The Maldives faced the worst economic situation of any country undergoing democratic transition, according to World Bank statistics for the last 50 years, President Mohamed Nasheed has said.
In his address at the 16th SAARC Summit last week, President Nasheed said the global recession hit the domestic economy hard at a time when the country was “still adjusting to the recent shift from authoritarianism to democracy”.
While the transition has been “smooth, secure and stable” in the first 18 months of democratic governance, said Nasheed, the new administration inherited “an economy in crisis”.
“In the years leading up to the 2008 presidential elections, the former administration went on a spending spree that almost bankrupted the country. Public expenditure was at a peak of 64% of GDP in 2008,” he said. “We took over a budget where 70% of government revenue was spent on public sector wages. Our administration inherited a huge national debt. Our deficit in 2009 was set to be at 33% of GDP.”
But, he added, the deficit was reduced to 28 per cent of GDP through austerity measures introduced last year, including controversial and unpopular pay cuts for civil servants.
Among other measures taken by the government to alleviate the budget deficit were cutbacks on foreign travel and a freeze on non-essential expenditure.
In addition, the new government was “bequeathed millions of dollars of unpaid bills”.
While the Maldives continue to face serious budgetary shortfalls, the government was determined to “implement structural reforms that will set the economy on a straight course”.
The president’s remarks were lampooned at the opposition Dhivehi Rayyithunge Party (DRP) rally last week as “humiliating” the country in the international arena.
Moreover, opposition parties have strongly condemned the government for disregarding campaign pledges by enforcing pay cuts and hiking electricity tariffs.
Economic outlook
The Asian Development’s Banks annual flagship economic publication, the Asian Development Outlook 2010, released last month noted that reckless fiscal expansion and a recession-induced drop in tourism “have taken the economy to the brink of crisis”.
The fiscal expansion of the past few years was “excessive”, the report notes, as it included large increases both in public sector wages and subsidies.
“It pushed budget expenditure to 63% of GDP by 2008 and the overall deficit to 17% of GDP,” it reads.
Meanwhile, the deficit spending led to “a marked balance-of-payments deterioration”, which, coupled with the impact of the global recession, threatened macroeconomic stability.
Consequently, GDP tumbled in 2009 by nine percentage points due to contractions in the tourism, construction and fisheries industries.
While GDP is projected to grow by 3 per cent this yyear, the report notes that economic outlook depends on the performance of tourism and fisheries “as well as the government’s ability to push through its reform measures”.
Apart from cuts in spending, the economic reform programme initiated by the current government includes broadening the revenue base by raising airport service charges, introducing a business profit tax and transforming the tourism bed tax into a goods and services tax.
“In order to align expenditures with revenues, the government is streamlining administrative machinery by downsizing the civil service, reducing electricity subsidies, and linking power tariff adjustments to cost of inputs twice a year,” it reads. “The government also plans to privatize parts of the extensive network of state-owned enterprises.”
In December 2009, the International Monetary Fund (IMF) approved a US$79.3 million standby arrangement US$13.2 million under a program to deal with external shocks.
As the role of monetary policy was limited with the currency pegged to the US dollar, the report advises that fiscal policy has to “play the greater role in demand management and economic stabilization”.
Weak institutions and human resource deficiencies, including “the fragmented structure of government”, were identified as major constraints to economic growth.
Moreover, the report notes that the government’s policy of grouping atolls into seven provinces to develop regional administration and economic centres was “a tall order” as the government “aims to reduce the cost to itself at the same time”.
Globe-trotter
In his radio address on Friday, the president said he received a text message from a resident of an “isolated island”.
The person observed that the president was “always abroad” and implied that he was neglecting domestic affairs.
The president arrived in China yesterday to open the Maldives pavilion at the Shanghai Expo 2010.
Addressing the concerns in his radio address, the president said he would leave “no stone unturned” in his efforts to secure aid and assistance for development projects.
“I have to go to all these places. I have to talk to a lot of people. I have to do a considerable amount of work to secure financial support, projects and assistance for the country,” he said, adding that he did not enjoy travelling.
Meanwhile, in his speech at the summit, Nasheed said he was under “tremendous pressure” to prosecute members of the former regime accused of corruption and torture.
He added that it was “understandable” for people who had been wronged in the past to seek justice and reparations.
“It is particularly difficult to forgive people, when they refuse to say sorry for the hurt they have caused,” he said. “But I am loath to act against the former regime. If we took action against everyone implicated in corruption and torture, we would end up arresting most of the opposition. I do not believe that arresting the opposition, is the best way to build a healthy democracy.”
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Hmmm Hmmm! Like that's the first time I heard ANNI say that!
Anyone who has done wrong in the past must be accounted.It will also be easier stop the corruption that is happening even now. Otherwise next goverment has to go and start begging the international community again for financial assistance.
Radhun/Singapore
I wonder if president Nasheed understands the real meanings of words such as GDP , inflation , role of IMF , world bank etc. He is good in blaming the previous administration for everything.... What we like to see is how he is going to turn around the worsened economy. Unfortunately this is getting worse and he is lost in this jungle.. due to lack of experience.. He should hand over the helm to a capable leader before it's too late.
The capable hands of 30 years brought us here. We need people who are willing to do good for the country. Wen dont need the "capable hands".
Mr.President, so what, you said , you can run the country with the income of a single resort even. Dont complain now, try to manage what you have got. Sack all these incompetent self centered people around you and start practicing like a leader.
