Category: Business & Tourism

Maldives business news

Maldives obtains US$20m from Saudi Arabia to manage cash flow

The Maldives has obtained a US$20 million grant from Saudi Arabia for budget support, despite official figures indicating record levels of income and the economic ministry saying it has authorised US$600 million worth of foreign investment this year.

Finance minister Abdulla Jihad told Minivan News today that the Saudi funds will be used to “manage cash flow” as revenue was lower than expected.

A large portion of forecast revenue is expected later in the year, he said, adding that shortfalls are currently plugged through sale of treasury bills.

The forecast for government income in this year’s record MVR24.3 billion (US$1.5 billion) budget is MVR21.5 billion (US$1.3 billion).

The projected revenue includes MVR3.4 billion (US$220 million) anticipated from new revenue raising measures, including revisions of import duty rates, the introduction of a “green tax”, acquisition fees from investments in special economic zones (SEZs), and leasing 10 islands for resort development.

Import duties hikes came into effect on April 1. However, three weeks later, the government reversed hikes for motorcycles and garments. Jihad said revenue from custom duties will be lower than expected as a result of the policy reversal.

Jihad also said acquisition fees from SEZs are expected during the second half of the year.

Tax revenue

The Maldives Inland Revenue Authority (MIRA) said today that the revenue collected in April was 6.5 percent above forecasts and 14.9 percent higher than the same period last year.

Total revenue last month reached MVR940.3 million (US$60.9 million), with goods and services tax accounting for 70 percent of income. Total revenue collected so far this year has reached MVR4.6 billion (US$298 million).

The customs authority also collected MVR574 million (US$37 million) during the first quarter of 2015 as import duties, fees, and fines, representing a 28 percent increase from the previous year.

Further figures by the MIRA show revenue from taxes have been higher than expected in the first quarter of 2015.

The central bank, the Maldives Monetary Authority, meanwhile says business activity in the tourism, construction, wholesale, and retail sectors increased during the first quarter of 2015, and expects further improvements in the second quarter.

Foreign investment

The economic development ministry revealed today that it has authorised foreign investments worth nearly US$600 million this year, and says it is expecting US$1.8 billion worth of foreign investments in the next five years

Registrar of companies Mariyam Wisham told the press that most foreign businesses registered between January and April were investors interested in the tourism, construction, and real estate sectors. The investors were mainly from the Middle East, South Asia, and China, she said.

Economic development minister Mohamed Saeed said the number of foreign businesses registered under the current administration showed investor confidence in the Maldives.

Wisham also revealed that 5,014 new small and medium-sized enterprises have been registered so far this year following the enactment of a new company registration law last year.

But the opposition has criticised the lack of significant foreign investments despite assurances from the government following the passage of its flagship SEZ legislation in August last year.

The government signed a Memorandum of Understanding in March with Dubai Ports World to develop a commercial port and free trade zone near Malé and said a joint venture agreement will be signed in a month.

However, Saeed told the press today that an extension has been agreed upon for negotiations, citing the government’s unwillingness to compromise “national issues” as the reason for the delay.

The main opposition Maldivian Democratic Party has alleged corruption in the deal.

Saudi-Maldives relations

The Saudi Arabian government had pledged the US$20 million during president Abdulla Yameen’s state visit to the kingdom in March.

Contrary to Jihad’s statement that the Saudi funds will be used to manage cash flow, fisheries minister Dr Mohamed Shainee told Haveeru today that the US$20 million in grant aid will be “spent through the budget on various projects the government wants.”

A delegation including officials from the Saudi Fund for Development as well as Saudi contractors meanwhile visited the Maldives last week and gathered information on the various projects for which the government is seeking loan assistance.

The projects included road construction at the airport, an airport hotel, and a road network for Hulhumalé, Shainee said.

Shainee has previously said the Saudi Arabian government also assured loan assistance to develop the international airport.

During the visit, President Yameen held talks with King Salman bin Abdulaziz Al-Saud and Saudi Arabian ministers for education, defence, petroleum and mineral resources, and finance.

Then-Crown Prince Salman had visited the Maldives in March last year. During the trip, he pledged US$1.2 million to build 10 mosques across the country and donated US$1.5 million and US$1 million, respectively, to the health sector and the Islamic ministry’s waqf fund.

