Business & Tourism – Page 76 – Minivan News

MFDA raises concerns over poor hygiene during city-wide food inspections

Eateries and restaurants across Male’ are this month coming under city-wide inspection by the Maldives Food and Drug Authority (MFDA) for the first time in four years over hygiene standards, an area the government body claims “generally remains poor.”

Shareefa Adam, Director General for the MFDA, which forms part of the remit for the Maldives Health Ministry, told Minivan News that so far 32 premises had been inspected since the beginning of the month as part of plans to visit every registered and unregistered property before July.

At present, the MFDA said that two premises have been shut down on the basis of its latest inspections.

The inspections have been criticised by some Male-based catering groups, who claim to have been unfairly punished by MFDA officials they allege apply high-end resort standards to local businesses.

Accusations that inspectors are being too strict in their criteria was denied by the MFDA’s director general, who claimed they were using “basic” minimum hygiene standards such as cleanliness and preventing foreign materials from getting into food.

According to Adam, these standards were not fully understood by a wide number of proprietors in the capital, though any premises that were shut down could reapply to open again once they had corrected issues raised with their business.

“There is not enough training in food hygiene and we need to find ways to spread this message. For instance there are a large number of Bangladeshi workers in the food industry here and we need to find ways of communicating with them on this,” she said.

“Existing regulation is very simple and sometimes quite insufficient, so we are focused on minimum hygiene standards at present.”

Adam claimed that the month-long inspections would remain focused in Male’, before possibly being expanded to other islands at a later date. The MFDA director general said she believed that further inspections of all the catering establishments in the capital would take the entire month to complete.

“It takes quite a long time to complete these inspections as our staff numbers do not increase, yet the number of restaurants certainly does. We are looking at the standards of all food outlets, which are very poor in some places,” she claimed. “Some are not even registered with the MFDA at all and these must be closed down and then registered with us.”

Food outlet criticism

Hassan Muhaimin of Buruzu Catering Services, which was shut down this week following an MFDA inspection, alleged that the company had been punished for issues outside of the quality of its kitchens.

“We have a storage facility on the second floor of our building that is a locked room where we keep broken items and utensils. Although it was locked, the room was an issue [for inspectors],” he said.

Muhaimin said that despite some minor everyday issues in the kitchen, he felt the company had been judged mainly on the presence of materials like rat droppings in the locked storage room that had not been used in some time by the business.

“If there is someone operating a catering business downstairs, but someone else is living on another floor that isn’t being used by the business, should the company still be punished for issues on that floor? That is how I see it,” he added.

Muhaimin claimed that the store room inspected by the MFDA has since been cleaned out and the company kitchen was in the process of being refurbished, and said that Buruzu Catering Services would be hoping to appeal against the MFDA decision.

“I’m not aware of any other specific food outlets that have been closed down [during the ongoing inspections], but it is a huge blow for our company and will require some good PR plans to turn it around,” said Muhaimin. “We think it’s really unfair of the MFDA and raises questions about their own standards. For example, we purchase headgear [such as hairnets] from a company that supplies major resorts, yet [the MFDA] did not approve of them, saying they don’t cover the whole head area or the back of the neck.”

Muhaimin claimed it was his belief that the inspectors in some cases may be enacting top-range resort standards onto local companies and eateries.

Local teashop the Shabnam Café has also been closed after inspectors allegedly found rat droppings in the kitchen.

The owner complained to newspaper Haveeru that Shabnam Cafe that the droppings were not found in the cafe’s kitchen, but in a salted fish brought by an employee.

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Tourism business worth US$2.5-3 billion, not US$700 million as thought, says President

The tourism industry in the Maldives is worth three to four times more than previous estimates, President Mohamed Nasheed acknowledged during a press conference this morning with journalists, ministers and industry leaders.

“Previously we had thought tourism receipts for the country were around US$700 million. But since collection of the 3.5 percent Tourism GST it has come to light that the figure is around US$2.5-3 billion,” President Nasheed said.

”I was told that the government’s expenditure was too high, but I told them it was not that the expenditure was high, but that the revenue was too low. There are not many ways we can decrease the expenditure of the government,” Nasheed said.

