrent estimates according to a ceiling (which they sometimes do not), and also a list of projects for selection into the, as yet, unconstrained capital budget. These projects should complete a project fiche, but there is no guidance for the appraisal or selection of projects. The lists of capital projects are then scrutinized by MOFT, and discussed with MDAs with respect to both technical and financial details. No capital projects are rejected at this stage, and all are forwarded to the PO to undergo the selection process. Appendix 5 provides a description of how the current capital budget process operates.

48. The PO now handles capital budget preparation in a process that largely combines project appraisal, selection and budgeting in a single step. The approved list of capital projects is then aggregated to form the de facto capital budget ceiling. The separation of capital and current budget preparation leads to fragmentation, sub-optimization and lack of consistency between different parts of the budget, whereas the failure to separate project appraisal and selection in two different process steps undermines the consistency and integrity of both. Consistency is particularly important when there is a need to recognize the ongoing costs of an asset and its implication on the current budget.

49. The budget does not include appropriations for recurrent costs associated with investment projects. The budget circular for the preparation of budget submissions for capital budgets does require an assessment of future current expenditure associated with the proposed project, though this is not integrated into future budget discussions. It is also unlikely that such figures are costed robustly. This means that the MOFT does not have a detailed understanding of the likely cost implications of capital investment projects. All major capital investments require current expenditure—such as administration or maintenance fees—to deliver the intended results. In some cases, current expenditure may, over time, exceed the capital cost. With the existing separation of capital expenditure from the current budget there is a risk of underestimating the full fiscal impact associated with capital projects.

50. The operations and maintenance elements of the budget are treated as a residual and are therefore under budgeted in recent years. In approving and developing specific projects the focus appears to be on implementation, with little regard to the associated future recurrent costs. This is unsurprising as capital investment decisions are made without reference to life cycle costs and management. In addition, cuts made to the capital budget are made to maintain or increase current expenditure. The following table indicates the volatility of maintenance expenditures during a period when the capital stock has been expanding.

Table 3.1.

Maintenance Expenditures 2012–19 (MVR Million)

Table 3.1.

Maintenance Expenditures 2012–19 (MVR Million)

Actual	Actual	Actual	Actual	Projected	Budget	Projected	Projected
2012	2013	2014	2015	2016	2017	2018	2019
184.8	93.1	206.6	380.4	214.9	106.2	93.8	94.6

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Table 3.1.

Maintenance Expenditures 2012–19 (MVR Million)

Actual	Actual	Actual	Actual	Projected	Budget	Projected	Projected
2012	2013	2014	2015	2016	2017	2018	2019
184.8	93.1	206.6	380.4	214.9	106.2	93.8	94.6

51. The budget classification and chart of accounts distinguishes clearly between current and capital expenditure and financing using the IMF’s Government Financial Statistics (GFS) 2001 guidelines. This classification is also followed in the budget documentation. Whilst the weaknesses of the implementation of the classification and chart of accounts is well documented²⁷, the classification does allow for clear distinction between capital and recurrent. The use of the Chart of Accounts, is often compromised by MDAs which enter project costs on one line-item instead of disaggregating them into salaries, operations and maintenance. A new Chart of Accounts is being developed and the government hopes to implement it quickly.

9. Project Appraisal (Institutional strength—Low; Effectiveness—Low)²⁸

52. With the exception of donor and foreign financed projects, capital projects are not systematically subjected to cost-benefit analyses. Project appraisal occurs, to some extent at MDA level. There is no independent project appraisal following technical guidelines. Investment projects are submitted during budget preparation in the first instance to MOFT, along with a project form which contains some appraisal information, however it is regularly not completed. MDAs indicate the priority of projects for implementation. These projects are then reviewed by MOFT, but not according to any guidelines. The focus is on discussing costings and also on establishing whether projects are ongoing or new.

53. There is no standard published methodology or central support for project appraisal, and there is no evidence that risks are systematically assessed as part of project appraisal. The results of appraisals, as such, are not published, and there is no clear evidence that projects are subject to a rigorous appraisal process. Documents regarding the capital budget contain no references to internal rates of return, impact analyses or sustainability considerations. The MOFT indicated that the review of budget submissions for capital projects by line ministries primarily focuses on readiness for implementation.

