Finance Ministry proposes drastic austerity measures to Parliament

Parliament’s Finance Committee last week received a proposal from the Finance Ministry which, if accepted, would save MVR2.2billion (US$143million).

The austerity measures include raising Tourism Goods and Services Tax (TGST) to 15 percent,  terminating electricity subsidies in Male’, increasing import duties on alcohol and imposing a 3 percent  duty on oil, “reforming” the Aasandha health insurance scheme, and reducing the budget of every Ministry and independent institution by 15 percent – among other measures.

If successfully carried out the Ministry’s proposals would halve this year’s budget deficit, currently projected to reach MVR9.1billion (US$590million).

The original budget for 2012 envisioned that revenue would rise to MVR11.4billion (US$740million) with expenditure anticipated to be MVR14.5 billion (US$941million). This would have resulted in a budget deficit of around MVR3billion (US$194million), representing 10 percent of GDP.

However, the revised figures provided by the Finance Ministry have shown that revenue will only be MVR8.4billion (US$545million) for this year with actual expenditure rising to around MVR18 billion. The ensuing deficit would represent around 28 percent of the nominal GDP for 2012, which was predicted to be MVR31.7billion (US$2billion).

This ballooning deficit has alerted the IMF which has expressed concerns that without raising revenue and cutting expenditures the country risked exhausting its international reserves and sparking an economic crisis.

The Maldives Monetary Authority’s (MMA) most recent statistics show that the country’s gross international reserves had decreased by 2 percent in the 11 months up to May before dropping by a further 6 percent between May and June this year.

The MMA’s data shows this figure to represents around ten weeks worth of imports in the Maldives, a country which relies heavily on imports, spending around two thirds of its real GDP on foreign goods each year.

The current government has pointed the finger at the previous administration for the current budgetary issues whilst simultaneously implementing a series of policies which have added to its financial obligations.

These deficit expanding policies have included promoting 1000 police officers,  doubling of the budget of the Maldives Marketing and Public Relations Corporation (MMPRC) to MVR69.3million (US$4.5 million), hiring of 110 new police officers, and a reinterpretation of the legal provision for the payment of resort island lease extensions which had cost the government MVR92.4million (US$6million) already in comparison with the same point last year.

The government also chose to reintroduce a MVR100 million (US$6.5 million) fishing subsidies and to reimburse MVR443.7 million (US$28.8 million) in civil servant salaries, reversing measures implemented during the previous government’s own austerity drive.

The raft of measures currently being considered by the Finance Committee represent the most comprehensive effort thus far to reign in the deficit.

Austerity Measures

The proposed measures for reducing state expenditure were published in local newspaper Haveeru. They include discontinuing electricity subsidies in Male’ City which, where around one third of the nation’s population live, saving MVR135million (US$8.7million).

Reducing the state’s offices budget by up to 15 percent is expected to save MVR1.5billion (US$97million) and was first suggested by Finance Minister Abdulla Jihad in May. Jihad mentioned at the time that a pay review board would be convened in order to “harmonise” the pay of government appointees.

The document received by Haveeru revealed details that this pay review body will seek to restructure pay schemes in order to save MVR100million (US$6.5 million). It also emerged that MVR300million (US$19.5million) could be saved by introducing a recruitment freeze in the civil service.

The austerity plan also includes a reform of the Aasandha national health care scheme, the cost of which promised surged ahead of its MVR720million (US$46.7million) budgeted allowance shortly after its introduction in January. After discussions with the government, the Aasandha company has decided to share the costs of private treatments with patients.

The Finance Ministry predicts that reform of the Aasandha scheme can save the government MVR200million (US$12.9million).

Revenue raising

Proposed revenue raising measures include raising the import duty on oil, upon which the country relies heavily for fuel, to three percent. MMA figures show that the price of crude oil has decreased 15 percent in the 12 months leading up to June whilst the domestic price had remained the same with the exception of diesel which increased in price by 2 percent.

