Business & Tourism – Page 72 – Minivan News

SAARC centre 60 percent complete, says Foreign Ministry

The convention centre being constructed in Addu Atoll for the upcoming South Asian Association for Regional Cooperation (SAARC) Summit is 60 percent complete, reports the Ministry for Foreign Affairs.

This is the first time that the SAARC has been held off of Malé, and south of the equator.

Director of Communications for the Foreign Ministry, Irushaadha Abdul Sattar, said official invitations had been sent to participating countries, and teams were working round the clock to ensure the facilities were ready.

Workers were currently on a three shift a day schedule to complete the facility on time, Sattar said, noting that the physical structure was now complete and workers were focusing on internal wiring and landscaping.

“There has never been this amount of development for a SAARC Summit in the Maldives,” she said. “Roads are being built, buildings put up, wiring is being done, and this time it’s all going straight to the people.”

The Sri Lankan government has pledged to build a six kilometer road as part of project, with teams expected to arrive soon. The Foreign Ministry predicts that the facility will be completed by mid-September.

Addu City Mayor, Abdullah Sodiq, meanwhile forecast October 15 as a likely completion date for construction project, which covers 70 hectares. The Summit will be held in November.

Sodiq told Minivan News that the people of Addu were happy to see the infrastructure being built.

“The only concern is that it may not be completed on schedule,” he said, “At the beginning, progress was very slow, but now they are working very hard around the clock to be finished by October 15,” he said.

The Foreign Ministry said 30 groups have been chosen to perform sideline activities, such as entertainment, during the convention. Sodiq noted that youth groups and NGOs will be included, as well as some groups from other countries in the region.

The government has previously announced that the theme for the 17th SAARC Summit will be “Building Bridges” between member states, both in a physical and diplomatic sense.

One anticipated topic for the summit – heavily promoted by the Maldives – is the introduction of ferry services between the Maldives and destinations such as India and Sri Lanka.

President of the Maldivian Democratic Party (MDP)’s youth wing, Shauna Aminath, previously observed that SAARC member nations included those the lowest-lying in the world – the Maldives – and the highest: Nepal.

“There are differences, but we want to use these as an opportunity to celebrate as a united force to build bridges of friendship, peace and security,” Aminath said.

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Government signs MoU for first national marine park sponsored by private individual

The Ministry of Housing and the Environment has signed a memorandum of understanding with a private individual, Mohamed Hameed, to create the Maldives’ first comprehensive national marine park.

The park, which Hameed says was conceived in the 1980s, is designed to protect nine islets in South Miladhunmadulu Atoll Edhudhfarru.

Hameed proposed his plan to former President Maumoon Abdul Gayoom’s administration in 2007, but says the current administration has been more supportive and would be overseeing the project.

The government has asked that the plan involve minimal intrusion to the natural environment. “I would expect the government to have a majority share in the program,” said Hameed, explaining that a foundation would be established for the park project.

Hameed said he has been advised by scientists from all over the world, and describes the Edhudhfarru area as “fragile and sensitive, with more water than land, and many unique flora and fauna.”

Hameed said the Marine National Park will provide day trips only, and visitors will pay a fee. An underwater observatory is also expected to draw researchers and tourists alike.

Bluepeace, a local environmental NGO, voted last night to support the project.

“We are very supportive of the concept,” said the NGO’s founder, Ali Rilwan. “I think it is very important that private sector individuals get involved in conservation.”

Rilwan said the Edhudhfarru area is very rich in biodiversity, adding that Bluepeace “expects [the foundation] to be much better than most places because of Hameed’s vast knowledge and interest in the place.”

Rilwan noted that this was the first time a private individual had proposed a conservation project to the government, and that the marine park would be the first national park to host a research center. The land itself will be given to the project’s foundation, which has yet to be established.

Tourism Minister Dr Mariyam Zulfa said the park was intended “not just for preserving species for people to see, like in a zoo. There will be activities going on with the research.”