10. Project Selection (Institutional strength—Low; Effectiveness—Low)

54. There is no independent quality assurance of project appraisals. There is no PIM framework or project pipeline and, as a result, projects can enter the budget at different stages of the cycle. In addition to submissions under the Budget Call Circular, MDAs together with local councils and MPs can all lobby the PO and parliament for the inclusion of projects even for initiation during the financial year. As mentioned above, MOFT has a mandate to undertake a review of all projects submitted for PSIP consideration. MOFT provides advice to the PO on the merits of investment projects and their overall prioritization. The final selection and prioritization of investment projects is done by the PO.

55. There are no published, standard criteria for project selection. Various criteria such as population served and adherence to the manifesto as well as whether island projects have had investments in the recent past are not considered. Also, it is not possible to see which criteria influenced the decisions and what impact these criteria had. Such information would provide valuable guidance to future project submissions.

56. The Government does not have a project pipeline of approved projects for inclusion in the budget. Projects that are not selected do not constitute a project pipeline in the normal sense. These projects are simply returned to the MDAs with a high likelihood that that they will be resubmitted in the following FY for consideration. A project pipeline typically comprises projects that have been thoroughly vetted, are fully in line with project requirements and government priorities, and have a high likelihood of future approval and funding (See Appendix 5 for an example of a project pipeline). No projects are rejected on the basis of the appraisal process, which reinforces the impression that this process is fairly limited.

11. Protection of Investment (Strength—Medium; Effectiveness—Low)

57. The outlays for public investment projects are provided on an annual basis, however, the budget includes project projections for the current year plus two years ahead and information on the total project construction costs. The annual budget documentation presents an annex with the PSIP projects listed and the following information for each project: agency responsible; location; status (ongoing, new, tendered, awarded); total construction costs, and estimates for two outer years. The documentation does not disclose the amount already spent on the project, nor the total of any carryovers from previous years.

58. The annual budget is not currently subject to an appropriation act, and the Parliament (“Majlis”) formally approves the overall expenditure envelope. This means that allocations for public investment are not binding, allowing significant reallocations during the fiscal year that are necessary to execute the budget at the MDAs level.

59. In-year reallocation (“virements”) from capital to current spending are not restricted and do not protect capital spending. The Public Finance Regulation (PFR – Article 4.09) prescribes that the MDAs shall submit their requests for virements to the MOFT for approval. In practice, virements between projects and the redeployments between the administrative sectors during budget implementation, are significant²⁹, contributing to a further change in the composition of expenditure during the fiscal year, penalizing investment and limiting the credibility of the budget. Requests for increased expenditure, both capital and current, during the budget year are mostly accommodated as the execution rate of capital expenditure is low resulting in space for reallocations. In addition, MOTF oversees a significant contingency budget (supplemented by “funds” from poorly executed projects) which can accommodate requests. Much of this contingency is used to pay pending bills.

60. There is currently no rule on whether unspent appropriations for capital spending can be carried over to future years. Only unspent appropriations for externally financed capital spending may be carried over. The unexpended balance of an appropriation lapses at the end of the financial year for which it is made, and the MDAs must request a new allocation in their appropriations for the forthcoming budget year. Nevertheless, ongoing projects are prioritized for funding during budget preparation.

61. In practice, policies and procedures are in place to guarantee that ongoing projects are not delayed to start new projects. In preparation of the budget, while the legal framework allows ministries to propose new projects to the budget without any restrictions. Both MOFT and the PO give priority in resource allocation to ongoing projects. Priority of funding is also given during the fiscal year to ongoing projects to ensure completion before starting new projects. This priority is so strong that MDAs regularly attempt to initiate new projects within ongoing project budget submissions.

62. Under-execution of the capital budget has been significant (Figure 3.D). A large percentage of the PSIP program has not been implemented (54 percent of implementation on average for 2013 – 2015; see Figure 3.E). The foreign PSIP in particular is often under-executed because of optimistic expectations of project progress (16 percent implemented in 2014, and 23 percent in 2015 – see Figure 3.F).

