Early withdrawal proposals “detrimental” to survival of pension scheme, regulator claims

Proposed amendments to the country’s pension system allowing workers to make early withdrawals from their retirement funds will compromise the entire scheme, the scheme’s regulatory body, the Capital Market Development Authority (CMDA), has warned.

CMDA Director General Mariyam Visam today told Minivan News that the proposed amendments to allow public and private sector staff to make early withdrawals from their pension schemes to cover costs of pilgrimages, home finance and starting businesses creates a “fundamental problem” that potentially could invalidate the program’s long-term sustainability.

The comments were made in response to Civil Service Commission (CSC) claims that a majority of public sector workers were in support of the proposed amendments to the Pension Act forwarded by Guraidhoo MP Ibrahim Riza – while also backing additional mechanisms for early withdrawals.

According to local media, the purposes by which early withdrawals could be made under the MP’s amendments include funding a Hajj pilgrimage, undertaking higher education, property building, seeking medical treatment abroad or establishing a businesses.

Sun Online has reported that the amendments would also allow individuals who had completed a contracted term or anyone elected to public office to withdraw funding to set up a business after their term was finished.

Low savings levels

CMDA Director General Visam said that the country’s pension system had been introduced in 2010 for public sector workers, with private sector employees being included in the scheme a year later.

With the system still “very new” to the Maldives, she claimed that the amount of savings available to the public would presently be very low, limiting payments that could be made at a time.

Visam claimed that any notion of allowing early withdrawals would create a “fundamental problem” for the future of Maldivian pensions, which requires long-term savings to help safeguard funds for the program.

“[Early withdrawals] serve to defeat the purpose of the whole system. By the time of retirement, a person is expected to have been making long-term savings so they will have decent benefits,” she said.

Visam added that a number of schemes were already in place in the Maldives to provide private funding opportunities for both private and public sector workers, while social security systems such as Aasandha were also available to cover medical costs at home or abroad.

She said that allowing for early withdrawals for these reasons would serve to be “detrimental” to the pension scheme, which would itself be vital for funding future investments in various sectors like infrastructure and education.

Public sector support

Speaking to Minivan News today, CSC Media Officer Ali Nizar said that since the introduction of the pensions program in 2010, civil servants had been required to pay the bulk of funds into the system compared to the private sector.

Nizar added that with a new bill being proposed in parliament on withdrawals, the CSC had sought to find out the views of public sector workers in some 80 ministerial and council administrations on whether they would support the amendments.

The majority of civil servants surveyed not only approved of the bill, but according to the CSC, public sector workers favoured further provisions, such as bringing the age of retirement down to 55, as well as allowing early withdrawals in areas of major expenditure such as funding the Umra pilgrimage.

Back in June last year, the CMDA raised concerns that a previously proposed amendment to reduce the eligible age for a basic pension from 65 to 60 years of age could damage the country’s economy, potentially adding MVR138 million (US$8.9 million) to the state budget.

The reduction of the age of eligibility from 65 to 60 years old was at the time seen as potentially increasing the number of those eligible to receive monthly pension payments by 33 percent.

Previously released UN figures estimate that the number of Maldivians over the age of 60 could be 25,000 by 2015. This could potentially leave the government with MVR690 million per year in pension payments compared with last year’s outlay of MVR420 million per year – an increase of 64 percent.

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Supplementary budget to be proposed in first half of 2013: President Waheed

A supplementary budget is to be proposed to parliament before the end of the first half of 2013, President Mohamed Waheed Hassan Manik has announced.

Speaking at Henbadhoo in Noonu Atoll, the President claimed the country’s economy “is not as bad as it is perceived to be”, adding that the decline in global economy was affecting the Maldives in an adverse way, local media reported.

Waheed stated that that priority will be given to projects such as health centres and other basic services on islands, and that he intends to make the necessary changes to the supplementary budget in order to address these issues, he was quoted as saying in local media.

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Government cannot pay state salaries without Indian cash: Finance Minister

Minister of Finance Abdulla Jihad has said the government is unprepared to meet its recurrent expenditure – including salaries – for the final three months of 2012 without the US$25million loan promised by the Indian government.