Prince Salman also visited the Maldives in April 2010. He ascended to the Saudi throne in January following the death of King Abdullah bin Abdulaziz.

A joint communique issued during president Yameen’s visit stated that the two sides agreed to increase “their commercial exchange while expanding and enhancing investment between the two countries and extending invitations to their respective private sectors to explore the available investment opportunities in both countries.”

“The Saudi Fund for Development will continue to finance the development projects in the Republic of Maldives and will consider participating in the expansion of Malé airport and beach preservation in Hulhumalé,” it added.

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Tourism ministry moves to freeze Villa accounts

The tourism ministry has ordered the tax authority to freeze the accounts of companies with pending bills, including that of the opposition Jumhooree Party leader Gasim Ibrahim’s Villa group.

The government is seeking US$90.4million allegedly owed as unpaid, rent, fines and interest on several properties from Villa group. The conglomerate – which operates businesses in shipping, import and export, retail, tourism, fishing, media, communications, transport, and education – says the notice is unlawful and is contesting it at the civil court.

The notice for payment expired on April 18, but the Maldives Inland Revenue Authority (MIRA) did not freeze the company’s accounts saying the move may negatively affect the Maldivian economy, local media have said.

Deputy tourism minister Hussain Liraar told Minivan News: “We did not mention a specific business or company. But the ministry sent a letter to the tax authority asking to freeze the accounts that owe money to the state.”

MIRA has declined to comment on the issue saying: “It’s not our policy to give out information regarding specific tax payers.”

Meanwhile, Tourism minister Ahmed Adeeb today told Haveeru: “The government must recover any money owed to the state. This is public money. We cannot let it slide for certain individuals.”

According to Haveeru, the tourism ministry’s order to freeze accounts came in response to a letter from MIRA, in which the tax authority said freezing Villa’s accounts could have adverse impacts on the economy. In response, the tourism ministry ordered MIRA to freeze the accounts of all companies with pending bills.

Some 20 companies, including Villa Shipping and Trading Pvt Ltd, now face an accounts freeze.

“Fabricated”

MIRA issued the US$90 million notice after the tourism ministry terminated agreements for several properties leased to Villa and subsidiary companies for resort development. The move followed Gasim’s JP forming an alliance with the main opposition Maldivian Democratic Party (MDP). However, the government denies the opposition’s accusations of unfairly targeting Gasim’s business interests.

Some 27 cases challenging the termination of the agreements and MIRA’s notice as well as appeals of the civil court’s refusal to grant stay orders are ongoing at court.

While the tourism ministry cited lack of “good faith” as the reason, the Villa officials insisted the terminations were unlawful and that the fines were “fabricated”.

Villa – which won the tax authority’s “Ran Laari” award last year as one of five companies that paid the highest amount to the state – insists it does not owe any money to the state.

But the civil court last month refused to issue stay orders until the conclusion of the dispute, saying the state could reimburse and compensate the company if the ongoing cases are decided in Villa’s favour.

Since the notice was issued, Gasim has not been seen in opposition protests or made any comments on a deepening political crisis triggered by the arrest of opposition politicians. JP’s deputy leader Ameen Ibrahim was also arrested last week after clashes between protesters and police following a 20,000 strong antigovernment march. 

Settlement agreements 

The properties at stake were leased under a settlement agreement signed with the tourism ministry on December 12, 2013, less than a month after president Abdulla Yameen took office.

The settlement agreement was reached after the Supreme Court on November 19 ordered the state to pay US$9.7 million to Villa in one month as compensation for damages incurred in a project to develop a city hotel in Laamu Kahdhoo.

As part of the settlement, Villa withdrew cases involving a dispute over a city hotel in Haa Dhaal Hanimadhoo and resort development on Gaaf Dhaal Gazeera. In return, the government signed five ‘amended and restated lease agreements’ with Villa for three islands and several Kaafu atoll lagoons.

The government also agreed to forgo rents for the islands and lagoons for a construction period of five years and seven years, respectively.

