Day: December 25, 2012

Population consolidation, rightsizing public sector essential to address budget deficit: Auditor General

A policy of population consolidation together with effective measures to reduce the public sector wage bill is necessary to address continuing budget deficits, the Auditor General has advised parliament.

The recommendations were made in a report (Dhivehi) submitted to parliament with the Auditor General’s professional opinion on the proposed state budget for 2013.

Auditor General Niyaz Ibrahim observed that of the estimated MVR 12 billion (US$778 million) of recurrent expenditure, MVR 7 billion (US$453.9 million) would be spent on employees, including MVR 743 million (US$48 million) as pension payments.

Consequently, 59 percent of recurrent expenditure and 42 percent of the total budget would be spent on state employees.

“We note that the yearly increase in employees hired for state posts and jobs has been at a worrying level and that sound measures are needed,” the report stated. “It is unlikely that the budget deficit issue could be resolved without making big changes to the number of state employees as well as salaries and allowances to control state expenditure.”

The report noted that the bill on state wage policy recently passed by parliament would not address the issue as the legislation focused “mainly on reviewing salaries of state institutions.”

The Auditor General’s Office contended that “major changes” were needed to right-size the public sector and “control the salary of state employees and expenditure related to employees.”

The report observed that compared to 2012, the number of state employees is set to increase from 32,868 to 40,333 – resulting in MVR 1.3 billion (US$84.3 million) of additional expenditure in 2013.

This anticipated increase included 864 new staff to be hired by the Maldives Police Service (MPS) and Maldives National Defence Force (MNDF), the report noted.

In light of “existing inefficiencies” in the state, the Auditor General contended that hiring more staff for various independent institutions would be “a waste of public funds” as it would divert resources from service provision and development projects.

“Moreover, we note that increasing the number of employees would lead to an increase in office expenses and expenditure on employees’ retirement and pensions, decrease the number of people left to do productive work in the private sector (decrease the labour force), and slow the growth of the country’s economy,” the report stated.

Details of the state’s wage bill included in the report showed that MVR 187 million (US$12 million) was budgeted as salaries and allowances for 545 political appointees in 2012.

In addition, MVR 1.98 billion (US$128.4 million) was to be spent on 18,538 civil servants; MVR 999 million (US$64.7 million) on 6,244 police and army officers; MVR 362 million (US$23.4 million) on 1,455 elected representatives and attendant staff; MVR 485 million (US$31.4 million) on 3,372 employees of independent institutions; and MVR 345 million (US$22.3 million) on 2,714 contract staff.

In 2011, the Finance Ministry revealed that MVR 99 million (US$6.4 million) would be spent on 244 political appointees annually as salaries and allowances.

According to the weekly financial statement released by the Finance Ministry, recurrent expenditure as of December 20, 2012 has reached MVR 8.9 billion (US$577 million). Roughly half was spent on employees.

Fiscal imbalance

A report by the World Bank in May 2010 identified the dramatic growth of the public sector wage bill as the origin of the Maldives’ ongoing fiscal imbalances.

According to the report, increases to the salaries and allowances of government employees between 2006 and 2008 reached 66 percent, which was “by far the highest increase in compensation over a three year period to government employees of any country in the world.”

“Between 2004 and 2009, the average monthly salary of a government sector worker increased from MVR 3,223 (US$250) to MVR 11, 136 (US$866),” explained a UNDP paper on achieving debt sustainability in the Maldives published in December 2010.

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

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

Consequently, recurrent expenditure – wage bill and administrative costs – exceeded 82 percent of total government spending in 2010. Presenting the estimated budget for 2013, Finance Minister Abdulla Jihad noted that more than 70 percent was recurrent expenditure.

“As in other years, the highest portion of recurrent expenditure is expenditure on [salaries and allowances for government] employees,” Jihad explained. “That is 48 percent of total recurrent expenditure.”

Population consolidation

Meanwhile, the Auditor General’s report noted that the government planned to carry out 406 projects under the public sector investment programme (PSIP) at a cost of MVR 3 billion (US$194 million).

The Auditor General however contended that the projects were formulated “without a national development plan” and that there was “no relation between the PSIP’s purpose and the proposed projects.”

While the stated purpose and policy of the government was population consolidation, the report stated that the harbour, sewerage, land reclamation, housing, coastal protection and other projects were included in the budget “without a plan” for integrating island populations in urban centres.

The Auditor General’s Office therefore advised against carrying out the projects planned for 2013 in the absence of a plan for population consolidation.