The root cause, while difficult to digest sets the context within which restructuring can be conceived. So who understands words such as GDP, inflation, the role of the IMF, world Bank etc...my my we are upset!
Agree. Nasheed need to show better and sound leadership in addressing the real issues that we face at home, violence and crimes, healthcare and education. What we have seen so far from MDP is nothing but a hijacked leadership by the very self conscious Activist elements in MDP. I personnelly feel that Nasheed himslef is genuine in making the country better. But has failed and will fail unless he gets a real grip on the rogue elements in MDP, who unfrotnatelly are at the very top of his government.
"We inherited an economy in crisis."
Of course we did.
But that would not reduce, even slightly, the expectations an average Maldivian has from the new government.
This is where the challenge lies for the government.
Garbage in, garbage out...
hmm too many political posts for inefficient activists/friends n friends relatives .. cut down the salaries of MP'S...they are not worth it..i repeat get some capable hands..our govt is handicapped in so many ways..
Same sick mentality. Everything goes with 30 yrs. Looks like the supporters need 30 yrs of Annism to turn around the worsening economy. We thought he was awre of the situation when he made so many rosy promises . Guyz ruling a country is not easy . Still Anni has a chance to leave before he is thrown out. It is going to be more humiliating than Gayoom.
Wonder when this so-called lame excuse of a President stop brawling over "spilt milk". Takes every chance to discredit the nations, while trying to desperately hide the real facts of the present "failing government". Pity you Mr. H.E.P. Where has all the "charisma" gone.
It is not Anni or Gayyoom who can do the job. It depends what as the people we can do to live a life of our choice. People should realize by now that a Government cannot do much unless we have a good capable citizen. The people expect too much without realizing the potential we have in the country.
We as a people should guide the Government how to lead the country economically. People have to work and ask the government to create jobs for them. This is the only way we can make a corporative country
shahid
you really can't wait till 2013..? the problem with this country is people like you
shaheedhudheen, no problem is guys like you. the activists who control the President. Got that...so shut the F up
ANNI, isthiufaa...
lets see u try elect your abui phds... anni will stay..
Nasheed is and will be the best choice for today's Maldives. Out of all these politicians who contested on 2008, Nasheed is the only person who can handle current situation, specially financial situation of Maldives.
Oh! Yeah!
Fine! That's what you "raees meeha" inherited.
Talk about what the "rayyithu meehaa" inherited? Salary cuts? Raised bills? and not to mention your "MORE THAN ENOUGH" friday morning radio addresses??!
With that kind of sweet music to your ears every friday morning - who needs to go back to sleep, EVER?
Wait a minute - I think I have already commented here in the first place, pis pis pis! Browsing back, NOWWW!
When the Asian Development thinks that developing 7 Provinces is going to be a "tall order", I wonder what they think of the 20 atoll based decentralisation scheme! A complete and utter failure comes to mind, and that's what the DRP has dragged through Parliament!
If the President is going to do justice to this country, he MUST bring those accused of corruption before the courts and let the courts decide.
Otherwise, we face the ultimate danger of those same corrupt gangs coming into power as they are waiting, power hungry as ever. Of course they are wearing a different set of clothes now, i.e. "Opposition"...
They are subverting the democratic roots of the country by growing the roots of corruption within civil society. Corruption, is like a cancer. Until you get rid of the damned thing completely and neutralise it, it will continue to infect the healthy.
Bring the corrupt to justice! That's the best thing the President can do for this country.
Shaheeduddin. People like u are in a dream and u guys can't distinguish the difference between day and night. Nasheed will not b able complete his 5 year term and half he will b forced to resign. He is now a lame president who can talk only carbon neutral. Western agencies are making fun out of him!! Open up ur eyes.
Keep dreaming shaheebdheen, 5 years is maximum what your Anni will get..dream on. YES, you are right, will bring him down, we brought a more stronger giant down.who is this? a mosquito
I think its time Nasheed stop muttering about what the previous government did and talk about what he has done during the last one and a half year. Mr nasheed ain't no saint either. I think Maldivians will die because of MDP power over the country, NOT because of sinking and sea level rise. Since MDP came to power, the cost of living has risen sharply, islands have no safe clean water to drink, thounsands have has pay cuts, many have been forced to resign from their jobs and now worst of all the only main hospital in the country has no paediatrician to see a sick child. Our lives have gone into disaster. Atleast things were not this bad with the previous dictator. And yet, Nasheed is always travelling around the world spending the government money on his flights and hotel stays. I dont want him to travel like this talking about climate change when we are dying here with no food, no clean water and no doctors to see when we are ill. May MDP and its all rot in hell.
Didn't MDP know that they were inheriting an economy in crisis? This speech could've served well at the begining of the new Governmnet but today, it sounds like a bunch of excuses! There is failure all around when we expected so much better. If MDP wants to win the next election, some serious action was required yesterday! Reshuffle the cabinet and get in people who can get things done!Call on the military to get rid of these street gangs and violence! Do what you promised to do Anni and we will still vote for you but if you want to be controlled by your cabinet, as Maumoon was, sorry but no votes for you!
no shit sherlock! and he realized that NOW? the average maldivian struggles to make ends meet - and he says that! very helpful mr. president. that's like going to a surgeon and having the wrong part operated on! doesn't help buddy! count my vote out for the next election