President Yameen’s anniversary – The economy in review

President Abdulla Yameen’s election campaign was focused heavily on the economy. The Progressive Party of Maldives’ (PPM) candidate was sold to the public as the “foremost economist in the country,” a no-nonsense leader with a plan and the expertise to rescue the Maldives from its “deep economic pit.”

Indeed, during the Progressive Party of Maldives’ ‘Successful 365 Days’ event in Malé last week, fisheries minister Dr Mohamed Shainee noted that the secret of the economic policy’s successes was President Yameen’s intellect and background in economics.

Yameen had vowed to eliminate the persisting fiscal deficit, achieve a surplus in his third year in office, and double per capita income by the end of his five-year term.

At the launching ceremony of the PPM’s manifesto, Yameen pledged to save MVR4 billion (US$259 million) from the state budget, claiming the 2013 budget had included up to MVR2 billion (US$129 million) in unnecessary expenditure.

Despite these pledges, however, the incoming administration in December 2013 submitted a record MVR17.5 billion (US$ 1.1 billion) state budget for 2014 for parliamentary approval, including MVR1.1 billion (US$71 million) more in recurrent expenditure.

Moreover, proposed streamlining amendments to the Decentralisation Act were not submitted ahead of the second local council elections held on January 18.

After pledging to slash wages of political appointees by 30-50 percent, President Yameen instead imposed a pay cut of 12.5 percent for state ministers and deputy ministers in December, as well as taking only half of his own MVR100,000 (US$6500) salary.

The Yameen administration currently has five ministerial rank appointees – including two ministers at the President’s Office –  36 state minister rank appointees, and 72 deputy minister rank appointees.

Last week, former PPM MP Ahmed Shareef Adam became the 10th deputy minister at the education ministry.

Economic policy

While the government fulfilled a pledge to raise the monthly allowance for the elderly to MVR5,000 – reliant on a MVR1 billion investment scheme outside the budget – Finance Minister Abdulla Jihad admitted in August that the government had been forced to rely on the state budget for the handouts.

The government also planned to fulfil a pledge to provide MVR10,000 (US$650) a month for fishermen “regardless of catch” during lean months through a similar insurance scheme with a monthly premium of MVR500.

However, only one fishing vessel has reportedly registered in the scheme so far.

Meanwhile, in contrast to the intransigence faced by former President Dr Mohamed Waheed in obtaining parliamentary approval for his policies, the new administration was able to vote through numerous revenue raising measures in the outgoing 16th People’s Majlis.

The measures included raising the airport service charge from departing foreign passengers to US$25, hiking import duties, reintroducing the tourism bed tax until the end of November, raising the Tourism Goods and Services Tax (T-GST) to 12 percent, and introducing GST for telecommunications services from May 1.

The legislative successes came as the central bank warned that shortfalls in revenue or overruns in expenditure in 2014 “will undermine medium-term debt sustainability and will have adverse implications for exchange rate and prices.”

Subsequently, the parliamentary elections in March saw the PPM and coalition partner the Maldives Development Alliance secure a comfortable majority in the 17th People’s Majlis.

In the aftermath of the polls, four independent MPs, three opposition MDP MPs, and three Jumhooree Party MPs signed for the PPM, sealing a 43-seat simple majority for the ruling party.

The parliamentary majority subsequently allowed the government to fast-track its flagship special economic zone (SEZ) legislation – the cornerstone of President Yameen’s economic policy – in the face of vehement protests from opposition MPs.

The MDP contended that that the law would pave the way for money laundering and other criminal enterprises, undermine local councils, and authorise the president to “openly sell off the country” without parliamentary oversight.

Former President Mohamed Nasheed dubbed the legislation the ‘Artur Brothers bill’, referring to an infamous pair of Armenians linked with money laundering and drug trafficking who made headlines last year after they were photographed with cabinet ministers.

The government, however, maintained that SEZs with relaxed regulations and tax concessions were necessary to attract foreign investors.

President Yameen declared in April that the SEZ bill would become “a landmark law” that would strengthen the country’s foreign investment regime.

Attracting foreign investment

Hailing the passage of the bill in August, President Yameen said his administration has “created the legal environment required to attract major investments.”

