Doubling salary spend in 2007-09 crippled economy: World Bank

An internal World Bank bank report produced for the donor’s conference, called ‘Placing the Macro Challenge Facing the Maldives in Context’ has revealed the full extent of the economic challenge facing the country.

“The Maldives faces the most challenging macroeconomic situation of all democratic transitions that have occurred since 1956,” the report claims, noting that the full level of financial strife “may not be fully appreciated.”

In terms of GDP growth rate the Maldives is in the lowest 10 percent of the distribution of all transitions, and in terms of public sector deficit, the Maldives faces the worst situation of all previous democratic transitions.

Under the heading ‘How did the Maldives get into this situation?’, the World Bank report notes that “the origin of the crisis is very clear… the wage bill for public sector employees grew dramatically in a very short time.”

An accompanying graph of the country’s total spending on ‘salaries and allowances’ shows a doubling of expenditure between 2003 and 2007, and a sharp increase between 2007 and 2009 as spending more than doubles yet again from Rf2 billion to almost Rf5 billion. Revenues meanwhile plummet steadily during 2008.

Inflated spending on salaries in 2007 sparked an economic crisis

“Even before government revenues fell and when government revenues were at an all time high in 2008, the ratio of the wage bill to revenues at 46.5 percent was also at an all-time high (46.5 percent compared to an average of 38.1 percent between 2000 and 2007). When revenues plummeted in 2009, the share of the wage bill to revenues rose an astronomical 89 percent,” the report explains.

“While part of the increase was due to hiring more workers, the major part of the increase was due to the increase in compensation,” it said.

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

Spokesman for the Civil Service Commission (CSC) Mohamed Fahmy said the increases needed to be considered in the context of “the total budget situation”, and were in line with government expenditure during the period.

“We have a tradition of salary increases every other year,” he said, rather than an annual increase based on inflation.

Those paid by the government included not only civil servants, “but political appointees, commissions, the judiciary”, he emphasised.

“Our case all long has been that everyone employed by the government has to be treated equally,” Fahmy said.

“If the government does not have the money to pay in full, then whatever it does have has to be paid out in an equitable manner that upholds the constitution. Everybody has to be treated equally – it is very important to make that distinction.”

World’s greatest tax haven

Meanwhile, the World Bank’s annual ‘Doing Business’ report for 2010 saw the Maldives’ ‘ease of doing business’ ranking fall from 71 to 87, and identified no ‘business-friendly’ reforms. The report acknowledges the Maldives as the world’s number one tax haven, although this could soon change if a pending bill on taxation is passed by Parliament.

Countries with successful business reforms “follow a longer-term agenda aimed at increasing the competitiveness of their firms and economy,” the report noted.

“But while successful reformers follow a clear direction in their policy agenda, they do not hesitate to respond to new economic realities,” it said. “Mauritius, the top-ranked economy in Sub-Saharan Africa, just announced a new insolvency act ‘to maintain the viability of the commercial system in the country.'”

The top countries in which to do business are Singapore, New Zealand and Hong Kong, the report noted.

Correction: An earlier version of this story described Mohamed Fahmy as a member of the ‘Civil Service Association(CSC)’.  Fahmy is a member of the Civil Service Commission (CSC).


18 thoughts on “Doubling salary spend in 2007-09 crippled economy: World Bank”

  1. While it is clear that the economic crisis is the most serious issue facing the country, our politicians are engaged in a war with each other.

    The country is paralysed due to this. The government is fighting the opposition, while the opposition is doing their best to topple the government!

    The parliamentarians are not very willing to introduce taxation, since they or their business partners will face these tax bills!

  2. If I recall correctly, during the time when the government went crazy with their spending, it was lead by none other than Gasim Ibrahim, Finance Minister of the time.

    Someone needs to bring him in front of the people to answer some very serious questions about the state of the economy.

  3. Gasim should be held responsible. He is the village idiot that got us into this mess.

  4. How about tripled or even quadrupled expenditure on political appointees by MDP. Didn't it skyrocket by several millions per month compared to previous government??

  5. Blaming Gasim, Maumoon or Anni is not the solution! They are ALL complicit, if only by neglect, in creating this mess!

    Our civil service is too big and inefficient. We need to trim it, but intelligently and gradually.

    If the govt cuts expenditure in the middle of a recession it only deepens the recession and makes it more painful for the people. Just look at Ireland 1982 vs. 1987. Sucking money out of the economy is NOT the answer!

    In my humble opinion, we need to

    In the short term: Reduce the number of civil servants in Male', where job alternatives are more readily available then in the islands.

    Medium term: Bring back the civil service salaries back into line by not increasing salaries for the next 5-8 years

    Long term: Build new industries across the Maldives so that the population can be weaned off the civil service job security and for want of a better word 'handouts'. And this is only possible through better education and business development opportunities. The gov't need to focus on this

    Trying to implement this drastic reforms in 2 or 3 years for political point scoring is only making it harder and harder for people to take! We need some better strategists in the top brass!

  6. just sell few resorts of villa & arrest thasmeen... get our money back anni..or resign.

    simple na

  7. This happened because the previous administration had an active policy of patronage emphasizing client-patron relationships between the public and the government.

    What this means is that the government has always been using the money it got to buy the loyalty of the Maldivian people. That is why our civil service is so big in the first place!! It does not need to be! I know this is not popular because 10% of our population is in the civil service. But that's exactly what is wrong.

    When you have the best jobs in the country located in the government, you automatically start favoring undemocratic, unjust systems where corruption naturally becomes far more rampant.

    And don't think this happened by mistake. It was planned and those who implemented the policies knew the repercussions it would have. But at the end of the day, the support of the Maldivian people was all they wanted - rather than doing what was best for them.