International groups had been inquiring about such a park for years, she noted.

“The park should have been established a long time ago, because tourism in the Maldives is based on sustainable development,” she said.

Director of the Environmental Protection Authority (EPA) Mohamed Naeem said the organisation had not been officially informed of the project, although he understood it had been given to a private company, and said it was “too early to know what to expect from Mr Hameed.”

Hameed has meanwhile said he hopes locals will become involved in the project. “A national park can only be preserved with the collaboration of the community, and the community should not feel they are deprived of use of the area in any way,” he said.

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Labour authority plays down expatriate worker culture-clash claims

In the second of a two part article, Minivan News looks at the challenges facing skilled expatriates coming to work in the Maldives and the current systems in place to prevent both employees and employers from suffering workplace malpractice. Read part one

The Minister of Human Resources Hassan Latheef has said that the country’s Labour Relations Authority has not received notice of any cultural difficulties between expatriate staff and local employees in the Maldives. However, the country is planning amendments to employee rights.

Amidst complaints from some expatriates about alleged difficulties and mistreatment from local employers, Latheef suggested that in some cases, language and legislation were key barriers to ensuring workplace harmony.

Several European and Australian skilled expatriates who spoke to Minivan News criticised certain employment practices that they claimed led to clashes with their employers. These clashes are said trigger premature job dismissal, and in some instances force employees to flee the country.

Minister Hassan Latheef, speaking to Minivan News earlier this year, rejected suggestions that any cultural clashes were occurring between foreign workers and their employers, at least as reported by the Labour Relations Authority.

“In the work place, I do not see any cultural differences that are being brought up and creating issues [between expatriate workers and employers],” he said.

According to Latheef, however, the Dhivehi language was seen as a major potential barrier to harmony between foreign workers from outside the region and their local colleagues and employers. He said workers from countries like Sri Lanka, India and Bangladesh did not generally face this barrier.

“There is one thing in common for an Indian worker, a Sri Lankan worker or a Bangladeshi worker who is working in the same site doing the same work – their language of communication is Dhivehi. That keeps them not so much nationalistic,” he said, referring to any potential difficulties foreign workers are said to face. “We haven’t come across any cases [of cultural discrimination] as such and this has not been raised as an issue by anybody so far – fortunately.”

The minister did advise caution when addressing the treatment of workers, either national or foreign. Preventing potential widespread difficulties in the future, or culture clashes between bosses and their staff, was important, he said.

“I do sense that if we neglect [the issue of treatment of foreign worker] or keep our eyes shut, this could create problems because you know with Bangladeshis [working in the Maldives], I’m sure they face a lot of things that are not common in other countries,” he said. “So if we don’t keep in our minds that this could be an area that someday might create problems, we always have to be cautious of the issue that these workers are of different nationalities. I know I’m very cautious of that.”

Latheef claimed that legislation –particularly in areas like labour relations – was another key area that the government had pledged to address. With an estimated 100,000 expatriate workers believed to have been hired in the Maldives, 45,000 are thought to be skilled, semi-skilled and unskilled workers from Bangladesh. According to Latheef, the High Commission for Bangladesh based in Male’ has worked with the ministry on numerous occasions to resolve any humanitarian concerns or workplace issues that have occurred with its nationals in the Maldives.

Both Former Bangladeshi High Commissioner to the Maldives, Professor Selina Mohsin, and the serving Controller of Immigration Abdulla Shahid have previously told Minivan News that failures in immigration policy left foreign workers vulnerable to substandard treatment and workplace malpractice.

Latheef claimed that concerns over employee treatment were being addressed. Legislation was awaiting approval for local and foreign workers alike that was aimed to cover a wide variety of issues relating to staff and employer rights.

“There is a bill being drafted, a very comprehensive one on industrial relations that would have provisions for making trade unions and everything to do about lockouts, picketing and striking, regulatory bodies’ functions and the Labour Relations Authority – it’s very comprehensive,” he said.