However, after the settlement agreement was terminated in February, MIRA’s notice stated that Villa owed US$75.5 million as fines, US$600,000 as interest, and US$14.8 million as unpaid rent dating back to original lease agreements signed in 2006 and 2007.

The Villa officials noted that the company has paid over US$15 million as advance payments for the properties.

In the case of Kahdhoo, MIRA claimed an unpaid rent of US$293,000 and a fine of US$10 million – 34 times the allegedly unpaid rent – despite the 2013 Supreme Court judgment declaring Villa does not owe rent for the property, the officials said.

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Business activity increased in first quarter

Business activity in the tourism, construction, wholesale, and retail sectors increased during the first quarter of 2015, according to a regular survey by the central bank.

The Maldives Monetary Authority’s (MMA) conducted its quarterly business survey from March 25 to April 7 with respondents from 77 enterprises.

“Looking ahead, business in all sectors except for the tourism sector, are predicting further improvements in business activity in Q2-2015 when compared to Q1-2015,” the report states.

“With regard to the current level of employment, businesses across all sectors indicated an increase in Q1-2015 compared to Q4-2014.”

Businesses in all sectors, except tourism, anticipated increases in hiring in the next quarter, “reflecting the optimism shown by majority of businesses in this quarter.”

The majority of businesses in the wholesale and retail trade sector and construction sector reported no price changes in the first quarter compared to the last quarter of 2014, while businesses in the tourism sector reported an increase.

“Looking ahead, majority of businesses in all sectors expect prices to remain the same except for the tourism sector, where prices are expected to decline,” the survey found.

“As for business costs, businesses across all sectors experienced an increase in all labour-related costs and other input costs (except for the construction sector which reported a decline) in Q1-2015 when compared to Q4-2014. Looking ahead, all sectors—except for businesses in tourism sector which expects a decline in other input prices—anticipate a further increase in all business costs in Q2-2015 as well.”

Tourism businesses meanwhile expect total revenue, resort bookings, and average room rates to decline in the next quarter with the end of the peak season.

Resorts and hotels reported “insufficient demand, labour market difficulties, such as shortages in both skilled labour and local labour, and the weaknesses in the regulatory framework” as factors that limit growth.

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Half of Maldives resort workers sign petition for US$600 minimum wage

Approximately half of the Maldivians working in the tourism sector have signed a petition demanding that the government set a minimum wage of US$600 for resort workers.

Some 5,300 out of 11,426 Maldivians employed in the multi-billion dollar industry have signed the petition launched in April by the the Tourism Employees Association of the Maldives (TEAM).

The petition was circulated in 77 of the Maldives’ 108 operating resorts.

The Maldives does not have a policy on minimum wage and setting one will require an amendment to the Employment Act.

“Only three to seven percent of all tourism revenue is spent on employee wages. The average resort worker only earns US$ 250 per month,” said TEAM’s vice president Ahmed Saleem.

The tourism worker’s organization says setting a minimum wage of US$600 will be easy, claiming a resort “has the capability to earn enough revenue to pay off all wages in one night alone.”

“We know how much resorts earn. We know how much taxes resorts pay to the government. We also know how much is paid in wages, and that is very little compared to the rest,” said secretary general Mauroof Zakir.

The petition also asks the government to set an eighty percent quota for Maldivians in the tourism industry policy. Current laws require 50 percent of resort employees to be local, but the rule is not widely enforced.

Preliminary figure from the 2014 census indicated that foreign employees amount to 59 percent of all tourism employees, with 16,342 expatriate workers.

“Over US$358 million is transferred out of the country as wages for migrant workers annually,” said Mauroof.

He said implementing the quota would help achieve the current government’s pledge of creating 94,000 new employment opportunities within its five year term.

The petition also wants president Abdulla Yameen to honor a pledge to make shares in resorts available to their rank-and-file employees, a rarity in the country where resorts are owned by private companies controlled by a few individuals.

In February 2014, President Yameen said that by the end of the year, a number of resorts would be floating a portion of their shares to the public, and urged Maldivian employees to become shareholders.

The petition also demanded the government to pass a Trade Union Act through the parliament.

Deputy tourism minister Hussain Lirar said that the government will consider the petition.

“The industry consists of a lot of stakeholders, not only TEAM. We will have to hold discussion with all of them before implementing new regulations,” he said.

