President Yameen’s anniversary – The economy in review

President Abdulla Yameen’s election campaign was focused heavily on the economy. The Progressive Party of Maldives’ (PPM) candidate was sold to the public as the “foremost economist in the country,” a no-nonsense leader with a plan and the expertise to rescue the Maldives from its “deep economic pit.”

Indeed, during the Progressive Party of Maldives’ ‘Successful 365 Days’ event in Malé last week, fisheries minister Dr Mohamed Shainee noted that the secret of the economic policy’s successes was President Yameen’s intellect and background in economics.

Yameen had vowed to eliminate the persisting fiscal deficit, achieve a surplus in his third year in office, and double per capita income by the end of his five-year term.

At the launching ceremony of the PPM’s manifesto, Yameen pledged to save MVR4 billion (US$259 million) from the state budget, claiming the 2013 budget had included up to MVR2 billion (US$129 million) in unnecessary expenditure.

Despite these pledges, however, the incoming administration in December 2013 submitted a record MVR17.5 billion (US$ 1.1 billion) state budget for 2014 for parliamentary approval, including MVR1.1 billion (US$71 million) more in recurrent expenditure.

Moreover, proposed streamlining amendments to the Decentralisation Act were not submitted ahead of the second local council elections held on January 18.

After pledging to slash wages of political appointees by 30-50 percent, President Yameen instead imposed a pay cut of 12.5 percent for state ministers and deputy ministers in December, as well as taking only half of his own MVR100,000 (US$6500) salary.

The Yameen administration currently has five ministerial rank appointees – including two ministers at the President’s Office –  36 state minister rank appointees, and 72 deputy minister rank appointees.

Last week, former PPM MP Ahmed Shareef Adam became the 10th deputy minister at the education ministry.

Economic policy

While the government fulfilled a pledge to raise the monthly allowance for the elderly to MVR5,000 – reliant on a MVR1 billion investment scheme outside the budget – Finance Minister Abdulla Jihad admitted in August that the government had been forced to rely on the state budget for the handouts.

The government also planned to fulfil a pledge to provide MVR10,000 (US$650) a month for fishermen “regardless of catch” during lean months through a similar insurance scheme with a monthly premium of MVR500.

However, only one fishing vessel has reportedly registered in the scheme so far.

Meanwhile, in contrast to the intransigence faced by former President Dr Mohamed Waheed in obtaining parliamentary approval for his policies, the new administration was able to vote through numerous revenue raising measures in the outgoing 16th People’s Majlis.

The measures included raising the airport service charge from departing foreign passengers to US$25, hiking import duties, reintroducing the tourism bed tax until the end of November, raising the Tourism Goods and Services Tax (T-GST) to 12 percent, and introducing GST for telecommunications services from May 1.

The legislative successes came as the central bank warned that shortfalls in revenue or overruns in expenditure in 2014 “will undermine medium-term debt sustainability and will have adverse implications for exchange rate and prices.”

Subsequently, the parliamentary elections in March saw the PPM and coalition partner the Maldives Development Alliance secure a comfortable majority in the 17th People’s Majlis.

In the aftermath of the polls, four independent MPs, three opposition MDP MPs, and three Jumhooree Party MPs signed for the PPM, sealing a 43-seat simple majority for the ruling party.

The parliamentary majority subsequently allowed the government to fast-track its flagship special economic zone (SEZ) legislation – the cornerstone of President Yameen’s economic policy – in the face of vehement protests from opposition MPs.

The MDP contended that that the law would pave the way for money laundering and other criminal enterprises, undermine local councils, and authorise the president to “openly sell off the country” without parliamentary oversight.

Former President Mohamed Nasheed dubbed the legislation the ‘Artur Brothers bill’, referring to an infamous pair of Armenians linked with money laundering and drug trafficking who made headlines last year after they were photographed with cabinet ministers.

The government, however, maintained that SEZs with relaxed regulations and tax concessions were necessary to attract foreign investors.

President Yameen declared in April that the SEZ bill would become “a landmark law” that would strengthen the country’s foreign investment regime.

Attracting foreign investment

Hailing the passage of the bill in August, President Yameen said his administration has “created the legal environment required to attract major investments.”

At an investor forum held in Singapore in April – where the government sought investors for five ‘mega projects’ – Yameen committed to “exploring openings for increasing foreign investment flows to non-traditional sectors to lift Maldives beyond the image of a picturesque postcard.”

The mega projects include iHavan or ‘Ihavandhippolhu Integrated Development Project,’ – which envisions a transhipment port to capitalise on trade and commercial opportunities in the South Indian Ocean – a ‘youth city’ in Hulhumalé, the expansion of the Ibrahim Nasir International Airport (INIA), relocation and expansion of the central port to Thilafushi, and exploration for oil and gas.

Tourism Minister Ahmed Adeeb – also chairman of the SEZ investment board, who was implicated in a US$6 million dollar corruption scandal last month –  has suggested that even if one project such as iHavan “takes off” with US$1.3 billion worth of investment, the economy would be “transformed.”

Meanwhile, following the historic visit of Chinese President Xi Jinping in September, China announced it would “favorably consider” financing the iconic Malé-Hulhulé bridge should it prove feasible.

President Yameen recently announced that further land reclamation the second phase of the Hulhumalé development project would begin before the end of November.

During last week’s anniversary celebrations, Dr Shainee noted that 19 foreign investors have registered in the country, with a commitment of investing over US$600 million, although no further details were revealed.

While the government appears to be counting on large investments from China – with President Yameen recently slamming  “western colonialists” – the fate of foreign investments made during former President Mohamed Nasheed’s tenure is likely to make potential investors wary.

While the Tatva waste management deal terminated was in September, the GulhiFalhu Global Green City project was recently stalled.

More worringly, a Singapore arbitration tribunal in June found the government of Maldives and state-owned Maldives Airports Company Pvt Ltd (MACL) “jointly and severally liable in damages”to GMR for the termination of a “valid and binding” concession agreement.

The Indian infrastructure giant is currently claiming US$803 million in damages for the abrupt and wrongful termination of the airport development contract.

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