Import duties are also to be raised on items whose value exceeds MVR6.4million (US$41million) as well as on liquor imports. The duty on both of these items had been raised as part of the amended Export Import Act in December of last year which saw duties on pork and alcohol products, used exclusively by the resorts, go up by 42 percent.

The tourist industry will be similarly hard-hit by the proposals to raise Tourism Goods and Services Tax (TGST) to 15 percent.  The IMF had previously urged the government to double the 6 percent tax levied on all goods and services sold in resorts with Tourism Minister Ahmed Adheeb announcing his intention in May to consult the tourism industry.

Minivan News discussed the potential increase with several resort managers at the time, and was told that an increase would have  “serious ramifications” for certain sections of the market. One manager said that the fixed term contracts many resorts have with operators meant that increases to T-GST would have to be absorbed from revenue, resulting in potential cutbacks to staff or services.

Visitors to the Maldives could also be affected by the proposed increase in the Airport Service Charge from US$18 (MVR277) to US$30 (MVR462).

Further rises to the tax levied on luxury items would be accompanied by the introduction of taxes to the sale of flats and on telecoms service in the Finance Ministry’s plan.

The visa fee paid by foreigners working in the Maldives is also slated to see be increased by MVR150 (US$10). Estimates of expatriate workers are be as high as 110,000 although the same estimates suppose that around half to be undocumented.

Despite the recent suspension of sittings of the full Majlis, the Finance Committee continues to hold meetings as normal.


22 thoughts on “Finance Ministry proposes drastic austerity measures to Parliament”

  1. This link provides some information.

  2. With proposals like this you will drive tourists away, which will lead to further hardship as revenue declines. We, the tourists, do not have bottomless pockets and do not have a limitless budget. We will either spend less or holiday in cheaper more affordable destinations.

  3. The cost of Baghee Waheed's egotistic desire to be president, and show Anni he's not a loser.

  4. I suppose 3 years of economic mismangement has to be paid somehow!

  5. Make extra more ministries in order to accomodate more Baahgiees. Let's make ministry of gender and Vadaangeh , Ministry of aqua culture and animal rights. Then squeeze all money from public sectors by imposing more taxes untill all bussiness collapse. Then you will have communist style Military resorts and Military bussineses which will fill the pockets of Baahgiees.

  6. Mohamed Moosa on Sun, 12th Aug 2012 9:28 PM > "I suppose 3 years of economic mismangement has to be paid somehow!"

    Can you support your claim. This is not DhiTV or VTV. I hope you got my point.

  7. @mohamed moosa
    only a deluded mind would call building houses, implementing universal healthcare, establishing transport network, introducing tax reforms and reforming tourism rent regime, opening the country for new investment - economic mismanagement.

    perhaps you need to rethink your economics.

    you should have said
    I suppose 3 years of opposition trying to hinder development and progress has its costs.

  8. some r blind to the extend they do not know how to comprehend figures written in black n white. is anni responsible for 1000 soldiers promotion extra ministries n all tht going on??? poor ppl deserve worse if they worship dictators

  9. Why do Minivan always rely on "Haveeru" for Information.

    Minivan, you are pathetic just like seyku Nasheed who boasts of about things that he can't do in a million years and left the people to suffer all the hardships!!

  10. There is no economic manager. Never had that.

    Finance Minister, MMA guy, Economic, Tourism and Fish Minister, all appear on TV once in a while an give an opinion, like economy is bad etc.. No one gives a solution besides cutting expenditure, by that they mean cut EVERY ONE ELSE'S expenditure.

    In addition, every one travels, live lavishly without taking any blame or responsibility.

    This is the story of Maldives for the last 33 years.

  11. A true critique of our current situation would note;

    - The individual responsibility for our decreasing productivity and increasing consumption.

    - The effect of the 2004 Tsunami.

    - The political upheavals post-2002 to which Qayyoom reacted by increasing state expenditure.

