Category: Business & Tourism

Maldives business news

Commodity prices vary “significantly” between retailers, reports Economic Development Ministry

The Department of National Planning and the State Trading Organisation (STO) have conducted a price comparison exercise across Male’ in a bid to show that while some retailers are charging inflated prices for basic commodities, most prices have risen little.

Speaking yesterday evening from the President’s Office, Economic Development Minister Mahmood Razee said the statistics, which were compiled by the Department of National Planning in collaboration with his ministry, indicated that although certain prices had been found to have risen in the last few months, there was no pattern to link these costs solely to a controversial managed float of the local currency.

The opposition has maintained that demonstrations raging across Male’ this week were against the government’s decision to implement a managed float of the rufiya and are led by youth unhappy with rising commodity prices.  These claims were made despite the active involvement of dismissed opposition Deputy Leader Umar Naseer, and MPs Ilham Ahmed, Ahmed Mahlouf, Ali Waheed, and Ahmed Nihan.

However, Razee added that discussions were ongoing with the STO – a main buyer of goods to the country – to try and maintain import supplies of 27 key food items in attempts to try and keep prices stable as well as enacting a cabinet pledge to cut import duty on diesel fuel by 50 percent.

Speaking ahead of a fourth night of protests by young people, parliamentarians and political activists on the streets of Male’, Dhivehi Rayyithunge Party (DRP) MP Ahmed Mahlouf said that although he had not been made aware of the content of the statistics at the time, he believed that protestors would not believe or be satisfied by the government’s claims and reaction.

“At this time, I think it would be difficult to accept that this is a genuine or positive message. At this point I don’t think [this] one press conference will help people,” he said.

Mahlouf added that he believed comments made by President Nasheed earlier this week, where he allegedly denied knowledge of the street protests concerning increased living costs that have garnered news coverage all over the world, had been extremely offensive to people gathering on the streets .

“It would be better to have a statement from President Nasheed apologising for the stupid comments he has made,” he added. “These comments have only made protestors more angry.”

Government findings, which were compiled on April 2 by officers visiting ten different stores across Male’, were said to highlight prices found to vary, sometimes significantly, between the retailers.

Speaking at press conference last night alongside Finance Minister Ahmed Inaz and representatives from the Maldives Monetary Authority (MMA), Razee said that when talking about changes in prices, it was important to try and determine how extensive they were.

“Yes, there are changes in prices, however, we should also see that in terms of essential commodities, what are the different brands that are there [in stores] and the price variations between them?” he said.

Following price comparisons conducted on May 2 at 10 different stores in Male’, Razee took the example of the prices of five powdered milk products, where prices between the stores were said to vary between Rf150 and Rf345. In addition he also pointed to the price differences in diapers, which he claimed varied between Rf118 and Rf150 for the same product.

The figures presently supplied by the government to Minivan News did not appear to verify these price fluctuations.

Razee added that he was unable to speculate on how long some of these potential differences in prices may have been present in stores across the capital or when and for what purpose they may have been implemented.

“What we are saying it, if you look at the price fluctuations that were there in 2006, 2007 and 2008, and if you look at the price fluctuations of the last few years, you will see there is no clear cut format or reason to believe this is directly related to the float of the currency,” he said. “Yes, it would have a bearing, but what needs to [be understood] is that there may changes to the prices. However, these are varied.”

Razee claimed that the government was not using this explanation as an excuse to avoid acting on public price concerns and said that measures were being taken to try and offer stable prices for certain “essential products”.

“We are in consultation with the STO and we have identified together 27 elementary items, out of which six are currently imported directly. [STO] is going to import the other items [on this list] as well to try and maintain price stability and ensure the availability is there,” he said. “In addition to this, the cabinet today advised the president to remove 50 percent of the duty on diesel. So this will give some relief to power generation, electricity bills and transportation costs.”

Finance Minister Inaz added that the government had decided to release some of its statistics to try and highlight current prices being paid by goods in relation to the last few years.

“It is very easy in a small economy to play with and manipulate the confidence of the economy,” he said. “Confidence is the most important factor to build an economy and it can be easily twisted. We agree the prices have gone up, but we want to maintain these price levels at a competitive level compared to other international rises.”

Cost statistics

The government, in figures compiled by Department of National Planning, outlined a number of changes in the average prices paid for goods between March 2010 and March 2011.