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PSIP Actual versus Approved (2008 – 2016)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

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PSIP Domestic Actual versus Approved (2008 – 2016)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Source: MOFT, MTEF 2008 – 2019

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PSIP Foreign Actual versus Approved (2008 – 2016)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Source: MOFT, MTEF 2008 – 2019

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63. Money is reallocated to under/unbudgeted recurrent expenditure, such as wage, pensions and subsidy increases. For example, in 2014, wages and pensions were unexpectedly increased. In 2015, subsidies were budgeted below the 2014 actual, but then 2015 actual surpassed 2014 actual (Figure 3.G) The deviation of the domestic budgeted versus actual PSIP has its mirror image in the deviation of budgeted and actual recurrent expenditure (Figure 3.H).

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Current Budget Actual versus Approved (2008 – 2016)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Source: MOFT, MTEF 2008 – 2019

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Deviation Domestic Budgeted/Actual PSIP (2008 – 2016)

Citation: IMF Staff Country Reports 2019, 102; 10.5089/9781498310901.002.A001

Source: MOFT, MTEF 2008 – 2019

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12. Availability of Funding (Strength—Medium; Effectiveness—Low)

64. Cash management remains weak, cash flow statements are not prepared and MDAs are not provided with commitment ceilings in a timely manner. As stated in the 2014 Public Expenditure and Financial Accountability (PEFA) Assessment, and several technical assistance reports³⁰, revenue forecasting has improved, but overall cash flow forecasting and management remains weak. Spending ministries are not provided with reliable information on the resources available to them for capital expenditure. A few agencies provide cash flow projections. There is no apparent adherence to a formal forecasting calendar, and little evidence of: (1) commitment or procurement plans provided by MDAs and SOEs; (2) review of the forecasts submitted, systematic periodic updating of forecasts, using them in determining quarterly spending authorizations; (3) coordination with the international and domestic borrowing program; or (4) the basis for any form of active cash management. Unrealistic budgets, poor cash forecasting and weak cash management have led to the lack of availability of cash for efficient budget execution, uncoordinated short-term borrowing, and accumulation of arrears.³¹

65. The financing of project outlays is frequently subject to cash rationing leading to significant delays in project implementation. Budget releases are made quarterly for recurrent and capital expenditures, but releases for the domestic PSIP expenditures are only made when invoices are received for payment.³² The efficacy of this system is limited since the information is not based on a forecast of cash resources available for commitments. Daily cash balances are obtained every morning and amounts set aside for essential payments like salaries. The balance is used to make payments based on outstanding invoices and urgent requirements.³³ As previously mentioned, the Budget Division of MOFT (FAD) delays commitments or projects when cash is not adequate, and use the unspent allocations for recurrent expenditures, resulting in significant delays in capital spending and PSIP project startup. ³⁴

66. Most external financing is processed through a Treasury Single Account (TSA), with a few exceptions where funds are held in commercial accounts.³⁵ The Treasury maintains one main account (Public Bank Account – PBA) at the Maldives Monetary Authority (MMA), plus several foreign currency subaccounts. Separate bank accounts are maintained on the Atolls for central government purposes and by some institutions, e.g., Maldives National University as well as local authorities, and a number of project accounts are kept separate from the TSA at the donors’ request. The SOEs hold their accounts in commercial banks, and these banks provide information on account balances and transactions to the MMA. External finance is nearly-fully reflected in the budget estimates and in the annual financial statements prepared by the Financial Controller.³⁶

67. Recent developments in cash management have been encouraging.³⁷ A cash management committee (CMC), composed of representatives from the MOFT, MMA, MIRA and Customs, has been constituted and is expected to meet regularly. PAS implementation has made significant progress with nearly 85 percent of Male’ based MDAs now equipped with Material Management (MM) and Business Intelligence (BI) modules. The main MDAs have been asked to prepare annual cash flow plans for PSIP expenditures for the implementation of the 2017 budget.³⁸ This should greatly assist in the process of managing commitments and payable arrears, and to capture as much transaction data as possible through the accounting system. Regulations and guidelines still need to be developed, and capacities strengthened, on cash management and commitment control and the use of SAP modules, both at MOFT and MDA levels.³⁹

