The Asian Development Bank (ADB) has predicted a massive slowdown in growth for the Maldives economy in a major report published on Monday.

ADB had predicted a 12% rise in Maldives’ Gross Domestic Product (GDP) for 2007 in its Asian Development Outlook (ADO) report, released in April. But that has been slashed to 7.3%, in an Update version, available here

It is bad news for Finance Minister Gasim Ibrahim, following closely on warnings from the World Bank and IMF that the 12% growth rate he promised in December, will not be realised.

Unsustainable

In December Finance Minister Gasim Ibrahim unveiled a record breaking $940 million budget, equal to eighty percent of the Maldives’ estimated GDP for 2007.

With increasing anxiety about whether the budget’s revenue predictions will be realised, the ADB has warned “the wide gap between expenditure and revenue cannot be sustained in the medium term.”

Like the World Bank, ADB says increased expenditure is not due solely to tsunami reconstruction, but also government policies, “to increase public sector wages and continue power and water subsidies in Malé.”

And it notes the Maldives is one of the only Asian countries not to control or subsidise the cost of petrol, an issue which triggered May’s strike by Malé taxi drivers.

The ADB has not yet downgraded its growth prediction for 2008, which still stands at 8%, but warned of “a very high fiscal deficit,” even “if the [2007] budget is implemented as planned.”

The predicted deterioration in the Maldives economy is in contrast to an improved overall forecast for South Asia’s burgeoning economy.

International Consensus

The ADB report comes amid increasing international concern over the Governments’ excessive spending this year.

In his Budget speech, Gasim predicted the Maldivian economy would see 12% growth during 2007, a figure at first accepted by ADB.

But in June the World Bank cautioned against the “highly expansionist growth in fiscal policy.”

And just last month the International Monetary Fund (IMF) triggered media panic when with its annual economic statement in August.

IMF Directors said the budget is based on “optimistic revenue assumptions,” which “may fail to materialise,” and warned of a “significant deficit,”

The IMF also warned the fixed US dollar – Ruffiya exchange rate was at risk from inflation, and warned the government to “prioritize expenditures.”

Gasim dismissed the IMF’s findings as an “outright lie” at a press conference last month, and told journalists to back his budget.

The Finance Ministry has not responded to the ADB report so far.

(Courtesy: Minivan News)