Echoing comments from the country’s employment tribunal, which is independent of the Human Resources Ministry and the Labour Relations Authority that falls under its remit, Latheef said that the majority of complaints received were from local workers, particularly in the country’s tourism industry.

Latheef added that about 95 percent of complaints received by the Labour Relations Authority from expatriate workers involved the alleged failure of an employer to pay wages. He said living conditions or overall treatment were not a commonly raised issue. But the minister believed local workers differed from their expatriate colleagues.

“Maldivians rarely complain about the pursuit of [unpaid] salaries – most of the time, they complain about the conditions at work or their living conditions. Most of the complaints I should say come from resort workers,” Latheef said. “Their complaints come from not being paid a service charge they are entitled to, to conditions of their accommodation and alleged discrimination from senior management.”

Among proposed changes to labour laws, the government last month invited comments on amendments to the Employment Act targeted at setting new living standards for foreign and local workers. These standards aimed to align with International Labour Ogranisation (ILO) recommendations.

The Human Resources Minister claimed that many potential problems currently facing expatriate employment in the country were expected to be eradicated by next year. He anticipates new systems for hiring foreign workers will be in place as well.

The claims were made after the Maldives National Defence Force (MNDF) assumed the duties of front-line immigration staff and Human Resources Ministry officials handling employment for a several weeks in June, following allegations of corruption in the work permit process.

The controversial decision, criticised by opposition MPs, was said to have Lateef’s support. Lateef believed military assistance was vital to reforming the processes of immigration and hiring expatriate labour.

“I don’t see the problems we have now will be there in 2012,” he said. “For instance we have a backlog of roughly 40,000 expatriates working here illegally,” he said. “The scenario would be very different in dealing with the ways we think of and the manner we act [to employees] on a happy day. But it is not a very happy day for us.”

View from the Employment Tribunal

The country’s Employment Tribunal, formed in 2008 to rule on disputes between employees and employers, previously said it had not received any complaints of alleged workplace discrimination. It also said expatriate cases represented a minority of the overall complaints received.

A tribunal spokesperson, who wished to remain anonymous, added that although the tribunal had not dealt with cases such as forced labour or discriminatory behaviour from employers, “this does not mean it is not taking place fairly openly.”

“I think it is all happening in the country, even if we do not receive such cases. Anybody who is in this society knows it is happening in the country,” the spokesperson added, emphasising that employment laws were designed to treat local and foreign workers equally regardless of their nationality.

The tribunal itself is not currently able to enforce its decisions through the courts, even by ruling against breaches of contractual or legal obligations without additional amendments to the Employment Act.

Accepting this current lack of enforcement capabilities, the tribunal spokesperson added that the Labour Relations Authority did have a legal mandate to take action against employees deemed to be in violation of employment rights.

The spokesperson said it was therefore vital to ensure that inspections of work premises and practices were being carried out efficiently “[The Labour Relations authority] has the mandate to go to workplaces to supervise and inspect and see if it’s all according to the Employment Act and they can also take action if it is not. Like for example, if the work conditions are not good enough as per the law, if they don’t have a contract, or if they are receiving a salary or not, these people can check on that, but we can’t,” the spokesperson said. “We are more like a court, so we can only attend to the claims submitted to the tribunal and only go on with those cases. I think if the (Labour Relations Authority’s] inspections are conducted well there will be less problems, the institution would be better actually.”

The spokesperson added that ultimately employers and employees alike could come to the tribunal with allegations of breaches of contract, but claimed workers in the Maldives were not aware of their rights or the process of getting a verdict from the tribunal.

“A claim has to be submitted within three months if there is a dispute,” the spokesperson said. “I think awareness [of the tribunal’s work and requirements] is very important especially for foreigners, though locals also have the same problem.”

