The International Monetary Fund (IMF) has given preliminary approval for a three year economic programme in the Maldives, after the government agreed to “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy.”
The IMF has spent two weeks in the Maldives meeting with President Mohamed Nasheed, Minister of Finance and Treasury Ahmed Inaz, Governor of the Maldives Monetary Authority Fazeel Najeeb, senior government officials, donors and the Majlis.
“The Maldives’ economy is growing robustly on the back of strong tourist arrivals, but it continues to suffer from large fiscal and external imbalances,” the IMF observed in a statement.
“The Maldives has recently faced challenges with respect to inflation, but there is no indication that inflationary momentum has risen. The introduction of the exchange rate band was a welcome step, but it needs support from a tightening of fiscal and monetary policies. The mission and the authorities agreed that such a tightening of policies would be important to promote fiscal and external sustainability, continued growth, and low inflation.”
The IMF agreed to a “medium-term” policy from the government to reduce its budget deficit “substantially”, “both through additional revenue measures – which would require the support and approval of the Majlis – and through expenditure restraint.“
“The authorities have introduced an initial voluntary separation plan for government employees and are continuing their detailed analysis of the public service, with an eye toward right-sizing government over the medium term,” the IMF noted.
“Monetary policy would be tightened to complement fiscal adjustment, counter inflation, improve confidence in the rufiya, and support international reserves. Gradual accumulation of international reserves, along with the fiscal space created through debt reduction, would reduce Maldives’s vulnerability to external shocks. Financial sector reforms will support the soundness of the banking system and increase the depth of the foreign exchange and financial markets.”
The IMF observed that if approved by the IMF’s Executive Board, the Maldives’ subscription to the program would likely encourage other key donors to contribute further financial support.
Speaking at a joint press conference held by the Finance Ministry and the Maldives Monetary Authority (MMA), Finance Minister Ahmed Inaz acknowledged that previous concessions made by the government with the IMF – such as reducing the public sector wage bill, “didn’t materialise because some of them were not politically possible in the country at the time.”
“But given the current situation we are hopefully the proposed medium-term measures we are proposing will be possible when [parliament] sessions resume.”
According to Inaz, under the new IMF program the Maldives has committed to:
- Raise import duties on pork, tobacco, alcohol and plastic products by August 2011 (requires Majlis approval);
- Introduce a general goods and services tax (GST) of 5 percent applicable to all sectors other than tourism, electricity, health and water (requires Majlis approval);
- Raise the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013 (requires Majlis approval);
- Pass an income tax bill in the Majlis by no later than January 2012;
- Ensure existing bed tax of US$8 dollars a night remains until end of 2013;
- Reduce import duties on certain products from January 2011;
- Freeze public sector wages and allowances until end of 2012;
- Lower capital spending by 5 percent
“This is not about how much we get from IMF or donor agencies, this is something we been advocating, even if we have not been heard,” said Inaz. “We have always been saying that the deficit should be balanced with additional revenue measures.”
Cutting the deficit by sacking state employees – current 75 percent of the state budget – was not possible at the moment, he said, “although we are trying our best with redundancy payments.”
“Hopefully 1350 [voluntary redundancies will bring us Rf101 million in savings next year, but that not enough. State revenue has to increase with the new constitution. We hope the Majlis will approve these bills, and we hope much of the burden of the deficit will be released in 2012.”
Governor of the MMA Fazeel Najeeb acknowledged that “there will be some eyebrows raised and some reservations on the measures – this is inevitable in any country changing its taxation regime.”
“There are instabilities and I hope these will be short term. But I think what we are doing is in the interest of the economy and will bring it out of the mess it is in. I think it is necessary that we act together now,” Najeeb said.
The IMF package, he noted, represented “a joint commitment by the Ministry of Finance and the central bank: a state affair in the interests of the economy and the country.”
“Everybody in the country realises and recognises that there needs to be a change in the status quo. The status quo is a fiscal stance that is unmanageable.”
Asked whether he felt the new taxes were likely to be passed by parliament, “I think when it comes down to the details of what and how the legislation takes shape, that should be left to Majlis. What I can say is that status quo needs to change, and I don’t think this can be only reduction [in expenditure]. There needs to be a considerable amount of income increase. A combination of revenue as well as expenditure.”
Until recently the government was publicly calling for Najeeb’s dismissal by the Majlis due to a perceived lack of cooperation on tackling the currency crisis facing the country.
Asked if the IMF deal represented a new era of cooperation, Najeeb said the MMA “is always willing to cooperate with the government. There are issues on which we professionally disagree, but that shouldn’t be interpreted as lack of cooperation.