At an investor forum held in Singapore in April – where the government sought investors for five ‘mega projects’ – Yameen committed to “exploring openings for increasing foreign investment flows to non-traditional sectors to lift Maldives beyond the image of a picturesque postcard.”

The mega projects include iHavan or ‘Ihavandhippolhu Integrated Development Project,’ – which envisions a transhipment port to capitalise on trade and commercial opportunities in the South Indian Ocean – a ‘youth city’ in Hulhumalé, the expansion of the Ibrahim Nasir International Airport (INIA), relocation and expansion of the central port to Thilafushi, and exploration for oil and gas.

Tourism Minister Ahmed Adeeb – also chairman of the SEZ investment board, who was implicated in a US$6 million dollar corruption scandal last month –  has suggested that even if one project such as iHavan “takes off” with US$1.3 billion worth of investment, the economy would be “transformed.”

Meanwhile, following the historic visit of Chinese President Xi Jinping in September, China announced it would “favorably consider” financing the iconic Malé-Hulhulé bridge should it prove feasible.

President Yameen recently announced that further land reclamation the second phase of the Hulhumalé development project would begin before the end of November.

During last week’s anniversary celebrations, Dr Shainee noted that 19 foreign investors have registered in the country, with a commitment of investing over US$600 million, although no further details were revealed.

While the government appears to be counting on large investments from China – with President Yameen recently slamming  “western colonialists” – the fate of foreign investments made during former President Mohamed Nasheed’s tenure is likely to make potential investors wary.

While the Tatva waste management deal terminated was in September, the GulhiFalhu Global Green City project was recently stalled.

More worringly, a Singapore arbitration tribunal in June found the government of Maldives and state-owned Maldives Airports Company Pvt Ltd (MACL) “jointly and severally liable in damages”to GMR for the termination of a “valid and binding” concession agreement.

The Indian infrastructure giant is currently claiming US$803 million in damages for the abrupt and wrongful termination of the airport development contract.



Related to this story

President Yameen’s anniversary – The Year in Review

Analysis: President Yameen’s first year – Towards good governance?

Yameen pledges to end violent crime at ‘Successful 365 Days’ rally

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Maldives economy “relatively buoyant” but fiscal imbalances continue to grow: IMF

While the Maldivian economy is performing well, fiscal indiscipline remains a problem as budget deficits continue to grow says the International Monetary Fund (IMF).

“We see that the economy is relatively buoyant,” said the IMF delegation in a statement given to the media today.

“However, despite the improvement in the real economy, the fiscal deficit has continued to widen and this is because of very high public expenditure and public debt is very high, so we think the fiscal position does need to be addressed.”

Parliamentary debate on the record MVR24.3 billion (US$1.5 billion) state budget for 2015 concluded this week, with opposition MPs expressing doubts over whether the MVR21.5 billion revenue forecast could be realised.

Regarding the recently introduced special economic zones (SEZs), the IMF delegation noted today the importance of a “transparent and even handed” regulatory framework and that any exemptions to tax are “clearly ring-fenced and limited”.

Meanwhile, it was noted that revisions to estimates of the current account deficit had indicated greater stability in the economy than previously thought.

During the IMF’s last visit to the country in February this year, the delegation expressed surprise at the resilience of the economy, admitting that it was still studying how the domestic economy has remained afloat in the face of soaring public debt and persistent budget deficits.

Maldives Monetary Authority estimates of the final current account deficits for 2014 fell from US$562.5 million in April to US$269.9 million in a macroeconomic report released in May.

The latter report,however, contained warnings against “slippages in revenue or current expenditure” which were echoed by the IMF today.

“The 2015 budget includes both revenue and spending measures to tackle the fiscal deficit and we think it’s very important that these measures are fully implemented,” explained the delegation today.

The IMF – which has previously urged greater taxation of the lucrative tourist industry – said today that it supported the recently announced green tax, as well as pushing for more efficient subsidies.

The delegation noted that measures to target electricity subsidies to areas where they are most needed had been included in next year’s budget.