These price changes include:

• One kilogram of loose rice – up 1.07 percent from last year

• One kilogram of ordinary flour – down 1.89 percent from last year

• One kilogram of frozen chicken – up by 8.73 percent from last year

• One medium sized coconut – up 69.71 percent over last year

• One hundred grams of garlic – up 22.34 percent last year

• One kilogram of potatoes – up 8.74 percent last year

• One kilogram of imported onions – down 12.64 percent from last year

• One kilogram of yellow coloured dhal – up 17.63 percent from last year

• One 500 millilitre bottle of Kinley mineral water – down 30.30 percent from last year

• One 185 gram can of Felivaru brand fish chunks in oil – up 22.24 percent from last year

• One unit of state-supplied electricity – unchanged from last year

• Thirteen kilogram of cooking gas – up 12.12 percent from last year

• One litre of petrol – up 32.65 percent over last year

• One packet of Fitti brand small baby diapers – up 4.35 percent from last year

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Business head cautious over president’s cost-cutting plans

President Mohamed Nasheed has outlined tax reforms he claims will help to eventually alleviate concerns over the higher costs of goods and services at the heart of protests that have raged in Male’ over the last two days.

Beyond announcing that May 1 would now serve as a public holiday every year in celebration of International Labour Day, the president aso attempted to outline government plans for economic reform.

Speaking yesterday during a function to mark Labour Day, Nasheed unveiled plans to try and reduce costs for “everyday items” by between 10 to 15 percent by removing import duties, which the government estimates account for Rf2.3bn of budgeted state income during 2011.

The president said he believed these costs can be covered by tax reforms; both on the earnings of members of the public with a monthly wage of over Rf30,000 a month and increasing taxable income from the tourism industry.

“The reforms to our financial system involve creating a tax mechanism, like in other civilised societies, instead of depending solely on import duties,” he stated, while also pledging to introduce a minimum wage rate during the year.

Some prominent investment groups in the country, while supporting initiatives to reduce costs that have led to ongoing public protests in the country, say that the addition of a minimum wage and a Goods and Services Tax (GST) on all businesses operating in the country, needed to be gradually implemented to ensure the nation’s fledging economy can cope with any potential changes.

As part of his reforms, the president claimed that the government planned by next month to propose amendments that would remove import duties on basic items as of 2012.

According to Nasheed, these proposals would be backed by other amendments expected to be forwarded to parliament. This includes an increase in the Tourism GST, introduced on January 1 this year, to five percent from the 3.5 percent introductory rate, as well as implementing an entirely new GST of three percent on general trade outside of travel industry services.

“I have no doubt that these reforms will shift the government from its current sources of income to more sustainable income sources,” he claimed.

To try and counter the more pressing concerns of high costs that have allegedly led thousands of, mostly young, people taking to the streets in protest, the president claimed that it was purseuing a number of financial [instruments] to try and cut down on the impacts of higher living costs such as in establishing a minimum wage during 2011.

“This government came to power with hopes, to give a decent and an honourable life for Maldivians,” he said. The president said that the initiative was part of plans to promote employees rights as well as those of employers within the country through the establishment of “stronger labour relations frameworks.”

“Most political leaders are disinclined to restructure monetary systems, change wage limits, and reform tax regimes because they are pressured to consider the needs of few powerful people,” Nasheed claimed. “But I assure you that the leader you [Maldivian people] have elected is not like that.”

In addressing Nasheed’s plans, the Treasurer of The Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, said that he believed further development such as investment was needed to strengthen the Maldivian economy before taking on major reforms – at least in the short-term.

“Introducing these tax reforms and schemes like the minimum wage will be difficult over the next two years. The Maldives is at a disadvantage when it comes to economies of scale as it is,” he said. “What I would like to see is a transitional period rather than introducing these measures straight away.”

Adheeb claimed that with the planned introduction of the additional GST on general trade and corporate tax, the prospect of setting a minimum wage would need to be studied in terms of possible impact, particularly in the private sector.

“We [the private sector] could end up losing some of our competitive edge over other countries. What we need is some breathing space and for these reforms to be bought in gradually,” he said. “We have to build confidence in the economy especially with small and medium businesses. If the minimum wage is going to be introduced it should be set on an economic basis and not for short-term political benefit.”