13. Transparency of Budget Execution (Strength—Low; Effectiveness—Low)

68. A regulatory framework for procurement incorporating competitive procedures is in place, however many major projects are not tendered using these processes, and the public has only limited access to procurement information. The Public Finance Regulation (PFR) of 2010 (Chapters 15 and 8) sets out the basic provisions on the bidding process.⁴⁰ It also establishes: (1) bid committees in each MDA to authorize procurement works between MVR 25,000 to MVR 1.5 million; and (2) a NTB is responsible for approving the award of major contracts (more than MVR 1.5 million). ⁴¹ Opportunity to participate in tenders can be restricted to Maldivian parties if the estimated procurement value is not more than MVR 1.5 million. If the estimated procurement value is more than MVR 10 million, then invitations for tender shall be publicized in international media or a website. For donor or externally financed projects the donor’s procurement procedures are followed. Only information on bidding opportunities is made available to the public. Information about the government’s procurement plans, contract awards, and data on resolution of procurement complaints is not published.

69. The regulation is applicable to central government units, but not to extra-budgetary funds, SOEs and some defense activities. MDAs are also permitted to use restrictive competitive methods under specific circumstances (restricted tendering, single source and emergency)⁴², but there does not appear to be any mechanism for checking whether use of these methods is justified in accordance with the specified conditions.⁴³

70. Many major projects, especially those conducted by SOEs are tendered using different processes. Tender procedures for some major projects are managed by SOEs using their own tendering rules or those of foreign donors.⁴⁴ These vary according to individual SOEs. There is also no public tendering for government investment projects where the spending ministries decide to have the SOEs do the project construction and to act as the contractors.⁴⁵ This can be explained by the limited number of contractors with the relevant capacities to implement investment projects.

71. Performance audit reports⁴⁶, and other audit reports on financial statements, prepared by the Auditor General’s Office (AGO), highlight numerous cases of non-compliance with procurement rules. Shortcomings include: poor procurement planning; entry into contracts without committed funds; splitting of tenders to avoid the open procurement procedure; customization of the tender criteria thus favoring certain operators; and weaknesses in tender evaluations.

72. Databases or records are not maintained for all investment contracts. There is no comprehensive database with information on what has been procured, the value of procurement, and who has been awarded the contracts. The data that does exist is not accurate nor complete. There are no reports produced from databases to provide an overall of the procurement situation and thus there are no follow-up actions to improve procurement. These shortcomings, as well as those related to the public access to procurement information, are expected to be partially addressed from 2017 with the finalization of procurement manuals and the establishment of standard operating procedures and bidding documents for harmonizing procurement practices across the government; and the implementation of a procurement module/database in the NTB.⁴⁷

73. The financial, and especially the physical, monitoring of projects varies extensively by minister and sector. The major ministries such as Housing and Infrastructure (MHI) have monitoring units, while Education adopted a different model and contracted out its monitoring. Most MDAs appear to have limited resources and expertise in this area. The Health Ministry noted the unit had only three staff monitoring 70 projects. In 2014, guidelines on reporting, monitoring and evaluation of capital projects during project implementation, were produced by a former unit of MOFT⁴⁸. These guidelines, however were not widely disseminated and are not being used by the spending ministries, most of whom did not seem to be aware they existed.

74. There is central financial monitoring of spending ministries and agencies’ capital projects however, the comprehensiveness, timeliness, and quality of the information is not adequate and no information is provided on physical implementation. MDAs and main SOEs are requested by the MOFT to report quarterly on the financial implementation of the domestic and foreign financed capital projects. While the financial monitoring of PSIP expenditures has improved⁴⁹, the lack of accurate information about the physical progress of investment projects in MOFT (in addition to the lack of commitment control) results in virement decisions and reallocations initiated and approved at a late stage in the budget year. As the use of the capital budget requires preparatory activities (e.g., procurement, contracting, project plan revisions) of several months, the reallocation has to be executed at least by the middle of the fiscal year to assure use of the budget. A mid-year review would provide the necessary information for timely approval of reallocation decisions.