MVR3.4 billion (US$220 million) – or 14 percent of the budget – is anticipated from new revenue raising measures which includes revisions of import duty rates from July onward, fees from investments to the SEZs, income from the home ownership programme, and leasing 10 islands for resort development.

Minister of Finance Abdulla Jihad noted in August that spiralling expenditure and revenue shortfalls could see the budget deficit balloon MVR4 billion (US$259 million), although he gave the Majlis a revised figure of MVR1.6 billion (US$103 million) when presenting budget this month.

While the World Bank recently predicted that the Maldives economy would grow by 4.5 percent this year, Jihad has said public debt is expected to reach MVR31 billion (US$2 billion) or 67 percent of GDP at the end of 2014.

“Despite achieving economic progress, the Maldivian economy is fragile and the Maldives’ financial situation is not in the most appropriate state at present,” Jihad told the Majlis.




Related to this story

Parliamentary budget debate concludes

Finance minister presents record MVR24.3 billion state budget to parliament

Slippages in revenue or expenditure will undermine debt sustainability: MMA macroeconomic report

IMF delegation surprised by resilience of Maldivian economy

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Finance minister fears spiralling deficit will leave civil servants without pay

Finance Minister Abdulla Jihad has expressed fear that the ballooning budget deficit will affect the government’s ability to pay civil servants.

“We can’t hold on like this for long, we must acknowledge that this is a very serious problem,” Jihad told atoll council leaders in Malé today.

Jihad explained that shortfalls in revenue of MVR1.5 billion would see the deficit increase to MVR4 billion – equal to 10.6 percent of GDP.

“Expenses keep on increasing, even as we don’t receive any revenue. We did not get the expected revenue this year either. Because of this, we are facing great difficulty in managing the budget deficit,” said Jihad.

Upon being elected last year, President Abdulla Yameen promised to prioritise reducing state expenditure, acknowledging that the Maldives was in a “deep economic pit”.

The government currently employs just under 25,000 civil servants, representing over 7 percent of the population. This high figure has long been identified as one of the causes of country’s fiscal imbalances.

Haveeru reported Jihad as saying today that his ministry was facing pressure every month when salaries are due.

“We try to make regular salary payments even if we have to take loans in order to do so. We haven’t, as of yet, received any salary issues this year. We are trying to make the salary payments through any means possible,” he was reported as saying.

Revenue gaps

Last month’s figures from the Maldives Monetary Authority (MMA) show the salary and allowances expenditure to account for 33 percent of spending, while the finance ministry has not published monthly expenditure reports since March.

The MMA’s latest figures also show the original estimated deficit of MVR1.3 billion – agreed upon last December as part of a record MVR17.96 billion budget.

The budget was inclusive of proposed revenue raising measures – many of which had failed to materialise during the previous administration – amounting to MVR3.4 billion, or 19 percent of the budget.

Despite some measures – including a rise in tourism taxes – passing the Majlis in February, Jihad predicted at the time that compromises would mean the full MVR3.4 billion would not be realised.

Both the outgoing and incoming governors of the MMA have this year called on the state to reduce expenditure alongside increased revenue.

The MMA’s 2013 Macroeconomic Development report said that shortfalls in revenue and overruns in expenditure could jeopardise the country’s debt sustainability – currently 81 percent of GDP.

The report – released in May – noted “there is a considerable amount of uncertainty surrounding the 2014 budget”.

The World Bank’s Maldives Development Update October 2013 described the country as “spending beyond its means,” risking serious damage to the economy,

Expenditure

Despite the government’s persistent promises to focus on the economy, subsequent policies have focused more on infrastructure development than fiscal consolidation.

Initial moves to reduce the salaries of political appointees were soon followed by promises to raise pension payments by 54 percent and the removal of the cap on the Aasandha health insurance scheme.

More recently, the government is facing the prospect of a potentially crippling payout to infrastructure giant GMR after a Singapore court of arbitration ruled in favour of the Indian company in a dispute over the premature termination of its airport concession deal.

Economic development plans have focused largely of large infrastructure projects and special economic zones to attract foreign investment – though no major deals have as yet been signed.

An IMF delegation visiting the country in February, however, expressed surprise at the economy’s continuing resilience.