Adheeb therefore urged the government to consult employers – especially in smaller and medium enterprises – before putting any initiatives like a minimum wage in place, adding that private enterprises had been a key component in the more successful developments of the Maldivian economy.

“The tourism industry here has been developed mainly by the private and not the public sector,” he said.

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Expatriate “troubles” exacerbated by lack of border policy, says immigration head

The Maldives’ Controller of Immigration has claimed the country must address previous failures to adopt an immigration policy if it wants to protect and control an expatriate workforce that he says is estimated to at least equal the number of domestic labourers.

Abdulla Shahid, appointed back in February as the nation’s immigration chief, said that a lack of any kind of immigration controls or policy in the Maldives had left valuable foreign workers facing “inhumane” treatment and a host of other problems once inside the country.

Speaking to Minivan News, Shahid said that despite the country’s long history of bringing skilled and unskilled foreign workers to its shores reaching as far back as the 1950’s, both the current and previous government had failed to put any measures in place to outline numbers of foreign workers or their employment conditions.

Both Shahid and the High Commissioner of Bangladesh to the Maldives, Rear Admiral Abu Saeed Mohamed Abdul Awal, have claimed that authorities from both countries were now trying to devise a new legal framework that they claim is needed to protect the rights of foreign workers.

Earlier this week, Qatar-based newspaper the Gulf Times reported that the Maldives was seeking to bring in a number of public procurement experts from Bangladesh to assist with the country’s climate change adaption plans, as well as an additional 20,000 people for employment in the construction, textiles and tourism industries.

However, Shahid said that he was not aware of any such figure being set by himself or Maldivian authorities, adding that the country needed to first begin putting in place measures to ensure the numbers of immigrant workers were controlled, while also protecting their rights.

According to the controller of immigration, the number of foreign workers coming to the Maldives on an annual basis was estimated to have doubled in recent years, with the number of legal immigrants reaching 92,000 as of this month – up from 87,000 on March 1, 2011. Migrant labourers constitute almost a third of the Maldives’ total population.

While expat growth between 2009 and 2010 was deemed to be “not significant”, Shahid said he believed that a host of new infrastructure projects in areas such as airport construction and new home creation proposed by the government was likely to lead to growing interest in the country by foreign labourers.

“My argument is – should we send workers back? We have a population of 300,000 people here in the Maldives and its local workforce, I think, is equal to the number of foreigners employed here,” he said. “I’m not saying they are a nuisance; in my view, expats are a necessity here in the Maldives and without them many businesses and shops would struggle and be put out of business.”

Shahid claimed that after having spent two months in his current position as the national immigration controller, he believed it was now vital to look at other countries that have employed migration policies and see how the Maldives might follow.

“I’ve seen in Australia and the US that there are policies on immigrants and expats,” he said. “For instance, they will set out a system quota, say for 300 professionals in a specific field, but we do not do that. Both the previous government and ourselves have not done a comprehensive policy review.”

However, the immigration controller claimed that it was vital for authorities to first decide on an actual policy for foreign workers before they can begin reviewing the effectiveness of controls.

“What is this policy? What I am saying is that we need to produce a plan of action for immigration,” he said. “Do we decide to bring in an immigration policy or not? Without immigration a lot of businesses and shops would have to close down.”

Amidst these possible economic concerns, Shahid added that it would be vital to formulate and then have the Majlis agree on an immigration policy, such as setting an annual cap on the number of expats allowed to enter the country.

He claimed that greater control would, in theory, ensure stricter regulation in terms of forcing employers to provide better quality living standards to their expat workers, conditions that he said were known to be “inhumane” in certain cases.

The immigration controller said that an estimated 42,000 were working illegally in the country as of last year; a figure he claimed that if correct, would have probably risen again since.

According to Shahid, previous plans to try and slow down the influx of foreign workers had not worked.

However, along with trying to outline a national immigration plan, Shahid denied that ongoing uncertainty over the future of a deal with Malaysia-based mobile security firm Nexbis – involving installing an advanced border control system to collect and store biometric data on expatriate workers – had added to immigration concerns. In January this year, the Anti-Corruption Commission (ACC) ordered a halt on a government contract between the Department of Immigration and Malaysian mobile security firm Nexbis, claiming that there were instances where corruption may have occurred.

Facing political pressure ahead of February’s local council elections, President Mohamed Nasheed decided to uphold the ACC’s request that the roll-out of the technology be postponed. Nexbis responded that it would be taking legal action against parties in the Maldives, claiming that speculation over allegations of potential corruption was “politically motivated” in nature.