Jihad, who was not responding to calls at the time of press, told local media outlet Sun Online that he believed the loan  is being delayed due to the ongoing controversy over Indian infrastructure company GMR’s development of Ibrahim Nasir International Airport (INIA).

The Ministry’s Financial Controller Mohamed ‘Kuday’ Ahmed was also not responding to calls at time of press.

India’s High Commissioner to the Maldives DM Mulay told Minivan News that “India stands by every commitment and hopes Maldives will reciprocate. We have excellent rapport with the GOM [Government of Maldives] and issues, if any, are sorted out amicably.”

India’s Ministry of External Affairs publicly expressed concern over the political stability and the investment climate in the Maldives earlier this month.

Sun meanwhile reported Jihad as saying he had made repeated requests via the High Commission for the loan to be expedited.

Jihad’s comments come during a week in which President Dr Mohamed Waheed Hassan has been campaigning in Faafu and Dhaalu Atolls, reportedly reassuring the people that the economy was running smoothly whilst crticising those who he claimed sought to weaken it.

A concerted campaign by government-aligned parties to annul the US$511million concession agreement with GMR – the single largest foreign investment in the country’s history – has sparked concerns over investor confidence with damaging implications for the long term development of the economy.

Waheed is also reported as saying that he would not resort to borrowing from foreign governments in order to finance government activities.

“I will not try to run the government by securing huge loans from foreign parties. We are trying to spend from what we earn”, he was reported to have told the people of Nilandhoo.

“The Maldivian economy is fine. Don’t listen to whatever people say. We don’t have to [worry] about the Maldivian economy being in a slump,” he was quoted as saying during a rally in Meedhoo.

Minivan News was unable to obtain comment from President’s Office spokesmen on this issue before going to press.

The US$25 million was agreed upon last month as part of the $US100 million standby credit facility signed with Prime Minister Manmohan Singh in November 2011.

Unpaid bills

Despite Waheed’s reassurances, this month has seen a number of state owned institutions face disconnection from the capital’s power grid as bills amounting to around MVR150million (US$9.7million) were said to be owed to the State Electricity Company (STELCO).

Responding to the institutions’ blaming of his ministry, Jihad told Sun that the finances were simply not there.

“We are not receiving foreign aid as was included in the budget. How can we spend more than we receive? That’s why those bills are unpaid. We can’t spend money we don’t have,” he told the paper.

He mentioned that the government would have difficulties paying the salaries of civil servants in the final quarter of this year.

Since coming to power in February, the government has committed to reimbursing civil servants for wage reductions made during the austerity measures of the previous government, amounting to Rf443.7 million (US$28.8 million), to be disbursed in monthly installments over twelve months from July.

A MVR 100million (US$6.4 million) fuel subsidy for the fishing industry was also approved by the Majlis Finance Committee earlier this month, with the hope of stimulating the ailing sector.

The overall deficit for government expenditure has already reached over MVR2billion (US$129million). Jihad has told the Majlis’ Finance Committee that he expected this figure to rise to MVR6billion (US$387million) by year’s end – 28percent of GDP – alleging that the previous government left unpaid bills equal to over one third of this anticipated deficit.

Former Minister of Economic Development Mahmood Razee told Minivan News that this increased expenditure in the face of a pre-existing deficit represented the government “ignoring reality.”

“If they don’t get the loan, they will have to cut travel expenses, stop certain programs – take drastic measures or get another loan,” said Razee, claiming that the only alternative would be to sell treasury bills.

Following reports in August that the government was attempting to raise funds through the sale of treasury bills, former Finance Minister Ahmed Inaz said that this would not address the concerns of the IMF, prolonging economic uncertainty.

China has made large commitments towards the Maldives’ economic development in recent months, although Razee said he believed that current changes within the Chinese government in the upcoming month made this an inopportune time to look there for additional financial aid.

In August, the current Finance Ministry announced its own austerity measures intended to wipe over MVR2.2billion (US$143million) from this year’s budget deficit though few of these propositions have as yet been followed through.