“For a long time we’ve been saying that reserves at the MMA are very low and that the fiscal deficit is quite difficult and we expect the economy to run into some problems,” said resident representative Dr Koshy Mathai.

“But somehow the economy has shown resilience, a lot of resilience, and we’ve been surprised – happily surprised but surprised nonetheless.”

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Maldives to begin oil exploration with assistance of research vessel

A research vessel with 25 scientists on board has arrived in the Maldives to conduct oil and gas exploration research.

The German research vessel ‘Sonne‘ which came to the Maldives for different research purposes has agreed to do the oil exploration research for free, the government has said.

The scientists are expected to begin research within two days.

Speaking to media after his visit to the vessel today, Minister of Fisheries and Agriculture Dr Mohamed Shainee said the information obtained will be shared with the Maldives in the first quarter of 2015, adding that it would not be shared with any third party.

A local expert and a member of the Maldives National Defence Force will be present with the team during the survey, he said.

According to Dr Shainee it will be carried out in one of the three main areas in the country with properties indicating the presence of oil and gas – located 100 miles east of the region between Laamu and Thaa atoll.

The three dimensional seismic survey, carried out by sending sonic waves into the sea, will identify the presence of oil and gas in the region without any drilling, the minister said. It will be followed by further exploration involving drilling to confirm any positive findings, he explained.

The survey team’s own research will be about the changes in Maldives’ seas due to global warming, Haveeru has reported.

Speaking to the newspaper, the lead researcher from the University of Hamburg said a similar survey was done by the same vessel in 2007, but this new, more detailed one will complement it.

Oil exploration was an election pledge of President Abdulla Yameen and the government earlier this year said a foreign investor had already expressed interest in oil exploration.

The Maldives National Oil Company Ltd (MNOC), a subsidiary of the State Trading Organization (STO), said in February that they will soon begin advertising the country as a destination for oil exploration.

“We have contacted a Norwegian company and a German company to help us better understand the findings of the study. Based on this report, we’re hopeful of advertising the Maldives as a new destination of oil exploration,” said MNOC Managing Director Ahmed Muneez at the time.

French oil company Elf Aquitaine explored for oil and gas between 1968 and 1978, drilling three different sites. According to the MNOC, it was found at the time that the quantity available from the drilled site was insignificant and therefore uneconomical for production.

In 1991, Royal Dutch Shell initiated a second attempt at drilling an exploration well in the inner sea of the Ari Atoll.

Local environmental NGO Blue Peace has said oil drilling in the Maldives could cause environmental issues depending on the location of drilling , arguing that it “cannot coexist” with the country’s dominant tourism industry.

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Newly appointed MMA governor reveals plans to strengthen economy

The newly appointed Governor of Maldives Monetary Authority (MMA) Dr Azeema Adam has stated that she will ensure firm action is undertaken to strengthen both the economy and its currency.

“We need to strengthen foreign exchange market regulatory framework and establish a sufficient monetary policy framework in order to maintain the value of rufiyaa,” she told local media yesterday.

Azeema added that the strengthening of these frameworks would also assist in reducing inflation and the rise in prices of general commodities, as well as echoing the concerns of her predecessor regarding monetisation.

“Printing money to overcome the budget deficit is something that brings down the value of the Maldivian rufiyaa. Therefore, this needs to brought to an end.”

“In order to do so, the MMA will assist the government to finance their budget deficit through a market mechanism,” she revealed.

She added that this will be difficult to accomplish without decrease government spending, while also noting the importance of the ratification of the new MMA Act which has been recently drafted.

Azeema also pledged to bring an end to dollar transactions on the black market, noting the importance of maintaining the value of local currency in a country like the Maldives which strongly depends on foreign currency.

The MMA’s recent balance of payments projections estimate that the country’s current account deficit will widen to US$562.5 million in 2014, which is equal to 22 percent of GDP.

She pledged to bring down the expense of running the central bank, stating that decreasing spending throughout the state bodies is imperative to strengthening the country’s economy.

Azeema stated that, although Maldives has a comparatively high level of investments in tourism and other sectors, it has so far failed to be reflected in the country’s financial status.