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Finance Ministry asked to sell resorts with outstanding rent payment notices

The Tourism Ministry has requested the Finance Ministry enforce a cabinet decision to recover outstanding rent and fines from seven resorts, either through further negotiation or sale of the resort properties.

Tourism Minister Dr Mariyam Zulfa confirmed to Minivan News that a letter was sent to the Finance Ministry on Tuesday, requesting that it “take the measures decided by cabinet as the period [for repayment] has expired, that is to sell the resorts or recover the amounts owed through discussions.”

As 90-day notices had been given to resorts with unpaid rent on two occasions, said Zulfa, the delays were “a bit too much.” Last month the Tourism Ministry issued “a final warning” to ten resorts to settle at least 25 percent of the amounts owed before July 25 or have their licenses revoked. Three resorts have since complied with the notice.

The Tourism Minister revealed that she had argued against revoking licenses because it would “narrow the chance” of recovering the outstanding rents.

“Also when licenses are revoked, the resort has to be closed down immediately regardless of advance bookings, guests already at the resort and employees working there,” she explained, adding that as the resorts would be sold as a going concern, it would continue to operate.

In addition, different resort businesses faced “different challenges, such as financial constraints.”

“I know that from the day we gave notice [the resort companies] have been trying to raise the money overseas,” she continued. “But we cannot give further extensions as it would not be fair to others as well.”

Zulfa observed that the notices have been “very effective”, as a number of resort facilities had complied and paid outstanding rents and fines.

“As of July 25, the government is now owed US$12.47 million,” she revealed, adding that the figure was “considerably lower” than before.

Local media reported last month that the resort facilities owed over US$20 million to the state.

Zulfa dismissed speculation in the media at the time that the resorts had been afforded special treatment as some were owned by high-profile members of the ruling Maldivian Democratic Party (MDP), including MP Ahmed Hamza and Yacht Tours owner Abdulla Jabir.

The letter to the Finance Ministry however requested measures be taken against Alidhoo and Kudarah Resorts (Yacht Tours), Giraavaru Island Resort (owned by Abdul Rauf, M. Sunrose), Kihaadhupparu Island Resort (Athamaa Marine International) and Zitali, Filitheyo and Medhufushi (owned by the family of MP Hamza and Economic Advisor to the President Ali Shiyam).

“It is just a coincidence,” said Zulfa. “My mandate is to vouch on behalf of all stakeholders regardless of which party they belong to.”

Local daily Haveeru reported today that according to the Maldives Inland Revenue Authority (MIRA), a portion of the outstanding rents and fines had been paid by the companies. However MIRA would not be withdrawing its court cases against the resorts.

Commissioner General of Taxation Yazeed Mohamed told local media last month that MIRA “will not back down” or hesitate to take legal measures against businesses with outstanding rent and fines.

Zulfa said today that the Tourism Ministry would meet MIRA officials next week to discuss the possibility of reaching out of court settlements to recover the owed amounts.

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Weekly state expenditure to be made public

The government will publicise details of weekly state expenditure starting from next month, President Mohamed Nasheed announced Monday night at the launching of the government’s “Fiscal and Economic Reform Programme.”

In his speech at the ceremony, President Nasheed stressed that “every single coin we get is the property of the Maldivian people and wealth created by Maldivian businessmen.”

“Along with a tax system, what we need the most is a transparent mechanism for expenditures,” he said. “For that mechanism to be perfect is essential for us to successfully implement the [taxation] system.”

At Monday night’s ceremony, captains of the tourism industry unreservedly endorsed the economic reform agenda, consisting of 18 pieces of legislation to introduce direct taxation, excise import duties, encourage private ownership of land and facilitate ease of doing business.

President Nasheed went on to say that details of government revenue and expenses should be clear to the public through independent institutions, such as the Auditor General, the Anti-Corruption Commission and parliament.