Nasheed was speaking ahead of parliament’s resuming sessions next week, where the ruling Maldivian Democratic Party (MDP) hope their new voting majority will push through major economic reforms. Most ministers were in attendance, as well as senior industry figures including Jumhoree Party (JP) leader Gasim Ibrahim.

Secretary General of the Maldives Association of Tourism Industry (MATI), Sim Mohamed Ibrahim, suggested the US$2.5 billion figure was optimistic, “as a lot of it is guesstimate.”

“The TGST income is variable depending on season, occupancy and volume of business,” he explained. “If they are projecting the figures from Jan-March for the rest of the year, that is the biggest time of the year and the figure will be very rosy. It may be a few years before we can calculate this accurately.”

Nonetheless, “the government will have a lot more money at its disposal for national development,” Sim predicted.

“I don’t think traders will have any problem paying taxes so long as other charges and levies are lowered. What business needs is predictability – this has been lacking in the past, particularly the calculation of rent and lease periods. They need confidence in the system, and things to be spelt out clearly. I think this is now happening.”

Historically the government had derived most its revenue from import duties, followed by bed taxes on the resorts, President Nasheed explained, both of which ultimately be abolished in favour of a modern tax economy.

One impending change – which was not given a date – was the sale of land for commercial purposes, Nasheed said, with all land, including resort islands, becoming a tradeable commodity.

“Ultimately that is where we have to go. I understand that this not the law right now,” he said.

The Maldives currently does not recognise freehold land, and furthermore lacks a central register of land ownership. Currently land is owned by the government and leased to commercial operators, although these agreements can extend up to 99 years. Resort leases are shorter, but under the current government are extendable to 35-50 years when a certain percentage is paid upfront.

Sim observed that only 20 percent of resorts had invested in the longer leases, “either due to their income [required for the upfront payment] or because the banks aren’t lending.”

“[Land purchase] might be an advantage to the industry, as resort land has always been treated differently,” he said.

“It was briefly introduced in the past but was later revoked. Given the shortage of land in the Maldives, land ownership can be a touchy subject. But now it is possible for the government to reclaim land.”

Nasheed has previously observed that the government’s new financial changes, which include an income tax and a general GST it hopes to approve in parliament, were “perhaps far more radical that introduction of political pluralism in the semi-liberal society that we had.”

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Government outlines student loan funding amidst wider education criticisms

The government has moved ahead with a Rf50 million student loan programme in an attempt to support a larger number of local people in further education, replacing the “pocket money” grant scheme that previously supplied limited study funding free of charge.

The funding switch has raised concerns among some students and opposition figures, who claim that not enough is being done to support and prepare young people for the challenges of a more diverse Maldives job market.

Aminath Ali, Deputy Minister of Human Resources, Youth and Sports, told Minivan News that 340 students currently studying in higher or further education institutions in the Maldives were now able to claim an equal share of the government supplied funding, which was expected to be paid back once courses were over.

“Out of 367 existing students who applied for the loans, 27 were rejected as they were not currently studying in the Maldives,” she said.

The switch from the previous “pocket money” system has not been without controversy, with some local students demonstrating outside the President’s Office back in March in order to try and reinstate charge-free grants for those in higher education.

Student protesters claimed at the time that some of their peers appeared to still be getting the pocket money grant, while others were struggling to afford or obtain books required for their studies in light of the student loan switch.

A spokesperson for the opposition Dhivehi Rayyithunge Party (DRP) this week also criticised the government’s implementation of the student loan system, as well as its overall commitments to education in the country, claiming that both the funding and the range of courses currently on offer were “not sufficient” for their own needs – or those of the job market that will one day employ them.

Aminath Ali said she accepted that a number of students had become concerned about the change towards providing loans instead of the free grants previously offered. However, the minister claimed the new system was in place to try to ensure that both the country and citizens could afford further education on a more sustainable basis in the long-term.

“Under the current budget we cannot provide free learning and funding for students at higher education institutions. The [student loans] are similar to mechanisms in place in countries all over the world,” she said. “Say a student has a total loan amount of Rf24,000 over their studies, they will have to pay back this amount and a five percent administration charge to cover the role of their bank over an agreed period of time.”