75. External ex-post audits of capital projects are not routinely undertaken.⁵⁰ Recently the AGO has produced two relevant reports. One examined capital project management by SOEs and MDAs in road construction⁵¹, and the other looked at the management of capital projects in general. ⁵² These audit reports and other work by the AGO highlight numerous cases of poor project management and monitoring resulting in particular cost overruns, payment delays, poor quality of outcomes, and weak efficiency of public investment. These reports are submitted to Parliament, but have not been routinely scrutinized, leading to limited action from the Legislature to address the main weaknesses of the public investment management.

76. The absence of ex-post audits of projects significantly reduces the opportunity to learn from past project implementation challenges and mistakes. Ex-post audits should provide useful information on the oversight and management of capital projects, focused on both their financial and physical performance during implementation, and on whether economic, efficient, and effective use of resources was achieved. Such information would be invaluable to help improve future project management practices.

14. Management of Project Implementation (Strength—Low; Effectiveness—Low)

77. The quality of project management varies considerably both within and across ministries. Projects financed externally follow donor rules and procedures and most require the establishment of a project management unit. MDAs employ in-house technical staff for monitoring and managing projects⁵³, but the capacities are limited, and important indicators such as the quality and time management of PSIP projects are not systematically monitored. The implementation details submitted with the original project prior to budget approval is often not respected because of project delays, virements, and cancellations. Thus, it is difficult to determine when project costs exceed original estimates, and when implementation plans have slipped.

78. Most of the major and mega-projects are managed by specific SOEs, and do have project management units. Management of these projects is often provided by external consultants. Since consultants are not public servants, they do not satisfy the condition of a senior official; and their appointment as project leaders tends to shield members of the public service from responsibility for project performance.

79. There are no standardized rules, procedures or guidelines for project adjustments. Additionally, there is no formal requirement for, or practice of, reappraising projects in light of proposed adjustments to determine whether their business cases continues to be valid in terms of expected outcomes. This could allow projects that generate a negative return to continue to be executed. Box 3.2 sets out information on project adjustment guidelines used in Kenya.

80. Ex-post reviews focusing on project costs, deliverables, outputs, and outcomes are not systematically required or conducted. In practice, given the nature of physical engineering works, ex-post reviews on the completion of construction projects are a contractual requirement for the release of final payment. There are, however, no regular ex-post reviews which focus on the overall project costs, deliverables or outputs or an evaluation of the social or economic outcomes that were originally forecast to justify a project. This denies an important opportunity to hold project managers accountable for achieving planned outcomes or to learn from experiences that could inform future investment decisions. Again, the reason is in part the shortage of staff with the requisite skills.

15. Monitoring of Public Assets (Strength—Low; Effectiveness—Low)

81. The scope and procedures for the management of non-financial assets are clearly defined in the legal framework, but an updated and substantially complete registry of fixed assets is not available. Chapter 11 of the PFR prescribes the management of non-financial assets by MDAs, requiring them to maintain a register of assets; document all purchases, sales and movements in assets; and prepare statements of non-financial assets. In practice, comprehensive asset register information pertaining to immoveable assets, is not maintained either at ministry or government level and so is not available for inclusion in the government’s financial statements. Only asset registers for moveable assets are maintained by MDAs and consolidated by the MOFT. The absence of comprehensive information on the government’s assets prevents the development of an optimal maintenance program or the determination of changes in the nation’s patrimony from year to year as a result of investment expenditure. The AGO regularly reports on the lack of comprehensive asset registers.

82. Depreciation of fixed assets is not included in the government’s financial statements. Accounting rules on the recording of assets and depreciation have not yet been implemented in the Maldives. The existence of a centralized inventory of fixed assets within the MOFT would provide a significant “head-start” for any future efforts to begin to record assets, develop a government balance sheet, and make provision for the depreciation of assets.