Productivity increasing

Due to the rapidly developing tourism sector, productivity of the Maldives will increase by 4.5 percent by the end of 2014, she said.

“At the end of 2013 we had US$368 million. Our estimate is that this will rise to 400 million dollars by the end of this year. Looking at how much is imported from this reserve, this is the import of about 2 or 3 months,” local media reported the new governor as saying.

Dr Azeema estimated that, compared to 2013, the current account deficit of the country will increase by 16 percent this year, while the official reserves exceed this. She said that this estimate is made based on the developing tourism sector, and the increased earnings that the government is acquiring from the field.

She went on to reveal that the major work the MMA will currently undertake is to introduce new insurance services and to establish further Islamic financing instruments.

The MMA will assist banks in releasing more loans to individuals by decreasing the minimum reserve requirement that they have to keep deposited at the central bank, she said.

“We need to strengthen the financial sector through revisions, this is a work we must undertake. We do not see big investments being made in the financial sector. However, we need to attract investments into this sector too,” Azeema told the press.

The governor stated that, where required, the central bank will also work to revise necessary laws and regulations in an attempt to strengthen the financial sector. She stated that this would assist the government in obtaining funds to implement various projects, while also being of help to small and mid-level businesses.

She highlighted the importance of creating more public awareness about the financial sector as well as encouraging a mentality of keeping savings from their earnings.

She further said that the MMA would encourage the use of electronic payment systems as opposed to cash and cheques. She stated that more convenient and efficient electronic payment systems will be introduced by the central bank, adding that this would be more secure than cash and cheque transactions.

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Comment: Putting democracy on a firm footing

First, it was the symbolic cut in salaries for junior ministers. Then it was the move to replace monthly salaries for local council members across the country with sitting-fees – pending parliamentary approval. The more recent one is the shutting down of the Maldivian Embassy in Dhaka as part of the substantial 40 percent slash in the Foreign Ministry’s budget.

President Abdulla Yameen has proved that he means business when it comes to economising on government expenditure. As a former Finance Minister, he made no bones about pledging to cut down on government-spending in a big way during the closely-fought presidential elections last year. None can thus complain that they were not forewarned.

Whether the nation is on the right economic path will take time to evaluate. For now, for a variety of reasons, including government initiatives of every kind, the US dollar – the nation’s fiscal life-line – has become relatively cheaper. This could encourage the Yameen leadership to attempt more important and equally genuine reform measures on the economic front.

Before the Yameen leadership, the short-lived Maldivian Democratic Party (MDP) government had taken bold moves to initiate across-the-board ‘economic reforms’, as had never before been attempted. Going by successive voter-behaviour since, the huge slash in government employee strength and salaries was not as unpopular as had been thought.

Despite programme-based differences, the MDP and President Yameen’s Progressive Party of Maldives (PPM) have shared an overall common approach to economic reforms. When conceding the election last year, Nasheed promised his cooperation to President Yameen for all policies and programmes that are in the greater interest of the nation.

The MDP has not since criticised, nor even commented upon, the fiscal measures of the new government. It is thus for President Yameen to take the MDP on Nasheed’s word and to initiate a ‘policy consensus’ to the nation’s problems – starting with those on the economic front. He too has begun well by reiterating that his government’s programmes would be meant for all Maldivians without party-bias.

Re-visiting democratisation

If the economy is one area where there seems to be an overall consensus of some kind, political populism still seems to be having an occasional say. The fragile economy is unable to withstand the pressures that are alien to larger and stronger economies for which the IMF model had been built, for Third World nations to follow without adapting to local demands.

Worse still may be the case of the democratisation process in the country, which was a straight import of a template, text-book model. None at the time considered the wisdom of such mindless aping of the West because that was what was better known. That was also the only scheme acceptable to those demanding multi-party democracy of the western model, wholesale.

Maldives and Maldivians had the option of choosing between two broad western models, namely the presidential scheme and the Westminster parliamentary form of government. The nation chose the former, but with institutions and priorities that were originally adapted with the parliamentary model in mind. This has produced a jinxed system, which has to be exorcised of some misunderstood and at times misinterpreted elements from the immediate democratic past if democracy has to take roots.