According to Ali, once a student had completed their studies, they are then given six months to find a job before having to begin paying back the funding.

The deputy human resources minister claimed that sufficient mechanisms were in place to allow student to pay back their loans to the government over a maximum of ten years depending on their revenue. Ali added that in consultations with the Employment Ministry, she was confident that graduates would be able find jobs within this six month period that offer long-term career prospects for those willing to work.

The loan system is also said to be backed by 100 percent scholarship programmes for students studying abroad in areas such as medical sciences and technology, according to the ministry. Ali claimed that 180 scholarships, based on educational performance, had been offered between January and May of this year.

Separate funding had also been put aside by the Ministry of Human Resources for students to apply for when entering into further education during the present academic year.

The Ministry of Education claimed that the move towards student loans reflected the need for funding at a wider number of institutions in the country that now offer higher education courses to students across different fields of expertise.

DRP Spokesperson Ibrahim ‘Mavota’ Shareef said that while the opposition party welcomed measures to financially support students in higher education, he believed the new loan system had failed to take into account hardships faced by the young, particularly those coming from islands to Male’ to live.

According to Shareef, while previous systems had provided a pocket money allowance and even some forms of salary to fund study from the government’s purse, he claimed the new loans were insufficient to cover the expenses of moving to Male’.

“From the complaints we have received from students, [the student loans] are not a popular initiative. Government must reconsider this system, changes are expected to be for the better,” he said. “If the government was replacing [student funding] with a better system, it would be welcomed.”

When addressing the government’s own need to reduce national spending and its own budget deficits amidst commitments to organisations such as the International Monetary fund (IMF), Shareef said that the government would have been better served by “gradually” phasing out the “pocket money” system as opposed to replacing it completely.

“In a country, no matter how rich it is, education is not an area where funding should be cut,” he said.

In addition to concerns over the student loan system, Shareef claimed that he also believed that the current higher education curriculum was out of synch with the demands of the modern Maldives job market.

“The whole education system does not match up with the job openings currently being offered,” he claimed. “Until the 1980’s, we had limited [job] openings available , so the purpose of education and training was to get people ready for working the civil service,” he said.

With the advent and growth of the country’s the tourist industry along with the emergence of regional and multinational businesses moving into the Maldivian economy, Shareef claimed that the education system had failed to move with the times in making people ready for this changing workplace.

“There are not enough professionals available that are trained to work in management positions within the tourism, fisheries and even construction industries. Education is simply not meeting these requirements,” he said

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Foreign hotel and resort workers concerned over financial changes

Expatriate resort workers have expressed confusion over new regulations restricting monthly remittances to 100 percent of workers’ salaries, which they fear may may leave them unable to take supplementary income, such as tips and service charges, out of the country.

The government has said the decision, published in mid-May in the government gazette, was intended to reduce the amount of money sent overseas by those working in the country illegally, either without a work permit or by taking jobs ‘on the side’.

Workers exceeding the limit, and organisations providing the transfer facility, would face a fine.

However, in many of the country’s resorts, service charges and ‘unofficial’ tips can amount to up to 70 percent of a worker’s total income.

“If the transfers are limited to salaries then the tips and service charges will be considered illegal money,” one foreign worker, a guest relations officer (GRO), told Minivan News. “For me that is 75 percent of my income.”

The GRO added that due to the isolation of some resort properties, workers would be unable to reach a bank every month to send their income home.

“There is one ferry a week [to an island with a bank], but not my home branch. To go to Male’ the flight costs US$200 – I can’t transfer money every month, and I can’t spend all my money in the Maldives,” she said.

A lack of information outside local media reports in Dhivehi meant that many foreign staff were in the dark over the pending changes.

“Nobody is sure what is going on. This [lack of confidence] may encourage people to take their money out of the system altogether,” she predicted.

Several foreign workers Minivan News spoke to at a hotel near Male’ also expressed confusion and frustration over what they feared could be a financial impracticality to continuing to work in the Maldives. They noted that the hotel was to begin paying all staff in rufiya, following the Maldives Monetary Authority (MMA)’s recent announcement that it would enforce transactions in the country’s legal tender.