Shahid was not convinced the delays were playing into the hands of unscrupulous employers though.

“This issue [with the Nexbis deal] is not really a problem, we have only one issue with an immigrant who got through border control illegally,” Shahid said. “All other workers have come with the proper documents and the required work sponsor. However, it is after they arrive here that things go wrong and the problems start.”

Based himself in the capital of Male’, High Commissioner of Bangladesh, Rear Admiral Abu Saeed Mohamed Abdul Awal, said Bangladeshi authorities had not approved any figures on the number of local workers to be sent to the Maldives.

By contrast, Awal claimed that Bangladeshi government was working “closely” with their Maldivian counterparts over the issue of manpower and ensuring better regulatory control for workers coming to the country. Awal also stressed that it would be vital to ensure potential loopholes in employment laws were not being exploited by employers and recruitment agencies.

“A Memorandum of Understanding (MOU) is under consideration with the Maldives government to provide better controls on immigration,” he said. “Employment must take place under proper conditions and a legal framework, this has not been happening as much in the past.”

According to Awal, although the prospect of the MOU was being seen as an encouraging development between the two nations, setting out new regulations on foreign worker numbers was an “evolving process” that needed to be implemented properly as well as come under long-term reviews and scrutiny.

“We are working closely with various departments on this,” he said. “Any regulations that may follow would need to be overseen properly or the same problems will continue. Potential loopholes have to be addressed and should not be exploited.”

Last year, Minivan News reported that the exploitation of foreign workers was believed to rival fishing as the second most profitable sector of the Maldivian economy after tourism. The claims were based on conservative estimates of the number of Bangladeshi workers showing up at their commission in Male’ after being abandoned at the airport by unscrupulous employment agents.

Former Bangladeshi High Commissioner to the Maldives, Professor Selina Mohsin, who finished her assignment in July 2010, told Minivan News that every day 40 Bangladeshi nationals were turning up at reception, “having come to the Maldives and found they have nothing to do. So naturally they come here to the High Commission.”

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GDP rebased to 2003 prices

The base period for measuring real Gross Domestic Product (GDP) or national productivity of the Maldives has been updated from 1995 to 2003, the Department of National Planning revealed this week.

Real GDP is an inflation-adjusted measure that reflects the value of goods and services produced within a country in a given year expressed in base-year prices.

“Changing the base period to a more recent year improves the accuracy of GDP estimates,” reads a press statement by the department. “Internationally, regularly changing the base period is encouraged. In most countries GDP is rebased once every five or ten years. Maldives’ GDP has been rebased after an eight year period.”

With the change in the base period, real GDP in 2011 is now calculated at Rf21,123 million while GDP per capita rises to Rf4,061, an increase of Rf1,217 from previous estimates.

“Among the reasons for the difference, apart from richer information used to calculate GDP, include changes to methodology,” the statement explains.

A “supply and use table” based on all transactions that occurred in 2003 was employed as a benchmark for rebasing GDP.

“In the rebased series extensive use was made of new available data, including annual accounts, government budget details, survey data, and price and unit value indices. The rebasing exercise took approximately three years to complete,” reads a report by the department.

Based on the 2003 series, it notes, real GDP on average grew 7.9 percent each year during the past decade, compared to 5.8 percent under the 1995 series.

Inflation

According to the last monthly economic review by the Maldives Monetary Authority (MMA), the pace of GDP growth in 2011 is projected at 4 percent.

Tourist arrivals registered a 15 percent increase in the first two months of 2011 compared to the same period last year while fish catch showed growth of 31 percent from 2010.

Increase in food prices meanwhile contributed to half of inflation in February 2011.

According to the planning department, the consumer price index (CPI) for Male’ last month rose by 5.6 percent compared to March 2010.

Compared to the previous year, the highest inflation was recorded for education with 23 percent – driven by a 42 percent increase in school fees – followed by fish products, which rose by 14 percent.

Food items such as coconut, green chili, watermelon, chicken sausage and oranges, showed a price increase between 25 percent to 70 percent.

However, the monthly inflation rate was low at 1.30 percent and showed deflation of 0.07 percent excluding fish.

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Maldives’ oil spend spikes in line with world oil prices

Saudi Arabian oil exporter Aramco has expressed unease about the global economy as oil prices have continued to rise, as unrest drops the rate of production in Africa and the Middle East.