While the current Maldivian system provides for dynamism, it’s only a part, a tool. Democracy is more than the sum of its parts. For them to juxtapose well, they need to be crafted in ways they were intended to serve the greater cause of democracy and nation – and not necessarily in that order. Rather, that order, the nation itself has to prioritise, and in ways that they all dovetail well into one single piece called ‘democratic experience’, as different from democratic-importation.

Having lived an isolated life owing to geography and topography, not only Maldives as a nation but also Maldivians as islands, that too under a one-man system, either as a Sultanate or as a relative democracy in the twentieth century, the nation and the people need to give themselves time to assimilate democratic values from elsewhere and tone them ways that becomes acceptable and adaptable under Maldivian circumstances.

That way, the upcoming five years are crucial to Maldives as a nation in terms of democratic experience than maybe even the first five – which was full of experiences, mostly of the wrong and/or misunderstood kind. The nation needs to re-open itself to democratic discourse and debate without such dissertations and dissections getting in the way of normal life and livelihood of the people, and politics and public administration by the Government, political parties and leaderships.

The Maldives has to open a new page in democracy, and the initiative for the same rests mainly – though not solely – with President Yameen and his ruling coalition. He cannot keep the rest out of it for reasons already explained. They cannot escape ‘accountability’ either, as the less-emotional parliamentary polls and their results have shown, since.

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Comment: Guest house business – my journey

This article first appeared on the Maldives Economist blog. Republished with permission.

Back in 2009, I started a new venture, along with a very close friend, Mohamed Shihan. Back then, it was something very new, something that nobody has started yet. We called this venture ‘White Shell’ as we rented a small house right on the beach of Maafushi. As the government opened up to allow guest houses in local inhabited islands, we were the first to submit our registration. As a result, White Shell Beach Inn, is the first guest house to be registered on a local island. So we became the pioneers in it.

Initially, we invested about MVR300,000 so that we could have 4 rooms fully furnished with AC, and very basic facilities. A small restaurant and a kitchen, and 4 employees. I was working full time in the public sector, as an economist in MMA, during my weekends – I was busy with setting up of the business, and marketing it. As I did not have enough funds for a professional webpage development, I had to learn on developing websites, and tried my luck with it. I developed our first website, uploaded it, and started the online marketing of it. Initial months of losses were borne by the monthly salary that I earned, and loans from my partner in business. We made sure the staff were paid on time, and utility bills paid every month. Some of my friends, and people from the tourism sector advised me that it would be a failure, as it is tourism without alcohol, pork, and bikinis.

Six months in business, with the various online marketing efforts, we were able to get guests from Russia, Poland, Germany, France, and the UK. With my efforts, I was able to put ‘Maafushi’ as a separate destination on various online booking sites, and travel sites. Before completion of the first year, I was able to rent the adjoining house, and later the house next to it, so that before the end of the second year, we were selling 10 rooms, and were running a successful beach restaurant. For the first one and half years in business, we were able to prove to everybody (especially those in Maafushi), that local island tourism can be successfully run for mid-market tourists, and it can be done without having alcohol, pork and bikinis.

During those months that we were the only guest house in the island, guests enjoyed their time on the beach, and Maafushi, without bikini (in covered clothes, of course), and there were no complaints from the locals. This was because, before the guests booked their holiday with us, they were given the information that it is a local island and that government regulation does not allow swimming in a bikini, just like they are aware that alcohol is not available. Hence, guests were fully informed and aware, and there was no room for complaints or dissatisfaction. Moreover, we got additional revenue because of this regulation – as guests preferred to spend their day in picnic islands, snorkeling, of fishing, and other activities, and that’s additional revenue for us.

We have altogether 20 guest houses in Maafushi now, and 144 rooms. Which means even if we didn’t consider the family rooms, that’d be 288 beds, and with 65% occupancy, that’s 68,328 bed nights per year. Assuming average duration of stay is 4 days, that’s 17,000 guests per year. With conservative estimates and past revenue records, it is estimated that about $9.7 million will enter the local Maafushi economy, and the guest houses will be paying the state – as bed tax and GST – a total of US$1.3 million (equivalent to MVR20 million).