Minivan News contacted a range of authorities dealing with monetary policy, but was unable to get a clear indication of what the regulations would mean for foreign workers.

State Minister for Finance Ahmed Assad and Minister for Economic Development Mahmoud Razee both said they were not in a position to clarify the matter and referred Minivan News to the MMA.

Assad suggested that while the Ministry published official notices in Dhivehi, employers had a duty to keep their foreign employees informed of the implications of any changes to policy.

Assistant Manager of the MMA’s Monetary Policy and Research Division, Ibrahim Ameer, told Minivan News that he understood the regulations were currently pending with the Ministry of Human Resources and that income from resort workers would be taken into consideration, however he noted claims in media reports on the regulation that only basic salaries could be remitted.

A spokesperson for the Ministry of Human Resources meanwhile referred Minivan News to Deputy Minister Hussain Ismail, who was not responding at time of press.

Head of the Tourism Employee Association of the Maldives (TEAM) and Maldivian Democratic Party (MDP) MP Ahmed Easa told Minivan News that the organisation had met with the MMA when the regulations were being drafted and that he understood workers would be able to send their full incomes overseas on presentation of their work visa to the bank.

“The idea is to stop illegal workers from remitting money,” he said. “I think it is tied to income rather than salary, as long as the proper documents are provided. It should not be a problem so long as workers have a work permit. That’s what I have been told, and I haven’t received any complaints yet.”

However, earlier reports on the regulation have suggested it would encompass not just illegal workers, but those taking on ‘unofficial’ extra work – a common practice for many of Male’s expatriate workers, some of whom are paid as little as US$70 a month for full-time construction work. In many cases, this is despite reported promises of salaries of up to US$400 by unscrupulous employment brokers, who charge poor and illiterate people in countries such as Bangladesh fees of between US$3000-4000 to come and work in the Maldives.

The dollar crisis in the Maldives has brought to the fore the remitting of salaries by expatriate workers. In a recent report, Ameer from the MMA noted that “each expatriate worker will on average remit US$100 per month to their countries. That is US$8 million per month and US$96 million a year. This is an amount that can and should be mitigated.”

Easa told Minivan News that the Human Resources Ministry, “to be honest, has nothing to explain. The Maldives can’t afford this, and we have to have rules to stop the existing open environment.”

The Immigration Department meanwhile reported that the number of expatriates in the country would reach 100,000 by June, after increasing by 10,000 in just three months. The report came as the Ministry of Human Resources published regulation permitting the recruitment of domestic servants without a quota.

The payment of salaries to foreign workers in rufiya is also a concern raised by foreign workers, concerned at their inability to convert the local currency to dollars.

“It may be difficult at this time, but the MMA is reinforcing a law from the early 1980s,” Easa noted. “All these years the MMA has not enforced the law. Right now we have a shortage of foreign exchange, and [expatriates] might face difficultly for a couple of months. But the country doesn’t have a choice.”

TEAM’s Vice President Mauroof Zakir acknowledged receiving concerns from resort workers regarding payment in rufiya.

“We received complaints where workers wanted salary in dollars in instances where the business is earning dollars,” he said, adding that this was already the case for many executive staff who had money paid into accounts outside the Maldives.

Furthermore, Zakir noted complaints from staff who’s wages were now being paid at a rate of Rf 10.42 to the dollar – the minimum rate following the government’s float of the rufiya within a 20 percent band of a pegged Rf12.85 – despite bank rates sitting at Rf 15.42.

“They don’t know the rate at which management is getting dollars,” he said. “I think it is a big concern that the government is not doing anything to raise awareness [for expatriate workers], apart from releasing statements to local media in Dhivehi.”

During a recent interview with Finance Minister Ahmed Inaz, Minivan News questioned the enforcement of rufiya at a time when there was doubt as to whether this could be exchanged into dollars, and the impact this would have on confidence in the Maldivian economy.

“We believe the market is currently unstable because of the changes we have brought, and that these changes will take three months for the various variables to work,” Inaz acknowledged.

“There will be a lot of low confidence and instability, and that will not only be felt by the expatriates. All our imports and consumables, medicine, education – is imported. But we are confident we can get through this.”