Prices reached US$124 a barrel yesterday, after peaking earlier this month at US$127. Worldwide output fell 700,000 barrels in March amid ongoing political turmoil in Libya, Yemen, Syria, Nigeria and the Ivory Coast.

CEO of Aramco Khalid al-Falih told an industry gathering in South Korea that “We are not comfortable with oil prices where they are today… I am concerned about the impact it could have on the global economy.”

The Maldivian economy is dependent on oil to such an extent that is spends a quarter of its GDP on it – US$245 million – the vast majority on marine diesel, making imported energy one of the single largest drains on the country’s economy.

Customs documents obtained by Minivan News in January showed that Maldives was spending almost US$100,000 more per day more on fossil fuels than it was in the summer of 2010. At that time, oil was US$86 a barrel.

By the same calculations but with today’s oil price, the Maldives is paying an additional US$450,000 per day for oil compared to summer prices last year.

In Male’, the increase in price has compelled the State Electric Company Limited (STELCO) to increase the fuel surcharge component of its electricity prices, with Haveeru reporting a STELCO official as acknowledging an increase in complaints about the cost of their bills price. The fuel surcharge reached Rf 1.41 per kilowatt hour in March, dropping slightly to Rf 1.27 in April.
“The rise in fuel prices leads to an increase in the fuel surcharge, which eventually push the electricity charges up,” the official said.
The Maldives has meanwhile pledged to become carbon neutral by 2020, but little has been done to wean the country from the growing financial burden of its oil addiction.

In a previous interview with Minivan News, President Nasheed’s Energy Advisor Mike Mason suggested that spiralling oil costs could prove to be a strong argument for a return to sailing.

“I think there is a huge opportunity to take a knowledge of sail, wind and current – the thinking that has served the Maldives well for 2000 years – and apply modern technology such as solar to create a new transport paradigm. A sailing vessel with a modern hull, utilising modern technology can reach 30-40 knots, and would greatly reduce the reliance on diesel,” Mason said at the time.

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Fisheries ministry accepts need for regional collaboration in changing marketplace

Maldivian authorities say they are ready to join the Indian Ocean Tuna Commission (IOTC) despite initial reluctance, as a changing agricultural situation within local waters requires a more active role in outlining possible quotas and regulations.

Hussain Rasheed Hassan, Minister of State for Fisheries and Agriculture told Minivan News that with the Maldives currently responsible for fishing between a quarter to a fifth of the Indian Ocean’s skipjack tuna catch, the country was now waiting for parliamentary approval to join the tuna commission, which serves as an intergovernmental agricultural organisation.

Having spent two years collaborating with the IOTC regarding possible membership into the group, Hassan claimed that the move was not in contradiction to planned aims of selling more sustainable fish supplies or outlawing harvesting species such as sharks. Instead he claimed it reflected wider aims to work under guidelines set out in an EU initiative to combat illegal, unreported and unregulated fishing (IUU).

“In the past, we have been very reluctant to become a member of the IOTC, I guess for a number of reasons,” he said. “One [reason] is that we were afraid that by becoming a member, the IOTC will dictate how much fish [the Maldives] can harvest.

As a major stakeholder in supplying skipjack tuna from the Indian Ocean, the state minister claimed that there had in the past been fears that becoming a full IOTC would allow other to enforce quotas on the size of the Maldives’ catch of the fish leading to some hesitation by government in acting in this way.

However, Hassan claimed that the situation has changed very much of late in regards to capturing Indian Ocean tuna, particularly in terms of species such as yellowfin that he said were considered to be at stake throughout the region.

“Our hand line fishermen are targeting these fish. But in the Indian Ocean as a whole, these species are considered overexploited. There was talk that we should have a fish quota for that and we want to be included in these discussions and decision making,” he said. “If we are outside this process we will not be able to say what we want and we will not be able to influence the decision making process of the IOTC. That is not a very good position for the Maldives.”

Hassan claimed that the obtaining membership to the IOTC was also a key requirement of meeting the European IUU regulations, which he said were being sought by major import markets for tuna like the EU and demand cooperation with regional fisheries management organisations.

“It is a market demand really. A lot of our buyers are telling us that we are a major player and should become a member of the IOTC,” he added. “They want us to ensure management measures are put in place and they want us to have a more proactive role in the organisation.”