Tourism Minister Ahmed Adeeb said he could only comment on the petition once he sees its demands.

Meanwhile, TEAM members today said the organization will hold a rally on May 30, where “resort workers will come to Malé and present the petition to the relevant authorities.”

The petition is going to be submitted to the president, the vice president, the parliament, the tourism ministry, the economic ministry, the attorney general’s office and the youth ministry.

“We are willing to negotiate with the government, but if the government does not heed our demands we will use constitutional rights to strike as a means of protest,” said Mauroof.

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Government offers ‘corporate resident visas’ for foreign investors

The government has introduced corporate residence visas for foreign entrepreneurs who have invested more than US$50 million in the Maldives.

The new corporate resident Maldives scheme “aims to provide foreign investors in the Maldives with privileged and fast-track services,” according to the economic development ministry.

“My government will accord hospitality to all foreign investors who come here. We will accord safety and satisfaction to all of the foreign investors who are here. We would like foreign investors to feel like friends among friends, Maldivians among Maldivians,” said president Abdulla Yameen at a ceremony last night.

The government is seeking “to attract net worth high value investments” to the Maldives, he added.

The corporate resident visa holders will belong to “a privileged, elitist club,” Yameen said. Card holders will have permanent residency and will not have to wait in queues at immigration.

President Yameen handed out entitlement certificates under the scheme to the Bahrain Telecommunications Company (Batelco), Housing Development Finance Corporation, Seaplane Holdings, Mauritius Commercial Bank, and Hitachi.

Yameen said foreign investments are essential for the government to realise its ambition of “transforming the economy” through diversification and ‘mega projects.’

“This is the only way we believe third world countries, small countries like Maldives, can prosper and transform our economy,” Yameen said in his remarks in English.

The opposition has previously criticised the lack of significant foreign investments despite assurances from the government following the passage of its flagship special economic zones legislation in August last year.

The main opposition Maldivian Democratic Party recently alleged corruption in a deal with Dubai Ports World to develop a commercial port and free trade zone near Malé.

The opposition also contends that the previous administration’s abrupt termination of a contract with Indian company GMR to develop the international airport has irreparably damaged investor confidence. The Indian infrastructure giant is seeking US$803 million as compensation.

“New horizons”

Maldivians at first looked at foreign investments with “suspicion,” Yameen said, but “those days are long past gone.”

“We are looking at foreign investments as part and parcel of our economic development. We welcome foreign investments as partners in our developmental work,” he said.

Yameen said “the most important, most successful, thriving businesses flourishing across the Maldivian economy belong to foreign investors, either joint venture investors or 100 percent foreign investors.”

“There are no strings attached to foreign investments in the Maldives. Foreign investments can come in 100 percent foreign or it could be a collaborative effort with joint venture Maldivian partners,” he said.

“Foreign investors have naturally permeated into the Maldivian economy, that is why today we open our doors with gracious welcome to all the foreign investors.”

The government has invited foreign investors to consider “challenging and attractive investment opportunities” such as the iHavan transhipment port project.

Referring to the Hulhumalé bridge project, Yameen said the reclaimed island “is going to be an ample, resource-bound area for investors, be it housing or be it infrastructure provision.”

The government is also “looking at a brand new international airport that is capable of handling around seven million passengers” and exploring “new horizons of economic development.”

“Maldivian youth aspirations are tremendous. They are enormous. It is from housing to jobs and also to improving their wellbeing. The only way to do this is to attract our doors to all foreign investments who want to invest in major, major investments here,” he said.

The US$300 or US$400 million bridge project is “enormous” for the Maldives with its per capita income of about US$7,000, Yameen said.

“What it entails is not only growth, what it entails is assurance of jobs for Maldivian youth,” he said.

The government is committed to improving the livelihoods of the people, “no matter what you hear on the roads of Malé.”

Yameen also appealed to government staff to be “hospitable, speedy and efficient in delivery of service.”

Service provision should be “seamless,” he continued, “so no hiccups, no nonsense, that is the only way the so-called one-stop shop is going to work.”

Economic returns in the Maldives is “as good as any you can have,” he said, noting that investments in tourism can be recovered in four or five years.