The income per head from guest houses alone is $4,425 per head in Maafushi. The total income per head of Maafushi after adding incomes from other sectors will probably be the highest in the country. It is a perfect example of making economic growth more inclusive, and a case study for inclusive development. In fact, I presented a paper last year in Islamabad, during a South Asia Economic Summit.

With the 20 guest houses, more than 100 locals are being employed in various jobs – ranging from speedboat crew, receptionists, waiters, room boys, accountants, and guest relations officers. The majority of youth are actively engaged in economic activities, without having to spend their times in coffee shops or elsewhere, as they did before. Women with children are able to earn at least MVR10,000 a month doing laundry services. Last month we spent from our hotel MVR17,000 for laundry, which is done by a local family.

We – the White Shell – have played a key role in the expansion, and the success of Maafushi as a tourism destination through leading by example, and also assisting others in the setups. And thanks to MATATO, as we have recently been awarded the Maldives Travel Awards as the Leading Guest House, from the category introduced this year.

There is no doubt that this newly developed industry provides huge economic benefits to the local community and the government in the form of taxes. It also provides other positive outcomes like the guest houses taking charge of cleaning the beach area and streets, and taking care of waste disposal. The MWSC (water company), and STELCO are making huge profits from Maafushi, as the per unit rates are relatively higher in Maafushi compared to Malé. With more that 144 air condition units recently installed, Maafushi is spending heavily on electricity (there’s still more to be done in terms of using efficient energy sources).

There are many challenges as well, of course. With starting of many new guest houses, many have come to believe that the bikini is not a problem, and guests are being told so as well. Less seem to complain, however, as almost everybody benefits from the industry. We are yet to find an amicable solution to the issue, with serious discussions between the island council, tourism ministry, and the guest house owners. Other social issues/problems can also be addresses in a similar manner. Which means there’s still a lot of work to be done in order to make the business sustainable, environment friendly, and in order to make the this model a success in other islands. Wish you all a very happy new year.

All comment pieces are the sole view of the author and do not reflect the editorial policy of Minivan News. If you would like to write an opinion piece, please send proposals to [email protected]

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MMA Governer resigns before calling on state to minimise expenses

Maldives Monetary Authority (MMA) Governer Dr Fazeel Najeeb has called on the state to minimise expenses in a press conference held to announce his resignation on Tuesday.

Najeeb said that the biggest challenge faced by the country’s economy is the structure, which is inappropriate for a nation of this level. He elaborated on his comments, saying that the state often had to resort to printing additional money to meet the “far too hefty expenses of many state institutions”.

“A central bank must not resort to printing and releasing money, especially at a time when the economy is as weakened as it is now. Even more importantly, at a time when obtaining foreign currency is this tight,” he stated.

Najeeb advised that the best option to tackle the difficulty in obtaining foreign currency – due to the increasing amount of Maldivian currency being printed – is for the central bank to halt reprinting more Maldivian rufiya. He explained that increasing the amount of Maldivian currency being printed at a rate faster than it is possible to obtain foreign currency is one of the biggest threats to the economy.

He further called upon the parliament to expedite the passing of bills to facilitate increased state earnings and to improve the structure of the state.

He also appealed to the state to tighten fiscal policy so as to reap the best possible results from the established monetary policy framework.

Achievements during five years as governor

Announcing his resignation, Najeeb stated that he held no regrets regarding any decisions he had made while serving as governor, and that he was leaving the post in good conscience.

He confirmed that his decision to resign had not been due to any political pressure and that it had been purely a personal decision based on his familial situation.

Najeeb detailed what he described as his main achievements during the five years he served as head of the MMA, as well as other notable work he was leaving incomplete as he leaves his position.

Among the achievements mentioned, Najeeb noted the introduction of a banking law, a regulation under which banks and the financial sector can be regulated, and guidelines under which the insurance sector can be regulated.

He also added that he had been able to establish major developments on an operational level on an anti-money laundering structure with the involvement of many institutions.