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Government not lifting expat worker limits, HR minister claims

Minister of Human Resources Hassan Lateef, has denied that the government has loosened quotas on the hiring of expatriate workers like domestic servants, claiming regulatory reforms published last week had been designed to try “simplify” hiring foreigners.

Lateef told Minivan News that under new reforms, organisations or individuals wanting to hire expatriates would no longer have to apply for a quota before completing a separate application for a work permit, as part of attempts to make hiring foreign staff easier for employees and employers alike.

The minister added that the amendments, expected to be in place from next week, would continue to permit eligible households to hire a single domestic servant only.

“Some media outlets have been reporting that the government has removed quotas on certain expatriate workers, but this is not the idea at all,” he claimed.

Newspaper Haveeru reported today that amendments had been put forward in the government gazette on Thursday (March 26) to lift quota limits on expatriate employees hired to work either for government authorities, or as volunteer social workers or domestic servants.

Lateef claimed that the published reforms represented a procedural change for the Ministry of Human Resources due to concerns that the additional requirements of imposing a quota system on foreign workers was “totally unnecessary” alongside the existing work permit system.

The minister claimed that the process of an employer having to apply for a separate staff quota had made it difficult to replace expatriate staff such as domestic help quickly.

“There is no point in having too many layers in terms of [hiring] procedure. When it comes to household staff, it can be difficult to replace expatriate workers quickly,” he said. “Yet each household can still apply for only one domestic servant. This criteria is exactly the same as before the amendments were put forward.”

After being published in the government gazette, Lateef said that the amendments were expected to come into place next week.

With these amended regulations coming into place within 15 days of their gazette publication, the minister said he believed that collaboration would be needed with other official bodies such as the Department of Immigration and Emigration to oversee the measures.

Immigration issues

Just last month, the Maldives’ Controller of Immigration told Minivan News that the country needed to address its failure in not having adopted a national immigration policy to protect and control an expatriate workforce, which he estimated to at least equal the number of domestic labourers.

Controller Abdulla Shahid said at the time that that a lack of immigration controls or quota policy in the Maldives had left valuable foreign workers vulnerable to “inhumane” treatment from unscrupulous employers once they had legitimately arrived in the country.

Lateef said that in considering these apparent issues with immigration control in the country, he accepted that the Ministry of Human Resources, Youth and Sports would need to work collaboratively with fellow ministries over the changes.

“One cannot separate the issue of hiring expatriate workers between the immigration department and human resources officials. Like with any foreign workers, in hiring domestic servants we do have some [immigration] problems, which is why both systems should be linked,” he said.

Lateef claimed that there was significant work to be done with implementing the new regulations therefore, potentially requiring some additional policy changes to be made by the Department of Immigration and Emmigration.

However, speaking about the amendments to hire expatriate workers and replace the previous quota systems, Immigration Controller Shahid said today that he saw the new system as nothing more than a procedural change that would not significantly impact border control.

Although the changes to the quota requirements were likely to put more responsibility on labour authorities at the Ministry of Human resources, Shahid claimed the system was expected to make hiring expatriate domestic servants a “bit easier” in the country in the future.

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Cabinet decision not a green light for Nexbis project, says Immigration Controller

Cabinet’s decision last week to review the stalled Nexbis project did not necessarily mean it was going ahead, said Immigration Controller Abdulla Shahid today.

The Build, Operate and Transfer (BOT) agreement with the Malaysian-based mobile security solutions provider was to upgrade border security in the Maldives and facilitate the identification and tracking of expatriate workers without the use of potentially-forged paper documents.

However the day after the October 2010 signing of the concessionaire contract, the Anti-Corruption Commission (ACC) announced it had received “a serious complaint” regarding “technical details” of the bid, and issued an injunction pending an investigation into the agreement citing “instances and opportunities” where corruption may have occurred.

Nexbis shares immediately plunged 6.3 percent on the back of the ACC’s announcement. The company subsequently issued a statement claiming that speculation over corruption was “politically motivated” and had “wrought irreparable damage to Nexbis’ reputation and brand name.”

“Nexbis’ shareholders own and manage multi-trillion dollar assets globally and will not jeopardise their reputation for an investment return,” the company said at the time.