The Maldives is also “a low tax country” with a comparatively low business profit tax, he said.

“This is a safe place for investments, this is safer than the safest place elsewhere on the earth,” Yameen said.

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Opposition invites civil society to join anti-government May Day rally

The opposition alliance has invited civil society groups and worker’s associations to join its anti-government May Day mass rally.

NGOs and civil society organisations have a responsibility to bring an end to the alleged injustices of the current administration, former deputy gender minister Sidhaatha Shareef told the press today.

“The civil society is the fourth power of the state. But today we see the government narrowing their rights to make them useless,” said Sidhatha, a senior member of the religious conservative Adhaalath Party.

The ‘Maldivians against brutality’ alliance, made up of the main opposition Maldivian Democratic Party (MDP), the Adhaalath Party (AP) and leaders of business tycoon Gasim Ibrahim’s Jumhoory Party (JP) claims at least 25,000 people will take part in the May Day protest.

Leaders of the alliance have been traveling across the country to rally support ahead of the demonstration, issuing stern warnings to the government and urging opposition supporters to converge on the capital on May 1.

Political tensions have been running high since the sentencing of former president Mohamed Nasheed and ex-defence defence minister Mohamed Nazim to 13 years and 11 years in jail, respectively.

Earlier this week, tourism minister Ahmed Adeeb challenged the opposition to a confrontation on May 1, prompting fears of a stand-off and civil unrest.

Mauroof Zakir, secretary general of the Tourism Employment Association of Maldives (TEAM), told Minivan News that the group will consider accepting the invitation after internal discussions.

“TEAM will analyse what would be the benefits of us joining in the rally. We will look into what the employees of the tourism industry will get from joining them,” he said.

“It is possible TEAM will decide on participating after discussions.”

The influential NGO is currently preparing a petition – with more than 5,000 signatures to date – demanding implementation of the government’s pledges to distribute resort shares to employees and establish a US$600 minimum wage.

Teachers Association of Maldives (TAM) said it will not participate in the opposition rally, stating it would affect their credibility as an association free of political influence.

“TAM is currently working on solving problems through negotiations. We wouldn’t want to be seen as an association sided with a political party or influenced by politicians,” said Ali Nazim, the secretary general of TAM.

Meanwhile, Sobah Rasheed, a senior JP member, said at today’s press conference that the political parties and the civil society are working towards a common goal.

“Today, both the civil society and the political parties are working to protect our human rights, to secure our civil rights which are increasingly being diminished by this dictatorial regime,” he said.

“This does not make the NGOs political but rather they are playing a crucial role in saving the nation.”

The government has been “brutal” in consolidating powers, contended former MDP MP Ahmed Easa, a former president of TEAM.

“Everyone knows that the civil service commission is ruled inside the president’s office. That is also brutality. Someone has to stand up for the rights of the civil servants. Trade unions, local NGOs and the political parties have a responsibility to fight for their rights,” he said.

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Parliament reverses import duty hikes for garments and motorcycles

The parliament today reversed import duty hikes for garments and motorcycles, three weeks after increased rates came into force.

Higher tariffs approved by parliament in December as part of revenue raising measures proposed by the government came into force on April 1.

However, days before the changes took effect, economic development minister Mohamed Saeed told the press that the government was reviewing the new rates as motorcycles had become “a basic need in the Maldives”.

The custom duty for motorcycles had been raised from 100 to 150 percent.

A marketing executive at Sheesha Pvt Ltd, one of the largest automobile whole-sale and retail traders in the country, told Minivan News today that the company has not increased prices as its last shipment arrived before April 1.

Sales picked up dramatically in early February and its stock of motorcycles was completely sold out before April, the executive said.

In late March, hundreds of people queued up to buy cigarettes before import duties on tobacco was hiked from 150 to 200 percent and from 90 laari to MVR1.25 for a single cigarette.

The amendments passed today also require the customs authority to reimburse motorcycle importers who were charged the hiked rates from April 1.

However, Sheesha does not expect a reimbursement as its new shipment has not cleared customs yet.

According to a 2011 report by the Environment Protection Agency, one in six residents of the capital own a motorcycle.