“We will continue to cooperate as we have done before, and whenever we are called upon to participate in press conferences such as this one, we will do it. We will leave it at that.”
State Minster for Finance Ahmed Assad said that despite media efforts “to sensationalise” the relationship between the MMA and the government, “we are not going to fight in public. Any fight will be within the walls of the MMA, or the Ministry of Finance. Because these are technical policy issues on which we don’t agree.”
“The MMA is not elected by the people and is not responsible [for the economy] – it is the President who heads the government and therefore the responsibility falls on the government to point the economy in the right path,” Assad said.
“Therefore whatever we do, the MMA is there to support us. If we’re wrong they’re there to criticise us. If we choose the right path their sole goal is to assist us. There are times that we disagree but that is purely professional. We should not have a hostile attitude towards this.”
Assad observed that even with the new taxes proposed by the government, the Maldives was still had the most generous tax system in the region – even compared with other island nations, and neighbouring countries such as India and Sri Lanka.
“We can’t say taxes are exorbitantly high and will bring total destruction to the industry,” he suggested.
The President’s Press Secretary Mohamed Zuhair meanwhile said the agreement with the IMF represented “a vote of confidence” in the government’s handling of the economy.
“We inherited huge amounts of debt and millions of dollars in unpaid bills from the former administration but have nevertheless managed to cut the budget deficit in half, bring down inflation and raise government income to put our economy on a steady path to prosperity,” Zuhair said.
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3 years. that is a coincidental time frame
all the best president and to the government, wishing best of luck in stabilizing the economy with all your effort.
Get ready to be raped by Strauss Kahn!!!...
hahaha in which country does the Governer's no confidence in parliament and an exchange rate change with a cry baby Inaz who have no tolerance or maturity is in place of minister will solve anything??. Only hope is state minister naseer who is doing everything required, while inaz is busy on tv shows boasting about him and looks everyday into mirror and ask who is the best economist of this country, and mirror says some one else and he is so furious to do everything to kill the persons credibility. It is a shame that Assad is talking where he took us down with past two years. I am a youth who protested but I am going to give time for naseer to handle things..
At least we have a plan now! The Finance Minister and the Governor should regularly update the public on the progress of this plan. If anyone is obstructing these plans, they should be pointed out in public so we are all in the clear.
This process needs to be transparent at all levels. The whole future of the country is at stake here. People will only take ownership when there is regular relevant information sharing at ALL levels.
@Ahmed Bin Addu Bin Suvadheeb...The process will not be transparent as long as these corrupt people are in power, Like the 500 million border control deal...Or is that the transparency that you have in mind?
Looks like the Governor will not stay for long, MDP is already calling to replace him with a MDP cronie, So with a new Governor and this plan would have to be started all over again
Don't expect anything to improve, we might see a transient improvement in the first quarter of 2013 but after the elections MDP firmly in power and parliament as their rubber stamp....Then the big crunch will come, we will all become economic slaves and a new Dictatorship will be born.
The MMA governer should only be allowed to stay on in his job, if he can give up his studies, or whatever he is doing abroad.
At such a crucial time, he needs to spend time in Maldive doing his job.
IMF has showed us that the government is on the right path. I hope the Majlis will cooperate to get us out of this economic mess. The future of the country is at stake here.
President, Minister of Finance, MMA Governor and other key policy makers needs to explain whats happening to the economy and steps taken almost everyday! Confidence and credibility is the key to economic stability! Some idiotic commentor like @Sina just wants to make these issues highly personal. If these policy makers doesnt explain it then we will be on street! Remember we are watching your actions carefully.
"The MMA governer should only be allowed to stay on in his job, if he can give up his studies, or whatever he is doing abroad."
Absolutely. The position of the governor is a FULL TIME job and not a sideline as Fazeel has been doing so far. A more responsible person needs to be found for this job!
I full salute Inaz for going infront of the press and other audiences. This is how state Ministers should perform. They need to be very visible and available at all times to explain the workings of the government.
More Ministers from Nasheed's cabinet need to be regularly seen in the media. Some of them seem to very media unfriendly. I do hope that Inaz will continue to voice his opinions as well as how his Ministry is going on with The Programme. This is a good beginning.
@Moosa: You all are absolutely right. They should try and share those matters which can be shared with the public and at a layman's level.
This would certainly help decrease the knee-jerk antagonism to the policy actions taken by the government.
I disagree with some of the proposed measures as being a tad too excessive myself. We cannot compare ourselves to some of the other countries in our region. Our looser tax system might give us a competitive edge. We need greater restraint in imposing taxes. Hope the fiscal tightening does indeed happen. Most of the proposals seem highly revenue-based. Only time will tell us the level of commitment and sincerity in the efforts of the government.
