The Maldives state needs to cease printing money and decrease spending on salaries by “a considerable amount”, according to a financial specialist from the International Monetary Fund (IMF).
During a presentation earlier this week Dr Rodrigo Cubeiro observed that the tourism sector had recovered from the recession earlier than expected because of the increasing number of arrivals of Chinese tourists.
However he observed that the Maldives has the highest per-capita government expenditure of any island nation, and urged the government to reduce this before the Maldives’ economic situation became serious.
Reducing that expenditure was in the hands politicians and the government, he said.
In June, the IMF’s Country Report for the Maldives pegged the country’s fiscal deficit in 2009 at 26.25 percent, and noted that while the “political climate for public expenditure cuts remains difficult… the coming months [would] be a crucial test of [the government’s] ability to prevail.”
The IMF report acknowledged that “direct redundancies were proving difficult”, however “the transfer of employees to the private sector (which accounts for about two fifths of the planned payroll cuts) has taken place in line with projections.”
Nonetheless, the IMF calculated that if the government continued to pursue economic reform at current pace and policy, the country’s fiscal deficit would increase by one percent of GDP in 2010 and 4.5 percent of GDP in 2011.
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Government needs to find ways to earn revenues so that it can manage fiscal imbalances, Maldives being a small population and government is the largest supplier for the labor market in Maldives, this is not surprising as with minimal natural resources and with small economy private sector may not be able to handle employment as large as government and also market failure is likely in many sectors however government can improve these conditions maintaining large employment as well so that it benefits the citizens. The private sector can be improved gradually but still financing and activities of private sector is difficult and limited in a small economy thus employment by the private sector is limited. As such it is important for government to retain employment to boost expenditure but also need to find ways to increase it revenues and distribution of wealth in an equitable manner. Political, defense and administrative institutions and expenditure need to be as minimal as possible. Thus productivity and efficiency must be increased to enhance economic growth and government sector is more applicable than market for Maldives and has to adjust with culture and beliefs otherwise government will fail and nor market can be productive without a government. Thus we cannot imitate bigger economies or countries we have to find our own ways to increase revenues and maintain fiscal balances.
@aussie:
How does a government earn revenue? There is only one way. From the productive activity of the private sector!
Unless you count printing money to be earning revenue.
"..government sector is more applicable than market for Maldives and has to adjust with culture and beliefs..."
Big high expenditure governments are the real burden on economic growth. If enough people believe that excessive government expenditure is good, does it make such spending good? All it take is believing then!