“It might be difficult for this government to instill this habit among us,” he continued. “However, it is absolutely necessary for governments to come and future generations. No ruler should consider anymore that assets of the Maldivian state belongs to him.”

On how proceeds from the new taxes are to be utilised, Nasheed reiterated the core pledges of the ruling Maldivian Democratic Party (MDP), which include providing affordable housing, lowering cost of living, establishing transport networks, ensuring universal health insurance and combating drug abuse and trafficking.

President Nasheed observed that taxation was introduced in other countries after “serious unrest, conflict between the public and businessmen and with some countries plunging into civil war.”

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Tourism magnates endorse proposed economic reforms

Prominent businessmen and magnates of the tourism industry endorsed the government’s economic reform agenda and introduction of direct taxation last night.

Speaking at a launching ceremony for the “Fiscal and Economic Reform Programme,” Mohamed Umar Manik, chairman of the Maldives Association of the Tourism Industry (MATI), observed that a sustainable source of government revenue was necessary for providing public goods and services.

“Today we have democracy in our country, but democracy can only be strengthened if we are able to deliver,” said the Chairman of Universal Enterprises. “To do this, our government must have sources of income. A detailed reform agenda has been proposed for this. In my view, it is an ideal reform programme.”

Manik congratulated President Mohamed Nasheed and “those who framed the reform agenda.”

Following consultation with the government over the proposed taxes, MATI said in a statement earlier this week that the absence of a taxation system in the country “similar to tax regimes successfully implemented in other countries” was a serious impediment to development and economic growth.

Old ways of thinking

Preceding the MATI chairman, Mohamed Waheed Deen, philanthropist and owner of Bandos Island Resort, argued in an impassioned speech that a taxation system was essential for democracy to deliver rising standards of living.

“This should have been done and finished 30, 40 or 50 years ago,” he said. “I sincerely thank our young President for beginning this effort today.”

A taxation system had to be introduced “because we are using the people’s property,” Deen contended.

“How can I say that I own Bandos?” he said. “It is not mine. It belongs to the Maldivian people.”

Taxation was the means for a more equitable distribution of wealth, Deen said: “Who wouldn’t want to send their child abroad for higher education? But can we facilitate it for them today?”

The government’s economic reform programme was necessary because “we do not want to keep the gap between rich and poor in this country anymore,” Deen asserted.

“What is the main reason a country becomes impoverished?” he asked. “I believe that one of the main reasons is refusal to tell the people the truth by many successive governments, many kings, until we have come to this point.”

In the Maldives’ long history, Deen continued, the public were indoctrinated to not criticise the government and given to understand that “only a particular group, from a particular family, could rule.”

Deen speculated that “the biggest challenge” the government’s economic reform agenda would face will be “changing people’s mentality.”

“This is the biggest problem facing our country today: [one side says] ‘everything is going right’ [while the other says] ‘nothing is going right,’” he explained. “So we have to educate our people, especially the councils.”

Deen also cautioned against unprincipled opposition to the government: “We could stay angry, hateful and disapproving and say ‘go on, run the government’ but sadly – remember this well – any harm this government suffers, the people will suffer many times over.”

Waheed Deen began his remarks by quoting the Quran 3:26: “O Allah. Lord of Power (And Rule), Thou giveth power to whom Thou please, and Thou strip off power from whom Thou please: Thou endow with honour whom Thou please, and Thou bringeth low whom Thou please: In Thy hand is all good. Verily, over all things Thou hast power.”

“Fruits of freedom”

MATI Secretary-General ‘Sim’ Ibrahim Mohamed meanwhile concurred that Maldivians could only “taste the fruits of political freedom” by liberalising and modernising the economy.

Following graduation from the ranks of the Least Developed Countries (LDCs), said Sim, the country could no longer rely on loans and foreign aid.

“In a fundamental sense, taxes are what the people give to the government they elected to manage their affairs,” he said.