The report observed that “the main reason the state’s recurrent expenditure has increased” was developing 200 inhabited islands “as single units” and attempting to provide healthcare, education, social, administrative and legal services to small island populations.

The report stated that pursuing a policy of population consolidation was “essential”.

It added that the return on the investment for relocating populations of small islands would be seen in savings from the state’s budget for providing services to geographically dispersed islands.

While implementing such a policy could prove difficult, the Auditor General’s Office believed that “a national consensus” could be reached on the need for consolidating population.

Moreover, a glance at the state’s expenditure showed that continuing fiscal imbalances or budget deficits were “inevitable” if such a policy was not formulated, the report stated.

Deficit

The Auditor General explained that the fiscal deficit in 2012 was MVR 1.5 billion (US$97.2 million) more than forecast because of a shortfall in projected revenue from taxes and import duties as well as higher than budgeted expenditure on government companies and subsidies.

However, while revenue from Goods and Services Tax (GST), import duties and tourism land rent was lower than budgeted estimates, income from Business Profit Tax was more than expected at MVR 613.3 million (US$39.7 million).

The government also spent MVR 862.3 million (US$55.9 million) from the 2012 budget to settle bills outsanding from the previous year, the report noted

The Auditor General’s Office observed that revenue from the newly introduced GST was not enough to offset lost income from reducing and eliminating import duties.

“As a result of the change to the state’s taxation system, income to the state declined by MVR 495 million (US$32 million),” the report noted.

As reducing import duties had not resulted in a noticeable drop in prices, the Auditor General recommended reviewing the changes in consultation with the relevant authorities and amending the tax laws.

The 2013 budget

The Auditor General observed that the budget proposed for 2013 was 2.7 percent higher than 2012 and 19 percent higher than 2011.

An estimated budget deficit of MVR 2.33 billion (US$149 million) was to be financed by MVR 1.15 billion (US$74.5 million) in foreign loans and MVR 1.17 billion (US$75.8 million) in domestic finance.

Echoing a concern expressed by MPs during the recent budget debate, the Auditor General noted that projected revenue included MVR 1.8 billion (US$116 million) expected from new revenue raising measures that require parliamentary approval.

A recent mission from the International Monetary Fund (IMF) had urged the government to implement a raft of measures to raise revenues, advising that strengthening government finances was “the most pressing macroeconomic priority for the Maldives.”

The measures proposed by the Finance Ministry included revising import duties, hiking T-GST from 8 to 15 percent in July 2013, raising airport service charge or departure tax from US$18 to US$30, introducing GST for telecom services and leasing 14 new islands for resort development.

On the last proposal, the Auditor General advised that the islands should not be leased without consulting the tourism industry and studying the impact of the decision in consideration of the tourism master plan.

The Auditor General concluded that it was “unlikely” that the new revenue would be collected in 2013.

Consequently, if there was a significant shortfall in income, the Auditor General warned that government revenue would not be enough to cover recurrent expenditure.

“Therefore, we note that it is very likely that MVR 509.9 million (US$33 million) would have to taken as loans to cover recurrent expenditure,” the Auditor General stated, advising that it was “necessary” to reduce recurrent expenditure by that amount before the budget is passed.

As a result of financing budget deficits with loans for the past six years, the Finance Ministry revealed earlier this month that government spending on loan repayment and interest payments was expected to reach MVR 3.1 billion (US$201 million) in 2012.

Moreover, the total public debt would stand at MVR 27 billion (US$1.7 billion) in 2012 and MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.

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Parliament rejects government’s proposed changes to housing project

Parliament yesterday (December 24) voted to reject government-proposed changes to a project to construct 1,500 housing units that is being funded through a loan from the Chinese EXIM bank.

Speaker Abdulla Shahid cast the tie-breaking vote after the vote on approving a Finance Committee report recommending the approval of changes proposed by the government was tied 33-33.

The government had proposed shifting 704 housing units to Hulhumale’ from four southern atolls as originally planned under the US$154.3 million project.

The loan was approved by parliament on December 29, 2011, but submitted for approval again by the new administration with the proposed changes.

During the debate on the committee report, government-aligned MPs representing constituencies in the southern atolls objected to scrapping planned housing units in Addu City and Fuvahmulah.

Meanwhile, parliament also rejected a motion submitted by Maldivian Democratic Party (MDP) MP Abdulla Jabir accusing President Dr Mohamed Waheed Hassan Manik of violating MPs’ privileges.

