The Maldives is facing its worst economic crisis in recent memory, the governor of the country’s central bank said earlier this week.
“The Maldives is now in a dangerous economic situation never before seen in recent history,” local media reported Governor of the Maldives Monetary Authority (MMA), Dr Fazeel Najeeb, as saying during a ‘Finance Forum’ held by the Pension Administration office on Bandos Island Resort.
“Expenditure in the country has exceeded income, and as a result the budget deficit is increasing. From November 2010 inflation has also been going up,” he said.
The country last year spent 63.1 percent of its GDP on state expenses, Dr Najeeb claimed, adding that only four countries had worse percentages, including Cuba and Zimbabwe.
Parliament’s Finance Committee revealed earlier this month that expected revenue for 2012 had plunged 23 percent – a shortfall of US$168.6 million, leaving the country with a budget deficit of 27 percent. Key unaccounted losses include up to US$135 million in land lease payments due to policy reinterpretation, and around US$8 million a quarter in airport concession fees due to a Civil Court ruling blocking the levying of an airport development charge.
Government spending for the year has meanwhile increased by almost 24 percent, to a total of US$1.13 billion. Spending unaccounted for in the 2012 budget following the controversial change of government of February 7 has included the promotion of a third of the police force, lump sum payments to military personnel, US$6.5 million in fishing subsidies, reimbursement of US$28.8 in civil servant salaries following cuts by the previous administration, the creation of two new ministries, and the hiring of international PR firms to counter negative publicity.
President Dr Mohamed Waheed Hassan meanwhile reported this week that India had granted the Maldives a US$25 million increase in credit facility, on top of a US$100 million facility extended in November 2011.
Figures from the MMA’s monthly economic review in April show projected GDP growth of 5.5 percent this year, down from 7.5 percent last year, but are drawn from the 2012 budget and do not account for the increase in expenditure highlighted by the Finance Committee.
However, “key indicators of the tourism sector showed declines as tourist arrivals fell in both monthly and annual terms during the month of March 2012. The decrease in arrivals mainly came from China although arrivals from Europe were also slightly lower,” the MMA noted, observing that tourist bed nights also declined.
The government said earlier this month it would hold industry consultations with the tourism sector as to how the additional revenue might be raised, and present recommendations from the International Monetary Fund (IMF), which included doubling the Tourism Goods and Services Tax (TGST) to 12 percent, according to Tourism Minister Ahmed Adheeb.
Minivan News spoke to several resort managers, who reacted poorly to the proposal.
“If we were to increase now, we’d – again – have to absorb all of it until new contracts with tour operators set in, some time in March 2013,” one manager told Minivan News.
“An increase on sales prices on the resort by way of adding on the GST – as any other increase – will be felt a lot more by resorts such as ours with a more price sensitive clientele, than by many of the upper market properties. How this will affect the country as a whole – rising prices, inflation, etc – and its effect also on tourism, is anybody’s guess,” the manager added.
The situation had led to a “feeling of insecurity” among many stakeholders in the industry, the manager said.
“Taxes, charges, rent-fees – nobody will dare a prediction for in two months from now let alone for next year,” he said. “This is not limited to possible financial burdens but is also true for other areas: infrastructure, industry projections, etc.”
Another resort manager said that any increase to the TGST, particularly if it was sudden, would have “serious ramifications on many of the markets.”
“Some operators will not accept the increase mid-contract and hence resorts will have to absorb this from revenue,” the manager explained. ”The additional costs will need to be balanced somewhere in the operation.”
The manager expressed frustration that resorts were being asked to shoulder the country’s financial burdens without any commitment from the government to reduce expenditure.
“We have seen an increase in some public services salaries and a reduction of working hours in many government departments who are meant to serve the resorts. Many of these government departments already make it difficult for the resorts to do their jobs, with bureaucracy and rules to keep extra people in a job rather than making it easier to support the resorts in order to do their job: build more business, increase revenue and hence increase GST [revenue] in a positive manner. An increase in GST right now is the wrong solution.”