Shahid said today that following the Cabinet decision the Immigration Department would be “looking into the ACC’s concerns and negotiating with Nexbis.”

“Cabinet did not say the project would proceed, but have announced that it would be reviewed. The ACC’s initial position was that the project would be re-tendered with the consent of Cabinet.”

Shahid acknowledge threats of legal action from Nexbis, but observed there was “nothing we can do on this issue – it was the ACC that intervened.”

He predicted that it would be “some time” before the review was completed.

Local media has claimed that key technical components, such as facial recognition, were missing from the project.

Minivan News is currently seeking comment from Nexbis.

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MATI claims tourism on track to maintain growth in 2011, despite Male’ protests

The Secretary General of the Maldives Association of Tourism Industry (MATI) claims the country’s tourism industry remains on track to maintain growth despite recent widely publicised clashes between police and protesters in Male’ during May.

The total number of tourist arrivals to the country between January to April 2011 amounted to 327,563 people, up 16.9 percent over the same period last year, according to official statistics provided by the Ministry of Tourism, Arts and Culture. Of this demand, Europe continued to dominate visitor market share during the period.

MATI’s ‘Sim’ Mohamed Ibrahim told Minivan News that, as with for a number of destinations across South Asia, the Maldivian tourism sector had begun to “recover” from the impacts of global financial uncertainty in recent years. Sim said he believed the industry, through the use of strategies such as discounting during the off-season, appeared well placed to continue to profit from growing tourist interest, even with perceived challenges facing the industry relating to taxation and recent protests between police and members of the public.

Sim’s comments were made as the government pledged to increase a 3.5 percent Tourism Goods and Services Tax introduced on January 1 to five percent as part of economic reforms that led to a week of protests and violent clashes in Male’ during the beginning of this month.

These protests, which were said to have been instigated as a “youth movement” despite the involvement of several opposition politicians, saw thousands of Maldivians campaigning on the streets leading to occasional violent clashes that drew international coverage, raising some concerns over tourism safety.

Sim claimed that despite these protest concerns – which the government alleged reflected an attempt by some opposition politicians to “mislead” foreign media over their scale – the demonstrations occurring in Male’ and some islands were completely isolated from the country’s island-based resorts. He added that the demonstrations would not impact tourism despite some nations issuing travel warnings for the Maldives.

Despite these potential concerns shown by some tourism markets, Sim said that he did not expect a huge negative impact on tourism arrival figures for May 2011 when released by authorities. The MATI Secretary General added that he was optimistic over the impact of the government’s plans to introduce and extend direct taxation on all travel industry services and goods.

“There was some concern over the [tourism goods and services charge], the government appears to be going in the right direction by pledging to do away with duties such as bed charges by focusing on direct taxes,” he said. “On the whole we believe the tax will be beneficial to the country and the industry.”

From MATI’s perspective, Sim said that the organisation believed that instead of various duties and charges currently imposed by the government, the industry would be better served by replacing these charges with one or two “solid” direct taxes like the existing goods and service charges – a policy he claimed the government were already pursuing.

“We believe this would present a healthier picture for finance [in the industry],” he said.

When addressing potential future growth for visitor numbers amidst the Maldives’ peak tourism season drawing to an end in April, Sim said that “quite a lot” of discounting has been occurring within the industry to try and bolster arrivals. However, the tourism association secretary general said that the decision to discount was ultimately profitable for the industry.

“We must not lose sight that the Maldives is a good value for money destination. For hoteliers, the most important thing is to keep the [visitor] figures going. There is quite a lot of discounting occurring to try and ensure more confidence to the market,” he said. “We are seeing more Chinese coming and although they may not be as high yield – in terms of spending power – than visitors from markets like Russia, they are arriving in good numbers.”

According to the latest Tourism Ministry figures, during the first four months of the year, European tourists including travellers from destinations like Russia accounted for 67.8 percent of the total market share of visitors compared to the same time last year up by 10.6 percent over the same time in 2010.

Asia and the Pacific represented 28.1 percent of the total tourist market with China alone accounting for 15.3 percent of all tourism arrivals over the period. Over the same time in 2010, visitors from the region increased by 35.1 percent to 92,132 people.