Jabir claimed that President Waheed had told islanders during a tour of Ghaaf Dhaal atoll that they should obstruct their MP from visiting the island.

The motion was defeated 39-25 with one abstention. Following the vote, Dr Waheed tweeted: “Appreciate the trust shown in me by the majority of Parliamentarians today. I thank you all.”

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PPM leaves “national movement”

The government-aligned Progressive Party of Maldives (PPM) has decided to part ways with the self-titled “National Movement” led by the religious conservative Adhaalath Party and senior government officials.

Speaking at today’s sitting of parliament, PPM MP Ahmed Mahloof revealed that the party’s council decided last night (December 24) to leave the movement out of concern that it was “moving in another direction”.

“I question today whether this campaign under the name of national movement is sincere or not,” Mahloof said. “I’m saying this because during the GMR issue, we said repeatedly that after that we should raise the issue of Nexbis [border control project]. But after that we saw them raise the issue of the People’s Majlis.”

Mahloof added that a speaker at a national movement rally on Sunday night “used obscene language” to attack PPM parliamentary group leader MP Abdulla Yameen.

The speaker in question accused MP Yameen of “threatening” the Adhaalath Party, during a rally held Sunday (December 23) to celebrate the first anniversary of the December 23 “mega-protest.”

Local media reported that the remarks led to heated exchanges between the speaker and PPM supporters, a number of whom left the area in protest.

In his speech following the incident, Islamic Minister Sheikh Mohamed Shaheem Ali Saeed, a senior leader of the Adhaalath Party, spoke in defence of MP Yameen and urged speakers to respect political leaders.

Meanwhile, in an appearance on private broadcaster DhiTV last week, Yameen suggested that intemperate rhetoric from senior government officials at rallies organised by the movement was responsible for strained ties with India.

Yameen further contended that the campaign by the national movement was not the reason behind the government’s decision to terminate the concession agreement with the GMR-led consortium.

The decision was backed by the political parties in the ruling coalition, Yameen noted, and questioned the wisdom and necessity of street protests led by senior government officials.

The “national movement” was born out of the unofficial December 23 coalition of eight political parties and an alliance of NGOs that rallied to “defend Islam” in late 2011 from the allegedly liberal policies and “securalisation agenda” of former President Mohamed Nasheed.

Following the transfer of presidential power on February 7, the “civil alliance” led a campaign dubbed “Maldivians’ Airport to Maldivians” calling on the government to terminate the concession agreement with Indian infrastructure giant GMR to manage and modernise Ibrahim Nasir International Airport (INIA).

However, the largest party in the ruling coalition, Dhivehi Rayyithunge Party (DRP), announced that it would not participate in the street protests. Moreover, senior leaders of other pro-government parties were noticeably absent from the anti-GMR protests and activities at the time.

Following the termination of the concession agreement, the national movement turned its attention to “reforming” the parliament and has organised poorly-attended rallies at the artificial beach in recent days.

At a rally last week, State Minister for Finance Abbas Adil Riza threatened to dissolve parliament. Riza criticised Speaker Abdulla Shahid for tabling a no-confidence motion in defiance of a Supreme Court injunction ordering parliament to halt secret voting pending a ruling on its constitutionality.

Meanwhile, speaking at a press conference today to announce PPM’s decision to leave the movement, MP Abdul Raheem Abdulla reportedly warned that the “national movement” could cause divisions in the ruling coalition and weaken the government.

The PPM interim deputy leader revealed that the decision was made after the party’s concerns were not addressed following discussions with the movement’s leaders.

PPM has appealed to the party’s members not to participate in the movement’s rallies and events.

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Housing minister expresses sadness over suspected suicide of Bangladeshi maid

Housing Minister Dr Mohamed Muiz has issued a statement expressing sadness over the death on Saturday (December 22) of a Bangladeshi woman employed as a maid at his Male’ residence.  Police have said they they are presently treating the death as a suspected suicide.

Dr Muiz confirmed that the deceased had been employed at the home he shared with his wife and two children, while also expressing deep sadness over the incident.

Muiz claimed he was first informed of the death while visiting Hulhumale’ with his wife. He added that after hearing of the incident he immediately called Police Commissioner Abdulla Riyaz.

According to the statement, police officers were already at the scene by the time the housing minister arrived home.

Muiz said that he hoped that further details concerning the case would be released after police had completed their investigation.