Debate and voting on the government-sponsored legislation meanwhile took place today amid continuing protests by opposition Maldivian Democratic Party (MDP) MPs.

The amendments to the import-export law submitted by Progressive Party of Maldives (PPM) MP Jameel Usman were passed with 46 votes in favour.

The import duty for ready-made garments was raised from zero to 15 percent in April last year. The rate will be brought back to zero once the amendments are ratified.

MP Ahmed Nihan, parliamentary group leader of the PPM, said today that discussions are ongoing with the government to reduce tariffs for other items as well, including heavy-duty vehicles used for construction.

Former minister Mahmoud Razee told Minivan News earlier this month that the government was “flip-flopping” with its policy reversals.

In December, the government also reversed a decision to impose a 10 percent import duty on staple foodstuff such as rice, flour, wheat and sugar.

“There’s no clear-cut, defined, long-term policy,” the economic development minister under the MDP government said.

Revenue raising measures

This year’s record MVR24.3 billion (US$1.5 billion) state budget includes MVR3.4 billion (US$220 million) anticipated from new revenue raising measures.

In addition to revisions of import duty rates, the measures include the introduction of a “green tax” in November, acquisition fees from investments in special economic zones, and leasing 10 islands for resort development.

The government expected MVR533 million (US$34.5 million) in additional income from import duties.

On April 1, the import duty for oil or petroleum products was raised from zero to 10 percent while duties for luxury cosmetics and perfume was increased from zero to 20 percent.

The import duty for cars, vans, and jeeps was hiked to 200 percent.

Import duties were also raised in April 2014 for most items, including textiles, cotton, sugar confectionaries, iron, steel, diesel motor oil, and seat covers of passenger vehicles.

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Tourism ministry seizes environment regulatory powers

The parliament has granted powers to the tourism ministry to authorise developments on resorts in a move critics say will weaken the environment protection regime, and pave the way for corruption.

Amendments to the tourism law passed today transfers to the tourism ministry the Environment Protection Agency’s (EPA) powers to evaluate environmental impact assessments (EIAs) and authorise projects such as land reclamation. The agency functions as an independent body under the environment ministry.

Voting on the bill submitted by government-aligned MP Mohamed Ismail took place amid continuing protests by opposition Maldivian Democratic Party (MDP) MPs.

It was passed with 41 votes in favour after Speaker Abdulla Maseeh Mohamed asked for a show of hands.

If the amendments are ratified, resorts will have to seek authorisation from the tourism ministry for any development that could “permanently alter” the island, plot of land, or lagoon’s environment. The ministry must evaluate an EIA report before issuing permission.

EPA permanent secretary Ajwad Musthafa told the economic affairs committee during its review of the legislation last week that “the independent checks and balances system will be lost” if the regulatory powers are transferred to the tourism ministry.

The move amounts to allowing the tourism ministry to “self-regulate,” he contended.

The EIA process is the “main instrument” of the environment protection regime and adheres to international best practices, he said, noting that the reports are prepared by independent and qualified consultants.

Ajwad also objected to transferring technical experts to the tourism ministry as the agency’s “institutional capacity” was built up over a long period.

EPA director Miruza Mohamed meanwhile warned that the move could reduce funding from international donors.

However, the ruling party says “making the services available under one roof would ease the burden on investors, speed up services, and improve investor confidence.”

The involvement of other ministries and institutions in regulating resorts hinders the tourism ministry and “lowers investor confidence”.

The new provisions state that “only the tourism ministry will have the authority” to conduct assessments and authorise development projects.

The tourism ministry will also have the power to impose fines not exceeding US$5 million for violations.

Transparency and accountability

Environmental NGO Ecocare warned that the move conflicts with the environment protection law – which requires the EPA to evaluate assessments – and could “pave the way for corruption”.

“Under this particular scenario we also feel that when EPA assess and evaluates EIA reports, it is a more transparent practice than leaving this to the Tourism Ministry, who carry out the evaluation and awarding of bids for tourist resorts,” Ecocare said in a press release today.

The current system put in place by the Environment Protection and Preservation Act includes checks and balances and assures transparency and accountability, Maeed Mohamed Zahir from Ecocare told Minivan News today.