Just last year, the Maldives government had courted threats from some conservation groups that the country’s fisheries faced being boycotted by certain major UK retailers over a decision to adopt long line fishing alongside the perceived environmentally friendly, yet lower yield, pole and line methods.

The use of the long line system has itself continued to divide opinion with groups like the Maldives Environmental Protection Agency (EPA) claiming last March that there were both “good and bad implications” to adopting the practice.

“It is obvious that long line fishing will definitely catch some un-targeted fishes, like sharks and turtles,” EPA director Ibrahim Naeem said at the time.

By the end of March last year, the Cabinet opted to allow long line fishing of yellowfin tuna and bigeye tuna for Maldivian vessels after discussing a paper submitted by the Ministry of Fisheries and Agriculture claiming such a move would improve yields from the fisheries sector, which has worsened significantly since 2006.

Senior Research Officer at the Ministry of Fisheries and Agriculture, Hussein Sinan, said at the time that long line fishing was “far better for targeting yellowfin and bigeye tuna.”

Hassan claimed that a key interest of the government in looking to long line methods was to try and ensure that the 15,000 to 16,000 people estimated to be employed directly within the fisheries sector remained employed.  The state minister added that it was therefore vital to ensure that effective management was put in place around the region to ensure sustainable prospects for fishing.

“We have been a pole and line fishing nation for at least a thousand years, so we cannot afford to give up our interest in this fishing and our culture. So we have got to maintain this for the foreseeable future,” he said. “Unless we can provide alternative and better employment opportunities for people we must remain a significant fishing nation.”

In order to provide the best price from fishermen, Hassan said that adding value to fish being caught in the country was not just linked to processing, but also in the quality of the produce from the way it has been caught.

“There may be an environmental value that you can add to it. I believe that having a sustainable pole and line fishery we are adding value [to the sector],” he said. “There is a huge demand for pole and line fish in the European market, especially the UK. For canned tuna there is a huge demand for pole and line fish and the reason is that the UK buyers have seen how sustainable and environmentally friendly the way we are catching it is. It is small scale and has very insignificant impact on the environment.”

Hassan said that although the government was limited in the amount of financial support it could offer fishermen to help try and manage more sustainable and added value fishing, the Maldives was at the same time working to introduce long line fishing through licensing agreements.

According to the state minister, these agreements have already led to foreign long line fishing in the Maldives being stopped last April.

While Hassan said that there was after this point no legal foreign fishing using long line methods in the country, he added there had also been a loss of opportunity for local business, where fish was being caught on licence and then processed and exported.

“What we are trying to do – and it is in the government manifesto – is to try and encourage the private sector to establish a local long line fleet. So the government is not buying vessels and supplying them, but we are encouraging private parties to acquire oats and start a long line operation,” he said.

Foreigners would therefore continue to be allowed to work on fishing vessels in the country under contract, but the boats themselves would required to be Maldivian owned and managed.

As part of this wider long line pledge, Hassan claimed that authorities were calling on a number of measures to try and prevent creatures that are not allowed to be caught and harvested such as sharks being taken from the seas by accident.

The state minister said that long line fishermen were purposefully being made to aim below 60 metres under the water where sharks and other outlawed creatures were not so abundant and would ensure that the practices were being monitored as required under international standards.

“We are very confident that this will mitigate the by catch issues and we will change regulations if necisary based on the outcomes and results of our long line fishing,” he said. “we are a relatively resource poor country. There is a huge potential under the [60 metre] thermaclime, which is yellowfin tuna and bigeye tuna that right now we are not targeting through hand and line fishing.”

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Focus on “direct revenue” needed as state earnings increase, says Razee

The country’s Economic Development Minister has called for a greater focus on introducing new “direct revenue” streams like taxation to the country to try and balance national income even as the government reports an increase in income.

Mahmood Razee said he believed that increased government earnings between January and March 2011 should be seen as an encouraging development in the country for both public and private finance, with initiatives like the tourism Goods and Services Tax (GST) introduced in January expected to be rolled out across other national industries.

However, he stressed that more cash generating measures would be needed by the state to balance the country’s books.

The claims were made as the Maldives Inland Revenue Authority (MIRA) recorded a 59 percent increase in government first quarter income on the back of new initiatives like the tourism GST.