    We need to educate the Maldivian citizenry on the basics of what was done in the past, why it is bad, and how various actions taken by the government could be beneficial or harmful in the future. The age of ignorance in the Maldives must end, or we'll never end this cycle of corruption and negligence.

  8. It is ridiculous that Fahumy still defends the raise in civil servants' salaries. A bad policy must not be defended just because of tradition.

    Hard times require difficult choices. If the opposition keeps demonstrating over electricity hikes, salary cuts and small government just to topple the current government, they will institute a culture of revenge politics. Gayoom's government created this mess. While any government must be treated with skepticism, we must also support prudent policies.

  9. how convenient it is. The Graph ends as Anni is elected the president at the end of 2008.

    With this graph at his hand ... Anni took to the podium and said "today i am giving a 1 billion Rf increase to civil service staff salary" . This was 2009

  10. Something we all know including DRP. But they will for ever pretend to never know this.

  11. @ahmed

    the civil service pay increase that Anni HAD to bring in was contractually agreed between many people - particularly in the health and education sector BY THE PREVIOUS GOVT.

    the incoming government had no choice but to stop that

    you must also note that this is the only government with the balls to bring in the incredibly unpopular but economically necessary pay CUTS for the first time in the history of the country...

  12. First of all, Mr. Robinson, Fahmy is from Civil Service Commission, not civil service Association.

    Ali at Lexington & Salim, are you both civil servants or have you ever been one?

    It is easy to comment on the situation here when you have the resources to live in another country. Why do you feel that civil servants are getting "handouts"? They are the ones to enforce or put in effect the policies & programs set by the ministers etc. Do you think that they come to work everyday & just sit there filing their nails? You all make assumptions & condemn 26,000 civil servants just because maybe 10% or so of them were supporting the previous govt or inept?

    You fail to understand that political posts that has increased drastically gets paid a salary that is equivalent to about 6 civil servants salaries...
    & Ali, you think that civil servants should work in deadend jobs with no incentives like promotion or salary increments for 5-8 years? Would you work like that? Why should they be the only ones to pay for the previous & current govts' mistakes? You all make it sound like civil servants are the root of all evils.

    the world bank mentions public sector wage which believe it or not includes political appointees, police, govt companies & so why the double standard? It shouldn't be a situation where just the civil servants pay the price, but all (including the argumentative overpaid MPs & political posts) should equally pay the price.

    Corrected to Commission, good spot.

  13. We should immediately implement market and planed economic system to steer to a healthy economy. In the first place no one has thought on this from Qayoom and until now. What is happening now, every body thinks that the money grows on the trees and the job of the government is to pluck this money and feed people sitting in their homes. This is the mentality of average Maldivian. You can’t change this psychosis unless there is a hardship for the people to feel and the opening of economic opportunity so people can earn the money. The Maldivian economy is limited to a few Tourist Resorts where all Maldivian and expatriate are chasing behind. The Resorts totally control every aspects of their life, Import export, merchandising and recruiting all are done by these Resort owners, local are left with no opportunities. In my view, the first step the government should take is to cancel all trading license from the Resort owners and limit their business to Hotel operators. This will give opportunity for local traders to compete and a healthy competitive trade will come in the hands of local business community and the second step should be to implement tax system and slash down the civil servants.

  14. Anni took power promising to establish a clean government but less a year in office he established an infamous, crony government. Every other day, a paper company is announced only to give fat salaries to MDP militants.

  15. @Y: 2 points:

    1- I actually thought most of them were twiddling their thumbs, but ill take your word that they are prob filing their nails. On a serious note, I think my point was not that everyone is useless. I never said Civil service was not required. All I said was it was over staffed and inefficient. And yes, I have worked in the civil service and in the private sector, so I speak with first hand knowledge. You cannot tell me that everyone is working their backsides off in the civil service. The results just don't bear that out!

    2- On my point that civil service salaries should be brought back in line over the medium term, my bad. I didn't get across my point properly, so here is another go. I didn't mean not to promote or give salary increases to anyone for 6- 8 years. If you reduce the number of employees, you can better reward the good workers by redistributing the pool of money better! The pool doesn't need to get bigger, just better distribution. I say one good worker is better than 4 bad ones. It is called efficient management of resources. I actually happen to think the reason that the civil service hemorrhages good talented individual is the inability to distinguish between the hard and efficient workers from the deadwood and the inability to reward them. I'm all for promotions and performance based compensation, but at the expense of removing the deadwood not increasing the pot.

  16. We have to stop this blame game. Anni is not going to prosecute anyone, no matter how corrupt they were. His "democracy" is to leave these crooks around. We need rule of law, no matter who it is.

  17. @saleem

    What are you talking about? "the incoming government had no choice but to stop that " This government increased salary by 1 Billion Rf NOT the previous gov. On what contract was it written in the previous government that doctors salary and teachers salary will be increased????

    You put the data of 2009 - 2010, and you will find out really what cripple the economy...

    You put an 60 - 90% increase in salary at the peak of world economic crisis and ONLY SIX months later take a pay cut of 15% what is that??? That's NOT COURAGE that's simple STUPIDITY.

  18. Our actions and decisions of the past are the results and consequences of what we are faced today. Our decisions made today will be the outcome of tomorrow(future.)So if everyone can think and act wisely on this simple fact, mistakes and blunders can be avoided for the good of all in a country like Maldives with such a small population, especially for the people who are caught in the poverty cycle for years and need to break that in order to have a better life for their families.The high income of the tourism in Maldives for years should have enabled a more positive impact on the many lives of the Maldivians and better and affordable public services for the population in all aspects of a standard life.The sooner we all take into consideration' all Maldivians' the better it will be for the country.


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