With the changes to the law, an unscrupulous official at the tourism ministry can grant approval “regardless of the effect on the environment,” he said.

Opposition Maldivian Democratic Party (MDP) MP Fayyaz Ismail said at the committee last week that the tourism ministry presently “discriminates” in issuing and suspending operating licenses to resorts.

Fayyaz warned that officials could misuse the authority to approve development projects on resorts and selectively impose fines at whim.

MP Ali Fazad, a ruling Progressive Party of Maldives MP, also expressed concern with the amendments conflicting with the existing environment law as “two laws would have two [provisions] for the same thing”.

However, all ruling coalition MPs on the committee voted in favour of the bill and forwarded it to the parliament floor.

The law also introduces a new scheme to allow the extension of resort leases to 99 years for a lump sum payment of US$5 million.

The changes aim to incentivise investors, make it easier to obtain financing from international institutions, and increase revenue for the government.

To be eligible for a lease extension, a resort property must be operational with an existing lease period of 50 years and must not owe money to the government.

Under the current Tourism Act, the maximum lease period for resorts or hotels is 50 years. However, the constitution allows leases up to 99 years.

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World Bank reiterates concern over unsustainable spending

The Maldives is spending beyond its means with government expenditure outstripping revenue for years, the World Bank has warned.

Contrary to the government’s estimate of 3.4 percent of GDP for the fiscal deficit in 2014, the World Bank said the deficit has been on “an upward trajectory since 2011” and reached an estimated 11.6 percent last year.

“Despite high revenue of 32.4 percent of GDP, Maldives is spending beyond its means reaching 44 percent of GDP, leading to persistent fiscal imbalances,” reads the South Asia Economic Focus 2015 report released last week.

“Subsidies, transfers and social welfare payments contributed substantially to the expansive spending,” the report stated.

The spike in expenditure resulted from President Abdulla Yameen’s decision to increase wages and an allowance to senior citizens from MVR 2300 to MVR 5000.

The World Bank meanwhile said the country’s risk of external debt distress has been reduced from high to moderate due to revised estimates of a lower current account deficit.

However, overall public debt is high at 74.6 percent of GDP in 2014, the report noted.

“Although the level of external public and publicly guaranteed debt remains below the policy-dependent thresholds under the baseline, a shock to tourism exports could make it difficult for the country to service its external debt,” the World Bank cautioned.

While imports and tourism receipts nearly balance each other out, the report explained that  “substantial outflows through interest payments, dividends and remittances keep the current account in a deficit at 8.0 percent of GDP.”

“The current account is more than fully financed by Foreign Direct Investment (FDI), and gross international reserves are estimated to have increased. Net FDI inflows are estimated at 13.3 percent of GDP,” it added.

Usable reserves are estimated at US$120 million, enough for less than half a months imports, but “the private sector is able to supply sufficient quantities of foreign exchange.”

“Faced with limited investment opportunities in the private sector, banks are parking their assets elsewhere; meanwhile financial soundness indicators have been improving,” it added.

Challenges

While the government’s forecast for economic growth in 2015 is 10.5 percent, the World Bank said growth is projected at five percent and warned of a negative impact from spending cuts.

The International Monetary Fund has also welcomed the government’s cost-cutting and revenue raising measures for 2015, including imposing a green tax, acquiring fees from Special Economic Zones, raising import duties, a public employment freeze, and better targeting of subsidies.

The World Bank meanwhile suggested that state-owned enterprises may pose risks as “most are loss-making and depend on government support”.

Only nine companies have contributed dividends in the past four years, it noted.

“The immediate macroeconomic challenge is the fiscal and external imbalances driven by high and rising public spending,” the report advised.

“However, the economy also remains undiversified and sources of growth and employment remain misaligned. Besides, Maldives’ form of tourism- led growth has followed an enclave model, reliant on imported goods, labor and finance.”

Balancing the budget in two years is a campaign pledge of president Yameen, who said last year that the record MVR24.3 billion (US$1.5 billion) state budget for 2015 has a “primary balance surplus.”

The projected fiscal deficit for 2015 is MVR1.3 billion (US$84 million) or 2.5 percent of GDP, which president Yameen said was allocated for arrears or unpaid bills from recent years.

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