Policies? what policies. No policies are being made for the long term grow of the economy. If so, we will hear about them.
All we do is follow IMF and if that is policy making so be it.. But IMF is not in the business of economic growth or development. Their job is stabilization.
We have yet to hear some real polices for long term growth.
I think I fully agree with Moosa. The MMA governor is a representative of Yameen. It is Yameen who is telling him what to do. I think we need to remove this guy now.
As long as, Maldivians don't pay taxes when they purchase NECESSITIES and the income tax is a progressive income tax, I think, Government is moving in the right direction.
A progressive income tax MUST be used to make essential health services available to the poor, and for the provision of employment subsidies to resorts and other companies so that they can afford to employ more staff.
I will be enraged if the system still has not figured out a way to prevent Politicians or officials from misusing or stealing this new found public money, or else, it is going to devastate Maldives greater than already is.
I sincerely hope no greedy animals try to block the income tax from being passed in the Majlis (Do you still use the Arabic name Majlis to describe your parliament or not?)
@tsk tsk
"Our looser tax system might give us a competitive edge."
This is another common misconception. Can you provide examples where we have such a "competitive edge" as you call it? I simply don't see any!
The tourism sector is an extremely high margin business. Taxation in this area will have absolutely zero impact on that industry. Mid market tourism is a different category; but that's something we simply don't have.
Let's take business taxation. You have to remember that we ALL pay taxes right now. That's called import duty! Regardless of what business you run or how much profit you generate, everyone pays the same amount of tax here. This is not a fair or progressive form of taxation. In fact, removing import duty and replacing that with progressive taxation will improve our "competitive edge" where we have one.
Now, let's look at the billionaire property owners of Male. They are laughing their way to the bank every day collecting vast amounts of wealth froom the blood and sweat of folk migrating to the hell hole known as Male. Most of them couldn't care less, as they are comfortably living abroad on those earnings.
Will all the income generated from new form taxation end up in the pockets of government officials? Depends who you call government officials. MPs set their own salaries and so far they have not shown a good example. Essentially, they can ask for whatever they want and no one can challenge them. What happens if MPs suddenly demand 50% or even 100% increase in pay if they see that the government has extra money? Who can stop that from happening?
You may say, the ruling party may just increase the salaries of it's appointees. Yes, they may do that, but they have to keep in mind, they'll face the public every 5 years!
@Ahmed Bin Addu Bin Suvadheeb....The people living in male already pays high rents when their income is taxed they would have even less to spend on rent meaning more cramped living spaces at the same time increased GST would also effect them more, people with fixed salaries.....I am all for tourism tax as their margine is high but income tax for more than 30,00 is something i oppose.
Now what wil happen to all the tax money?? We have no repctable or responsible system to manage it, the money would go to the pockets of MDP officials and cronies ..On buying Mps. Making ailrines, huge dubious contracts....I highly doubt the health care/eductaion or social services with improve....But MDP will support taxes simply bcs it gives them more money and more policitcal power and more illegal contacts..Their only goal is to stay in power...just look at ourr nighbour India their taxation system is vast...but very little actually goes on to help the people who need it, most get sqantered...
As things are right now, the net effect of taxation would be make people poorer decreas spendable income..while MDP gets rich on our expense.
"they’ll face the public every 5 years!"
Fortunately for us this is reality now!
We can all agree the elections officials have been mostly professional. Neither political party has yet to challenge the result of an election.
Many people draw parallels with MDP's consolidation of power with Maumoon's early years. There is a big difference between then and now. Free elections, with a loud and boisterous mostly opposition controlled media.
I can agree with the 8 points Mr. Inaz mentioned, that Maldives is committed implementing in relation to the IMF program.
However, what I am concerned about are the details of this program. There is no mention of any details in this article. Whether it is going to be IMF short loans, what would be the interest, terms etc.
With or without IMF approval the 8 points Mr.Inaz mentioned can be done solely by Maldives. No need for IMF to approve that. I am not really sure why we are seeking approval from IMF.
Looking generally on the IMF history, their deals with developing countries etc.. Have done more harm than good. The public ought to now the details.
After all, we will soon be tax payers. The burden eventually will be put on us.
"Looking generally on the IMF history, their deals with developing countries etc.. Have done more harm than good."
Poor countries like the Maldives generally don't have many avenues to go begging for cash.