The Maldives has come under huge pressure in recent years from financial institutions like the International Monetary Fund (IMF) to try and reduce extensive state spending, resulting in a large deficit between income and expenditure that the government’s Finance Ministry have claimed to be trying to address.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF has reported.

Razee claimed that the increases in government income was a step towards more balanced expenditure as the MIRA revealed that Rf947m was generated during the first quarter of 2011. These earnings were up by 21 percent on predicted incomes for the year and 59 percent over revenues taken during the same period in 2010. However, earnings from the tourism GST introduced from January 2011 onwards were not in place back in 2010.

Tax revenue over the quarter rose by 81 percent, aided mainly by the tourism GST, which generated an estimated Rf351m in February and March alone, up one percent on expected earnings, according to the MIRA.

Of these tax earnings, the financial report stated that Rf82m had been collected in the local currency, while the remaining Rf864m was collected in US dollars (US$67m).

The MIRA report added that government earnings from initiatives such as the switch of a tourism lease rent to a tourism land rent had seen non-tax revenue increase by 46 percent over the period, despite a 28 percent decline in royalties after recent amendments to the Fisheries Sector.

“With the change from tourism lease rent to tourism land rent, the revenue from [this amendment] has increased by 7 percent,” the report stated. “Additional revenue of Rf 146m has been received during this quarter from Resort Lease Period Extension following to the second amendment made to the Tourism Act.”

More Work

According to Razee, despite the increased revenue, more sources of income, particularly in terms of foreign currency, were needed to offset budgetary concerns.  This apparent need comes in light of a lack of US dollars being made available through Maldivian banks that this month saw a long standing Rf12.85 peg on the exchange rate controversially being amended within 20 percent above or below the figure.

“The solution is to look to more direct forms of revenue like the general GST, though there is still some way to go with work in trying to balance revenue with the expenditure side,” he said. “Additionally, when we look to taking [state] loans they will need to be able to build greater productivity and more investment into the economy.”

With the Finance Ministry aiming to introduce a general GST system beyond services and goods provided to holidaymakers, Razee believed that government’s recent experience with taxing tourism income had helped bring a much great understanding of the true state of the country’s finances.

“Obviously with the GST in place, we understand much better the exact tourism receipts being generated,” he said. “Without them, it was much harder to fully understand the revenues being generated.

Razee claimed that the implementation of the general GST tax would also require the private sector to be more “professional” in their accounting, in theory ensuring wider industry benefits in the long-term.

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Transport authorities look to complete Israeli airline deal

Transport officials have confirmed that a subsidiary of Israel’s flagship airline El Al is in the process of starting services to the Maldives later this year, despite some fervent anti-Israel sentiment in the country and recent administrative difficulties between the flight operator and its parent company.

Transport Minister Adil Saleem told Minivan News that relevant authorities were currently processing a license for Sun d’Or International Airlines to begin operating to the Maldives after talks began last year. He claimed such a move would create opportunities for both Israeli tourists to visit the country as well as facilitate pilgrimages for Maldivians to mosques around Jerusalem and other parts of the country.

Sun D’Or International, which is wholly owned by Israeli transport group El Al, was reported to have ceased operations from April 1 this year after the country’s Civil Aviation Authority (CAA) ruled that it relied on its parent company to administer and provide infrastructure to its operations – a situation it deemed “unsatisfactory”.

In a report for the Reuters news agency, despite reservations raised by the CAA on the manner the company was being run, the Israeli Transport Ministry claimed that the aircraft, maintained by El Al , were “completely safe” and any reservations about Sun D’Or International’s operations related solely to “administrative issues”. The report quoted ministry officials as saying that El Al could continue to use the Sun D’Or brand name commercially, but could not continue to operate the airline as an independent company.

A spokesperson for El Al was unavailable for comment when contacted by Minivan News at the time of press, but Adil Saleem claimed that to his knowledge, negotiations to begin services to the Maldives had not been affected so far by the Israeli CAA’s decision.

“I am not presently on top of the latest developments [with the company], but I believe we have almost completed the licence process for the services, which are expected to begin in October.

In recent months, the Maldives has seen a number of protests against Israel and its foreign policy along with claims by one former opposition party leader that the privatisation of Male’ International Airport would allow for Israeli bombers to go out of their way to refuel in the Maldives on their way to attack its neighbours in the Middle East. Saleem said he had taken such controversies on board.