Among other regions, the Americas were found to represent 2.4 percent of the tourism market between January to April 2011, the Middle East accounted for 1.1 percent of arrivals and Africa represented 0.6 percent of the total tourism market.

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Government underestimating tourism economy by more than US billion, claims economist

The Maldives has significantly underestimated the value of tourism to the local economy by over a billion dollars, according to a report by economics lecturer and Assistant Manger of the Maldives Monetary Authority (MMA)’s Monetary policy and Research Division, Ibrahim Ameer.

In the first month following the introduction of 3.5 percent Tourism Goods and Services Tax on the tourism sector, the Maldives Inland Revenue Authority (MIRA) collected US$7.2 million from 800 of the 871 registered tax payers.

“This means the whole tourism industry’s revenue (market value) would amount to approximately US$210.0 million for the month of January and approximately US$2.5 billion for the whole year,” observes Ameer.

In comparison, the government’s official figure for the total market value of all goods and services produced in the country – not just tourism – is US$1.5 billion.

In his report, Ameer recalculates the budget deficit based on updated GDP figures and concludes that the deficit sits at nine percent, “as opposed to 17 percent of GDP in 2010 as per government authorities.”

“I suspect these underestimated figures are used by the authorities to prolong the preferential treatment Maldives has and in some cases continues to receive as a [former] Least Developed Country (LDC),” Ameer surmises, suggesting that “ our country’s problems are primarily a case of the state’s inability to collect revenue through taxation rather than a budget deficit.”

“It should be agreed that as the country marches towards full democratization, with new independent statutory institutions, local and atoll councils and increased civil service salaries, the country needs to rethink it tax policy,” Ameer states.

In an agreement reached with the International Monetary Fund (IMF) last week, 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

Comparison figures Ameer provides for corporate, income and GST/VAT tax regimes regionally and around the world, show the proposed figures for the Maldives are substantially lower.

India, for example, has a 25 percent business profit tax (BPT), individual income taxes of 0-30 percent, and a GST of up to 12.5 percent. Pakistan has a 35 percent BPT, 7.5-35 percent income tax and a GST of 17 percent. Barbados, another tropical island tourism destination, collects a BPT of 25 percent, income tax of 25-25 percent and a GST of 15 percent.

In his conclusion, Ameer argues against substantial cuts of the Rf12 billion state budget, noting the impossibility of reducing that to match the government’s present RF7 billion in revenue, and presses for the careful introduction of taxation.

“We could save some expenditure through cutting waste, prioritising projects and eliminating corruption. On the other hand, we must all agree that in certain areas wage and salaries given are very low compared to many countries,” he suggests.

As a result, “it is difficult to retain skilled and highly educated people in the country. This is why we see so many bright Maldivians leaving the country to work abroad. In the education sector, where the future of the country is molded and where the bright and the best are needed to teach future generations, the remuneration is pathetically low. The average wage for leading teacher with a Master’s degree is Rf 8354 (US$540).”

“The academic and education sector should be highly competitive and more rewarding if we are to build a better future and save ourselves from the sort of ‘brain-drain’ that we cannot afford. The situation is more or less the same with the healthcare sector of this country, with many of the brightest doctors and nurses opting for work abroad in countries as diverse as New Zealand and Canada,” Ameer observes.

He notes that the disproportionately high rents in Male’ swallowed 70-80 percent of the income of many residents in the city, “and as a result, disposable income is lower than it should be to encourage a more competitive market place and economy.”

“Because only Male’ is equipped with all the necessary facilities, like education and health care, more than one third of the population is living here. This creates irreparable social and economic damage,” Ameer claims.

Much of the visible development in Male’ he claims is the a result of a “coffee-shop bubble, a smokescreen that is bound to burst dragging the economy into depression.”

“To achieve sustainable development we need to see past supermarkets, boutiques and coffee shops in every corner,” he suggests.

“The wealthy need to realize that it is more lucrative to have businesses that decline, over our dependence on imports. The present business model increases imports and puts more pressure on the foreign exchange. It only widens the disparity between the rich and the poor when there is a negative impact on the economy.”

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IMF approves three year programme as Maldives commits to new tax regime

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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