How many even know about Gayyoom's loans which he took at ridiculous Ribaa levels from Kuwait and other Middle Eastern funds? After building his Pyramid in the centre of Male, Pharaoh Gayyoom ran out of cash and went begging with bowl in hand to the Middle East. Guess what? We're still paying the Ribaa on those loans!
He could have gotten cheaper loans from the IMF, but the IMF would have laughed in his face and he knew it.
Right now, we're at a real risk of having to go with the begging bowl to the IMF. We have already begged as much as we can from friendly nations such as India. Friends won't give you cash forever! In order to get any funds from the IMF, you've got to do what they say. A small impoverished place like this has absolutely no choice whatsover!
I wonder whether there is anything in the brain department of people who say, we can do whatever we like and to hell with the IMF. Burumaa Gasim said the same thing; look where we are as a result.
No one wants to pay a single Rufiyaa of tax. Everyone wants free health care, free utilities, free education, subsidised petrol and diesel, and the list goes on. Who is going to pay for all of this? We have been borrowing and borrowing left, right and centre to pay for a lot of this, but those credit lines don't last forever. We have to pay back them too!
I had just been informed that some of the ppl I had been arguing with, exchanging insults with are Women, I had no idea, please forgive me, I would never ever sling an insult at a Woman intentionally I am SOOOOOOOO ashamed of myself, I did not know Nars and Haala are female names I feel like the biggest ******** on earth, I assumed I was arguing with men...I am a typically naive, stupid Westerner and sometimes I can't tell a mans name from a womans name.
I have brought shame to my Wife and Family and I am DEEPLY sorry.
I wish someone could have kindly informed I was insulting a Woman when I responded aggressively to Nars and Haala, and I would have shut it!
This is really bad.
From now on, I will only communicate with someone if it is obvious it is a man, I am sooo sorry for my behaviour Minivan, and ppl of Maldives...
This has brought disgrace on me so I am dissapearing from Maldivian chats for good, because I am just a fool, but I will continue to pray for you maldives and I will always love your country...
To Nars, haala, and any other Woman I have spoken to, I am reaaally sorry, I did not know you were Ladies,
Take Care Maldives
@Ben Plewright
"I wish someone could have kindly informed I was insulting a Woman when I responded aggressively to Nars and Haala, and I would have shut it!"!
What the hell are you talking about? This isn't Saudi Arabia! Women and men have equal rights here. There is nothing in our culture or religion that forbids a man from speaking or having a professional debate at any level. As you long as you are within the law, you can say anything to a WOMAN or MAN!
You sound like a confused soul. Do you address women differently from men in all areas of your life? If so, why?
Seek professional help, if you need to, but you need to be able to confidently speak to anyone, aggressively or not!
@Ben plewright....You are a sick man..Now i am sure beyond reasonable doubt that you are not a Australian citizen.....NARS is a very quality cosmetic line from Finland..and i just happen to sell them in my shop, but i am not the sole distributor..Its a bit expensive for most Maldivians...I could be a man, a female, a shemale, an elephant..what ever you want me to be? happy......Really man i dint know you were this stupid.
From japan..the parent company is Sheseido.
Ahmed Bin Addu Bin Suvadheeb-
I'm pretty sure Ben was being sarcastic 🙂
It would be good if you could publish my above comment minivan.
Let it be known, I turn back from my sexist attitude, my patriarchal chauvenistic pig like ways, and I ask any other brothers who may do it, In Maldives there may not be any but IF there is any man who does think like a sexist please join me in doing so in stopping it... I will not do it again.
@Ahmed Bin Addu Bin Suvadheeb: You are right, thankyou. I thought I was being Gentllemanlike but now I see I was being sexist. I am really sorry, I will not do it again, I will no longer be sexist and will treat all as equals from now on, again,
@Peasent: Thankyou for trying to shine a positive light on my stupidity man you are a truly Gracious soul, I believe at some stage you will be rewarded for your Gracioussness because I was really touched by your overwhelming noble graciouss and wise soul.
Let it be known, I turn back from my sexist attitude, my patriarchal chauvenistic pig like ways, and I ask any other brothers who may do it, In Maldives there may not be any but IF there is any man who does think like a sexist please join me in doing so in stopping it… I will not do it again.
I take full responsibility for my actions, as well, I blamed my wife for my comment and attitude, but that was a huge lie, she is innocent and I am wrong, I take full responsibility for my bad behaviour and will take any criticism, insult i deserve, so guys, girls, here i am , do your best, i desreve it, i will take every bit of what you guys want to give me in rebuke and punishment
Ben, you need a slap!
@Ben
Peasant flag must be flying very high as he always look for awh for his comments...