Contrary to popular opinion, Sim continued, MATI had been advocating a taxation system as the organisation believed a sound fiscal policy was essential for “day-to-day planning of business matters as well as national affairs.”

In addition to fiscal responsibility, he added, new legislation and strengthening of the judicial system was also needed to foster investor confidence while stalled development of new resorts should be restarted to spur employment and private sector growth.

Sim concluded his remarks by appealing to “everyone who has to pay taxes, please pay taxes.”

“Bold initiative”

In his speech, Sunland Travels Director Hussain Hilmy reiterated that the Maldives’ “economic policy and legal framework needs to undergo modernisation and reform.”

“We in the business community welcome the bold initiative being undertaken by your administration to carry out a programme of comprehensive economic and fiscal reform,” Hilmy said.

He added that businesses were “delighted” with the government’s policy of a “shift away from import duties as a major source of government revenue.”

Hilmy observed that for successful tax administration, “transparency, accountability, predictability and effective combating of corruption” were necessary “preconditions.”

While the local tourism industry “has been the main engine of growth in the Maldivian economy for the last 40 years or so,” Hilmy warned that “tourism as we all know is an extremely volatile industry subject to sudden shocks and highly sensitive to fluctuations in global economic conditions.”

He suggested that a successful tax system should therefore “ensure the competitiveness of Maldivian tourism in the global market place.”

“We in the tourism industry also welcome your efforts to reduce public expenditure and wastage and create a more efficient and lean government,” he continued. “I can assure that lest there be any doubt that there is full confidence on the part of the tourism industry in the proposed reform programme and we have every confidence that this programme will be able to deliver the kind of success that we all wish and the kind of prosperity that we all are looking for.”

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MIRA to accept all payments except tourism taxes in rufiya

All payments to the state except tourism-related taxes will henceforth be accepted only in Dhivehi rufiya, the Maldives Inland Revenue Authority (MIRA) announced today.

On August 9, the cabinet decided that all fees and payments to the government must be paid in local currency, in a bid to alleviate an acute dollar shortage in the Maldivian economy.

According to a press statement issued by MIRA, Commissioner General of Taxation Yazeed Mohamed said today that the authority was in the process of implementing a directive from the Finance Ministry to enforce the cabinet’s decision.

Discussions were taking place with concerned authorities to finalise administrative matters to collect payments in rufiyaa, MIRA said in its statement.

“Efforts are underway in collaboration with the Finance Ministry to amend the Tourism Goods and Service Tax (T-GST) Act and Tourism Act to accept T-GST, tourism tax, lease rent/land rent and fee for extending resort lease period in Dhivehi rufiya,” MIRA said, adding that once the amendments were brought, the tourism taxes would be collected in local rufiyaa starting from next month.

The MIRA press release stated that “the authority regrets” media reports claiming that MIRA was ordered to accept payments only in US dollars from August 13 onward as “we believe the news reports were misleading regarding MIRA’s efforts in this matter.”

Local media reports last week suggested a dispute between MIRA and the Finance Ministry over the cabinet decision.

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Government submits bill to establish mercantile court

The government has introduced a Mercantile Court bill to the parliament with the purpose of establishing a separate court with a separate seal and special jurisdictions to solve disputes involving business transactions in the Maldives.

Maldivian Democratic Party (MDP) MP Mohamed Musthafa submitted the bill to parliament on behalf of the government.

According to the bill, the Mercantile Court will consist of a Construction Division, Banking and Financial Division, Tourism Division, Investment Division, Goods and Services Division and Proprietary Division.

The bill also gives the Chief Judge of the Mercantile Court the powers to include any other divisions that the court finds that it lacks.

The bill will give the court jurisdiction to handle cases relating to business transactions concerning tourism, construction, international business, insurance, civil aviation, maritime, shipping, finance leasing, banking and finance, securities, fishing, company, partnership, professional liability and intellectual property rights.

The Mercantile Court will also handle contract, trade and service provision, consumer and service recipient protection in matters worth more than Rf 15 million (US$1 million).