“The [transport] department has gone through their procedures that it goes through with any airline planning to operate to the Maldives.  As Transport Minister I have looked at this like with any other airline,” he said. “Some Maldivians see Israel as controversial over the issue of Palestine. Yet Palestine accepts Israel as a state, benchmarking the point that I don’t see why we should not allow these flights.”

Saleem said that the Maldives already played host to a number of Israeli tourists at its resorts and that the airline would allow for a greater influx of guests to the country’s tourism industry.

The Transport Minister added that it had also become fashionable for some Muslims to travel to ancient mosques in Medina and Jerusalem, with the deal potentially allowing for local companies to provide pilgrimages to these sites.

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Civil servants to receive Rf150,000, scholarships, SME loans for voluntary redundancy

Cabinet yesterday launched a program to encourage civil servants to leave the government and enter the private sector or further their education.

Under the scheme, civil servants and government employees will be eligible for one of four retirement incentive packages: no assistance, a one time payment of Rf 150,000 (US$11,700), a payment of Rf 150,000 and priority in the small and medium enterprises loan scheme (for those 18-50 years of age), or a lump sum of Rf 200,000 (US$15,600) and priority in government training and scholarship programmes (for those 18-40 years of age).

In addition, government employees above the age of 55 who retire voluntarily will be given the same benefits as those released by the Civil Service Commission (CSC) at the mandatory retirement age of 65.

The deadline to apply for the program with the Ministry of Finance is May 31, 2011.

The move is likely to win the government further favour with the International Monetary Fund (IMF), following its managed float of the rufiya and passing of several tax bills through parliament, including the tourism goods and services tax (TGST) and business profit tax.

However international financial organisations such as the World bank and International Monetary Fund (IMF) have regarded the country’s bloated public wage bill as the key contributor to its 20-21 percent budget deficit, arguing that the country must reduce its expenditure as well as increase its revenue.

The deficit exploded on the back of a 400 percent increase in the government’s wage bill between 2004 and 2009, with tremendous growth between 2007 and 2009. On paper, the government increased average salaries from Rf3000 to Rf11,000 and boosted the size of the civil service from 24,000 to 32,000 people – 11 percent of the total population of the country – doubling government spending from 35 percent of GDP to 60 percent from 2004 to 2006.

Political maneuverings by the opposition last year forced the government to rescind pay cuts of 15 percent, leading the IMF to comment that “significant policy slippages” were threatening the country’s economic sustainability.

Several political skirmishes over pay cuts between the Finance Ministry and Civil Service Commission (CSC) ended in court last year, with permanent secretaries of Ministries at one stage submitting multiple wage forms in an effort to appease both sides.

Head of the CSC Mohamed Fahmy told Minivan News that the commission was “very positive” about the voluntary redundancy program.

“This is an opportunity particularly for young people to advance their studies and skills,” he suggested.

“We can’t yet say how people will react, but definitely the package for people 55 years and over is very good. I think this is positive encouragement – scholarships are hard to come by, and many parents are not in a position to fund their children’s education.”

The President’s Press Secretary Mohamed Zuhair claimed that the potential short term costs of the scheme “are not relatively high compared to the benefits in the long term.”

“We need to trim down the civil service to reduce state expenditure and have a healthier private sector,” he said. “Few other countries apart from North Korea employ such a high percentage of their population in government.”

Zuhair dismissed the possibility that such an incentive program would lead to a ministerial ‘brain drain’, as talented staff with prospects outside government rushed to leave the civil service.

“The civil service will continue to provide benefits such as long term security and upward mobility – I don’t think there will be a rush,” he predicted.

Political appointees would also be eligible for the program, he added, however following the replacement of government-appointed island councillors by elected representatives, “there are not more than about 170 appointees”.

In comparison, the Civil Service Commission (CSC) has 21,000 staff under its mandate, including 19,000 permanent staff and 2000 contractors.

The remaining public sector employers fall under an assortment of 100 percent government-owned corporations, particularly prevalent in the medical, education and media sectors, a loophole that allows the government to hire-and-fire staff without being subject to the jurisdiction of the CSC.

“Staff of the corporations are no longer civil servants but are still uniformed servants of the state,” Zuhair explained.

Yesterday’s move to incentivise the departure of civil servants is likely to draw further support from the IMF, which has finished its Article IV consultation and may be weighing up the provision of further support.

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