    - The post-2008 scenario which saw the creation of several state institutions.

    - The Nasheed regime's political battles and other political spending conducted at the expense of the State.

    - The expansion of local governance in 2011 by the creation of several paid elected posts.

    - The failure by the Qayyoom regime in its last term to realize several ambitious economic goals.

    - The failure by the Nasheed regime to pursue any real attempt and downsizing the civil service.

    - The active opposition by the opposition during Nasheed's rule to support any attempts at cutting down expenditure.

    - External shocks which this country remains very much vulnerable to; including the impact of the global financial crisis on traditional source markets for our resorts such as Europe and the fluctuating price of fuel.

  12. Hey lazy Maldivians, can you get a simple fact into your thick heads? Learn to live within your means!

    It's not 3 or 30 (or whatever number you like to pick) years of economic mismanagement that's to blame. It's the fault of every single Maldivian who expects to live on state handouts whilst doing bugger all themselves.

    The country has 0 resources apart from the coral and sun, which has been leased or sold to foreign investors. At least try to get a decent return on that.

    Now, I don't expect anyone to understand this message. Go back to your huts and blame each other for the mess your are in, until the tide rises around you and sinks the coral beneath the waves.

  13. This tax scam is always tried before a government finally fails. It makes sense if you increase your taxes by 117% you should increase your revenues by 117%. This has been tried all over the place even going back to the roman times. In recent years it has been tried in the US with cigarettes in New York they raised the taxes 800% they collect less now than before they raised the taxes. They are trying it in Greece they now collect less now than before they raised taxes they will shortly learn this in France shortly when they raise the income tax to 75% and you will learn this in your country.

    It is about the same distance from Germany to Maldives or to the Caribbean. Both have very nice water and beaches but you can go to a five star hotel for half the price before taxes and almost none of the taxes or service charges.

    I hope this all works out for you because your islands cannot support the amount of people living there the good news is when the government knows they can no longer buy the food and fuel for the people they will be the first one off the island.

  14. How about starting with slashing the salaries and allowances of the bunch of useless, good for nothing idiots in parliament followed by a drastic reduction in the number people employed in the civil service?

    It is not a question of raising government revenue through more and more taxes, Maldivian people and businesses are already highly taxed, directly and indirectly. Most developed nation's governments have an income of around 30% of GDP whereas in Maldives the government budget is 50% of GDP. It is not rocket science to see that this is unsustainable. Come up with some decent economic policies to grow the economy and then let expenditure rise in line with that. Cutting 5,000 civil service jobs will immediately release a number skilled workers into the private economy which make the number of expats employed here come down and allow valuable foreign exchange to be retained in the country. Cut waste in government administration, reduce the number of MPs and regional councillors, stimulate local manufacturing and agriculture, encourage other forms of tourism by allowing foreign residential and boat ownership, create an offshoring industry by allowing company and ship registrations, start offshore banking, encourage local non-import business that actually create value added goods and services here (and encourage them to export their goods) then tax these, remove fishing subsidy, create a free port... there are so many things that can be done to directly grow the economy, increase local employment and reduce foreign dependence if a government actually has the vision (and the will) to do them. So far we have seen absolutely nothing from the Waheed government.

    Continuously squeezing the tourist is not the answer. Maldives is already one of the most expensive destinations in the world, Europe is in recession and there are plenty of other countries vying for the tourist dollar. All these increase TGST, increase import duty, increase airport tax etc proposals directly hit their pocket. Increasing fuel prices is the single worst thing that can be done, unfortunately oil is the life blood of this economy and hitting that will negatively affect all economic activity in this country.