According to the bill, the Mercantile Court has the jurisdiction to issue any sort of warrant or orders on its own initiative or upon a request made by a person to uphold justice or to prevent the judiciary from being misused.

The court’s bench will consist of seven judges, and significantly, a Muslim foreigner may be appointed as a judge at the court.

The bill comes following concerns aired recently by international organisations such as the International Committee of Jurists (ICJ) that the existing Maldivian judiciary lacked the independence and capacity to rule in cases involving complex civil proceedings.

Speaking to Minivan News in March after several weeks observing the operation of the Maldives’ Judicial Services Commission (JSC), former Australian Supreme Court Justice Professor Murray Kellam said that an impartial judicial system was a key factor in encouraging foreign investment and could have a direct and significant impact on the economy.

This was something that Singapore recognised 15 years ago, he said.

“They understood the value of a civil system that is incorruptible and competent. They spent a lot of money on their judiciary and Transparency International now rates their civil legal system as one of the best in the world.

“Singapore realised that one of the best ways to attract investment was to have a system whereby international investors knew they would get a fair go in domestic courts. If you look at the circumstances in other parts of the world where investors have no confidence in the judiciary, that deters investment and takes it offshore. They’ll go somewhere else.

Citing Adam Smith, considered one of the founders of modern capitalism, Kellam observed that “Commerce and manufacturers can seldom flourish long in any state which does not enjoy a regular administration of justice, in which people do not feel themselves secure in possession of their property, in which the faith of contracts is not supported by law.”

As a foreign investor, Kellam said, “you want to know that contact you enter into with domestic partners will be understood and enforced by courts if there is a breach. You want courts to judge you impartially – you don’t want to be discriminated against because you are a foreigner.”

“Secondly, it’s no good getting judgement if no there is enforcement – which is a major factor in developing countries. Sure you can get a judgement, but it’s not worth the paper it’s written on because there is no process for getting it enforced, and you can’t turn judgements into anything productive.”

Singapore had recognised this, and become not only a hub for foreign investment but also a regional hub for commercial arbitration, Kellam said.

“People from around the region will use Singapore as a place of law and business,” Kellam observed.

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Fiscal responsibility bill presented to parliament

A fiscal responsibility bill to impose limits on government spending and ensure public debt sustainability was proposed to parliament yesterday.

Presenting the draft legislation on behalf of the government, MP Ahmed Easa of the ruling Maldivian Democratic Party (MDP) said that a lot of effort was needed to “change the inherited, outdated and indebted economic system.”

“Since 2005, [expenditure] in the annual state budget was out of proportion to income and the budgets had a very high level of debt,” he explained.

As a consequence of issuing treasury bills (T-bills) to finance the budget deficit, Easa continued, banks reduced lending to local businesses in favour of buying government securities, which exacerbated unemployment and slowed growth.

Easa noted that according to the World Bank, a 66 percent increase in salaries and allowances for government employees between 2006 and 2008 was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”

“We are seeing the bitter consequences today of spending out of the budget without any control or limit,” he said.

As measures to mandate fiscal responsibility, said Easa, the legislation would set limits on government spending and public debt based on proportion of GDP (Gross Domestic Product).

Borrowing from the central bank or Maldives Monetary Authority (MMA) should not exceed seven percent of the projected revenue for the year, Easa said, while the loan would have to be paid back in a six-month period.

Moreover, a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

Opposition

Opposition Dhivehi Rayyithunge Party (DRP) MP Dr Abdulla Mausoom however argued that the purpose of the legislation was to negate controversial amendments brought to the Public Finance Act last year.

Mausoom explained that the passage of the fiscal responsibility bill would abolish article five of the Finance Act amendments bill, which stipulated that the government must seek parliamentary approval before obtaining loans.

According to the amendment s voted through by the opposition majority, “any relief, benefit or subsidy provided by the state” would also be subject to parliamentary approval.