The statement also expressed sadness over what some people were allegedly saying about the incident through social media.

Speaking of the deceased, the housing minister stated she had been very good in her duties as well as being very close to his children and a key part of their lives.

“Initial stage”

The Maldives Police Service has said that that investigations were presently at an “initial stage” and it could not therefore disclose any more details on the case, which was presently being treated as a suicide for undisclosed reasons.

Speaking to Minivan News yesterday (December 24), Police Spokesperson Sub-Inspector Hassan Haneef confirmed that the body of a 24 year-old female had been found in an apartment on the ninth floor of Chandhanee House in Maafannu Ward.

“I cannot reveal any more until we complete our investigations.  We will not come to any conclusions before that,” he said.
Hours after the body was found on Saturday evening, Police Commissioner Abdulla Riyaz left a message on the social media site Twitter stating: “Police is investigating the suicide case.”
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Finance minister claims “cash flow” issues behind delay in clearing Male’ City Council utility debts

Finance Minister Abdulla Jihad has claimed that a delay in clearing debts owed to various utility providers by Male’ City Council (MCC) is the result of a “cash flow” issue facing his department.

On Saturday (December 22), the MCC revealed that it owed an outstanding electricity bill of MVR 3.9 million (US$ 254,569) to the State Electricity Company Limited (STELCO).

A further MVR 400,000 (US$ 26,109) is also owed by the MCC to telecommunication service provider Dhiraagu, who earlier this week disconnected all telephone and internet services in the council’s offices.

Finance Minister Jihad yesterday (December 24) blamed “cash flow” issues for his ministry’s failure to clear the MMC’s debts.

“We are in the process of relieving the funds, however we have had some cash flow issues and that is why there has been a delay in the clearing the MCC’s debt.

“We are working to clear the debt in the next couple of days,” Jihad told Minivan News.

Asked yesterday whether the government lacked the money to repay the bills, Jihad replied: “The government has to manage the cash flow, they make the payments. There is a cash flow issue.”

MCC Mayor ‘Maizan’ Ali Manik Manik previously claimed that the outstanding payment owed to STELCO by the MCC threatens to leave all council owned properties and utilities – including street lights – without power.

Speaking to Minivan News today (December 25) Manik said that he had personally told members of the Finance Ministry to make a “settlement” with all the utility companies that are currently owed money.

“I told the ministry that if they don’t have the cash flow to pay these debts, then they should speak to Dhiraagu and STELCO and make a settlement,” he said.

“Even if it means saying that they will be paid in a month’s time, even a year’s time, anything is better than the current situation. I have a feeling we are going to be in darkness after December 27.”

Mayor Manik has previously told Minivan News on December 22 that MMC had filed all necessary documents and paper work with the finance ministry in order for the outstanding bills to be paid.

He claimed that having spoken to Jihad about the issue at the time, the finance minister had assured him that both the STELCO and Dhiraagu bills would be paid by his ministry on December 23.

However, STELCO Media Co-ordinator Abdulla Nazir revealed that as of December 23, no money had been deposited by the finance ministry.

Dhiraagu disconnection

On Thursday (December 20), local media reported that Dhiraagu had disconnected all phone and internet services it provided to the MCC due to unpaid bills.

MCC member Ibrahim Shajau claimed that over MVR 400,000 (US$ 26,109) is owed by the council to Dhiraagu, alleging that the Finance Ministry had failed to release the funds.

“We have sent all relevant documents to Finance Ministry. It’s up to [them] to pay the money. Dhiraagu said that Finance Ministry had not paid the money,” he told Sun Online.

Dhiraagu Marketing and PR Ibrahim Imjad Jaleel told local media that the services were disconnected after advising the council on numerous occasions to pay their bills.

“We disconnected the services today after giving them time even today to pay the bills after the offices opened. We had to cut off our services after their failure to pay any amount after several days of discussions. We are trying with our customer even now, to find a way to resume the services,” he said.

STELCO debt

Meanwhile, STELCO Media Coordinator Abdulla Nazir revealed that MCC had a “long history” of outstanding payments, adding that the stated figure of MVR 3.9 million was only part of the overall debt owed to the company.

“STELCO has received no money so far. There are many months of outstanding debt from MCC, more than the MVR 3.9 million we have asked for,” Nazir said. “While we have received no statement or payment from the Finance Ministry, we have received a letter from MCC dated December 19. They said their bills have been sent to the Finance Ministry, and they have asked the ministry to settle the outstanding payments.”

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