  15. @Ali Saleem, so lets say some of the "rich", got there working much harder than you.. yep make them pay more

  16. The Maldivian believe they elect governments to feed them while them sit, believing in their Allah for eternal happiness. They think money is coming to the government coffers with the mercy of Allah for them being his slaves. They believe the money poured by Allah like rain water is eaten by politician without being distributed equally to all the people in the country. They are so ignorant and don’t know that these corrupted politicians don’t eat their money, but rather spend the very limited money comes from Tourism with the help of foreigners to satisfy these zombies. By digging every lagoon in every bear dungeon size sand dunes they call their home, by putting up ragtag infrastructures that do not do anything in return, and paying pension and insurance for those who had never lifted their arm to make a single cent. Now someone has to put a bit sense in this moronic people that first you have to change your belief that there is no Allah who pours in to your coffers, and that you are the architect of your destiny not some I imaginary Allah or crazy politician like Anni, Qayoom, Allah is an image of political figure and all politician have same ego of narcissist and whoever comes to political scene are not normal people. They want power, they like to be glorified and praised.

  17. @Adam:

    - Given the current climate, any surplus labor created in the market will increase the demand for scarce jobs leaving your 5000 free-men practically jobless. The private sector also does not offer the incomes that those 5000 base their 'unsustainable' lives upon.

    - I think years of experience has taught us that expatriate labor is necessary for the health of our investments. Maldivians cannot and will not replace expatriate labor in certain sectors.

    - The number of MPs will have to be reduced by passing an amendment to the Constitution with the support of 2/3rds of the existing MPs who will be required to vote on making themselves redundant.

    - Reducing the number of elected councilors requires political will and bipartisan cooperation. Lot of that going around I see.

    - All those economic initiatves you have described, including offshore banking and agriculture is capital-intensive, requires skilled labor (which means more expatriates) and the basic infrastructure for the growth of those industries. Even if our natural environment allowed for some of the suggested initiatives they would take years to grow. We are also no longer a tax haven therefore offshore banking might be out of the question.

    - So what you need to understand is that Jihad is trying desperately to introduce stopgap measures to address impending disaster. What you have suggested are all long-term goals that can be realized through sustained government efforts. I agree with Son of Ahmed Moosa above when he says we need to learn to take personal responsibility for the state we're in. However we are culturally-conditioned to be extremely state-dependent. Therefore the two largest popular political movements MDP and PPM do not differ in that aspect. Both espouse the same populist welfare-based policies.

    There are several among us who find the strength, drive and ambition to work for a living and earn their income. Yet these are in the minority.

  18. Champaa Gaasim and other resort owners contributed to the fall of Prez nasheed and now it is their time to pay for the crime. Increase the TGST to 20% please and Airport tax to 50/- and lets kill the tourism Industry which brought all the vices to our beloved Maldives and start the life we used to enjoy in the pre Maumoon era, without drugs and liqueur, without Bangladeshis,without dhonis that are bigger than 60 footers and has engines more than 100 CC, without high ambitions for material goodies, without Sheiks introducing new teachings to the Holy Qur'an every other day, without Mahujans using their money to buy TV and radio stations and manipulating the masses, without multi parties and unlimited freedoms. Ha ha. Lets do it.

  19. Isn't there a saying 'Beware of your wishes coming true.' Well, the rich in the tourism industry who supported the coup should think about what they have done. They wanted to get rid off MDP because of taxes etc. Now the very people they suppored have destroyed the economy of the country and are thinking of increasing the taxes. If it wasn't so sad for the country, I would be laughing...

  20. There is a small group of people in Maldives who would not be affected much, regardless of what happens to the economy and the country.

    Those are wealthy landowners, who only have a vested interest in holding onto power, rather than developing the country.

    In fact for them, development = unnecessary competition.

    Maldives has no future because such people are in control, regardless of whether it is MDP or PPM, or DRP.

    The 'drastic measures' proposed by the Finance Minister is also a kind of posturing to mislead. In the end NOTHING will happen. To the contrary, spending would be jacked up to favor some cliques. There is 33 years of history to prove this.

    When Arif Hilmy quit the Ministry of Finance, people though Maldives faced economic Armageddon unless reformed fundamentally. But NOTHING changed expect introduction of tax.


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