The amendments were cited as the main reason for the cabinet resignation on June 29 last year – President Mohamed Nasheed announced at the time that he would veto the bill as the new laws would make it “impossible for the government to function.”

While President Nasheed has since ratified the bill after parliament overrode the veto, the government filed a case at the Supreme Court in December 2010 contesting the constitutionality of some provisions.

The DRP MP for Kelaa meanwhile argued that the fiscal responsibility bill was drafted to “take away all the powers given to local councils [under the Decentralisation Act] and give it back to the Finance Minister and President.”

Mausoom also criticised a provision that would empower the Finance Minister to change cash flow plans proposed to the state budget by independent commissions.

Debt sustainability

Finance Minister Ahmed Inaz informed parliament yesterday that the public debt of the Maldives – excluding government securities – stands at US$637.6 million – including US$446 million outstanding debt inherited from the previous administration.

A UNDP paper on achieving debt sustainability in the Maldives published in December 2010 observed that “as a percentage of GDP, public debt levels have almost doubled from 55 percent in 2004 to an estimated 97 percent in 2010.”

“Public debt service as a percent of government revenues will more than double between 2006 and 2010 from under 15 percent to over 30 percent,” it continued. “The IMF recently classified the country as ‘at high risk’ of debt distress.”

As short-term contributing factors for the country’s “rapid accumulation of public and private debt,” the paper identified the devastating tsunami of December 2004; the cost of the democratisation process that began in the same year; the concurrent global food-fuel-financial crises between 2007 and 2010; and the Maldives’ graduation from a Least Developed Country (LDC) in January 2011.

The UNDP paper noted that the reconstruction effort was largely financed by international donors: “Following the tsunami, ODA [Official Development Assistance] increased sharply from US$72 million in 2004 to US$824 million in 2005. ODA levels remained above US$500 million annually for the next four years,” the paper explains.

However as a consequence of high demand for local expertise by multilateral agencies, “increases in public sector salaries were implemented in order to retain qualified personnel with the government.

“Between 2004 and 2009, the average monthly salary of a government sector worker increased from MRF 3,223 (US$250) to MRF 11, 136 (US$866),” the paper notes.

It adds that the government of former President Maumoon Abdul Gayoom responded to growing calls for democratisation with “a substantial fiscal stimulus programme” of increased government spending, “much of which was not related to post-tsunami reconstruction efforts.”

“This strategy led to a large increase in the number of civil servants from around 26,000 in 2004 to around 34,000 by 2008 or 11 percent of the total population. Thus the government simultaneously increased the number of public sector workers as well as their salaries,” the paper notes.

Consequently, by 2010 recurrent expenditure – wage bill and administrative costs – was projected to exceed 82 percent of total expenditures “while capital expenditures will amount to just 18 percent in the same year.”

Moreover when the impact of the worst global recession in decades struck the Maldives in September 2008, “the Maldivian economy was already in the middle of a severe economic crisis with substantial fiscal and current account deficits, high liquidity growth, double digit inflation, pressure on the fixed exchange rate, increases in public and private sector debt, rising inequalities between the capital and the atolls, and a costly civil service.”

Meanwhile as the ballooning fiscal deficit reached 26 percent of GDP in 2009, tourist arrivals declined ten percent in the first year of the new administration.

However the new government’s efforts to reduce government spending with pay cuts of up to 20 percent and plans to downsize the civil service – which employs a third of the country’s workforce – was met with “a severe political backlash from parliament.”

“In March 2010, the parliament passed a 2010 budget with amendments which increased the government’s proposed budget by 7 percent (or 4.5 percent of GDP),” the paper observed.

“Three quarters of this increase funded a reversal in civil service wage cuts implemented the previous year. Progress on redundancies has also been slower than expected and reforms in this area are unlikely to be completed until the end of 2011 at the earliest. This will have important fiscal consequences.”

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