He further highlighted other major prospects on which work had begun, but that had not yet reached completion. This included the establishment of an anti-money laundering act, an insurance act, and a mortgage act. He also spoke of having begun work on renewing the MMA Act and in bringing amendments to the banking law.

He revealed that he had sent drafts of many of the pending bills to the relevant authorities for amendments, tabling, and ratification.

Najeeb stated that he would not be seen in the political arena, adding that any work he conducted for the state in future will be on a purely voluntary basis.

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National debt set to rise to MVR92,196 per head warns MMA

The Maldives Monetary Authority – the country’s central bank and banking regulator – has published its professional opinion on the 2014 budget, painting a dark outlook and proposing urgent measures to prevent the economy from plunging further into debt.

The document was prepared upon an official request from the People’s Majlis, which is set to consider the spending plans when they emerge from committee on Saturday (December 21).

In the document, the MMA warned that the national debt is estimated to rise from MVR27.7 billion in 2013 to MVR31.5 billion in 2014 – equating to MVR92,196 per head.

Forecast GDP growth rate for 2014 is 4.5% – lower than the average of past ten years.

Inflation can be sustained at 4%, but this will depend on changes in the world market, stated the authority

Despite pledges to reduce state expenditure, the government returned a record MVR17.5 billion budget for consideration by the Majlis this month.

Subsequent recommendations in committee have seen the likely figure to rise to MVR18 billion.

Reducing government expenditure

Rising government expenditure was cited as the biggest challenge for the country right now. The agency advised the government to reduce recurrent expenditure to MVR10.2billion from its current level or MVR12billion, offering the following recommendations to do so:

  • Ensuring government subsidies are carefully targeted to the rightful persons.
  • Downsizing the state apparatus to one that’s appropriate for the Maldives’ size and income – including downsizing of parliament, councils, and independent institutions.
  • Finding ways of reducing recurrent expenditure and improving governance – suggesting the combination of local, parliamentary, and presidential elections was suggested.
  • Stop spending on government-run companies from the budget,  or dissolve such companies.
  • Don t proceed with projects (e.g. in contractor finance basis) unless funds have been secured or guaranteed.
  • Reduce debt, turn existing short-term debts in to long-term ones – for instance, by selling long-term foreign bonds at a small interest rate rather than depending on the domestic market for financing debt.
  • Prepare to implement the Fiscal Responsibility Act in 2014.

Finding better ways of financing the deficit

The document stated that the government had been financing the budget deficit mainly by taking short-term loans, selling treasury bills and treasury bonds, and by the MMA itself printing money. Instead of managing this deficit through a market mechanism, the government has resorted to dealing with it mainly through printing cash.

Overdrawing from the state’s Public Bank Account (PBA) to accommodate government spending has significantly increased the flow of the rufiyaa in the economy. The authority stated that this has reduced the foreign exchange reserves to dangerous levels – just two months of imports by the end of October 2013.

It was also noted that the increased flow makes it difficult to stabilise the foreign exchange rate.

According to the authority the PBA overdraft facility was misused by the government, using it to finance long term budget deficit even though it was intended to manage cash flow within a short period of time (a few weeks).

The amount overdrawn from PBA started increasing in October 2012 and reached MVR2.5 billion by 9 December 2013.

The MMA advised the state to pay all due treasury bills, treasury bonds and PBA overdrawing debts to the authority, whilst also noting that the MVR945 million required to pay for this had not been included in the proposed budget.

New revenue raising measures and legal changes

One of the key points highlighted throughout the document was the importance of implementing the new revenue raising measures – most of which is hoped to come from advance payments from resort lease extensions – which account for 23% of the total revenue in the budget.

If these measures are not implemented, the budget cannot cater for the recurrent expenditure and the estimated budget deficit for 2014 will increase from MVR886.6 million to 4.4 billion (11% of GDP), the MMA warned.

The MMA requested the state to proceed with amending the laws necessary for implementing new revenue increasing measures as soon as possible, and asked to find ways to generate an income from various industries instead of depending only on tourism for revenue.

Another notable recommendation was the reduction of the number of foreigners working in the country in order to create a more favorable balance of payments situation.

Read the full document (dhivehi) here.

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