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“The good news is that the Maldives is not about to disappear”: President Waheed

“First of all, I want give you a bit of good news. The good news is that the Maldives is not about to disappear,” President Dr Mohamed Waheed Hassan has told a group of Sri Lankan businessmen in Colombo yesterday, according to media reports.

Speaking during his official state visit to the Maldives’ closest neighbour, Waheed told an assembled group of business heads at the Hilton Colombo hotel that the country could mitigate the effects of climate change and global warming.

Waheed made the comments in an attempt to assure his audience in Colombo yesterday that steps were being taken to stabilise the political climate in the country, as well to retain investor confidence.

The President said that large sections of the state budget were currently being spent on combating coastal erosion, providing clean water for the islands and developing renewable energy to minimize overall expenditure.

Since assuming the presidency, Waheed has pledged to work towards the previous administration’s carbon neutrality strategy, while also announcing intentions to make the Maldives the world’s largest bio-reserve.

There has also been discussion of a green energy fund to raise US$100 million for renewable energy projects through voluntary tourist contributions.

The country’s energy sector had been headed for a dramatic overhaul this year before the political instability surrounding February’s transfer of presidential was claimed to have deterred potential investors in such a project.

The Scaling-Up Renewable Energy Programme (SREP) promised to attract up to $3billion in risk-mitigated renewable energy investment and reduce the Maldives’ dependency on imported oil.

The environmental obstacles besetting the low-lying archipelago had been championed by former President Mohamed Nasheed, who garnered international media attention with his underwater cabinet meetings and a promise to make the country carbon neutral by the year 2020.

Nasheed’s media campaign was covered in the documentary film, “The Island President”, which highlighted his negotiations at the 2009 Copenhagen Climate Summit.

Before assuming office, Nasheed told international media that he had discussed the idea of purchasing land in Sri Lanka, amongst other nations, “as an insurance policy for the worst possible outcome.”

Investor Confidence

Waheed assured his audience in Colombo yesterday that the government was also focused on bolstering investor confidence.

Threats to renationalise Ibrahim Nasir International Airport (INIA) – currently being developed by Indian company GMR – have recently brought calls from within the national-unity government for greater consideration of the longer-term impact on foreign investment.

President Waheed is also reported as having told Sri Lankan media that both the economy and the tourism industry, which indirectly contributes around 70percent of GDP, were growing.

A President’s Office statement, however, has reported that Waheed told the group gathered at the Hilton that there had been a decline in the tourism industry recently.

The Tourism Ministry’s most recent figures show that, compared with the same point in 2011, tourist arrivals were up by 2.8 percent, whilst occupancy rates had dropped 1.2 percent.

Figures published by the Maldives Monetary Authority (MMA) show that the economy was expected to grow by 5.5percent this year, a slight slow down on the previous year.

Tourism Minister Ahmed Adheeb, who is accompanying President Waheed to Sri Lanka, was unavailable for comment when contacted today.

At present, a key economic concern to the government is the current budget deficit, anticipated to reach MVR9.1billion (US$590million) – over 28 percent of nominal GDP.

Haveeru reported that Waheed has informed the Sri Lankan press of austerity measures which were delivered to the Majlis by the Finance Ministry earlier this month.

The Sri Lanka Daily News meanwhile reported that he was in the process of finalising agreements which would strengthen bilateral ties in trade and investment as well as the legal and the educational sectors.

Minister for Economic Development Ahmed Mohamed and President’s Office Spokesperson Abbas Adil Riza were not responding to calls at the time of press.

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Former finance chief questions timing of MMA private sector T-bill reform

Former Finance Minister Ahmed Inaz has questioned the timing of the Maldives Monetary Authority’s (MMA’s) decision to offer Treasury Bills (T-bills) to the wider private sector claiming it would compound the country’s budget deficit rather than directly address state debt.

Inaz, who served as Finance Minister under the administration of former President Mohamed Nasheed, said that until the present government put a lid on its expenditure to levels agreed in the national budgets of the last two or three years – extending T-bills to the wider private sector in the current climate would only prolong economic uncertainty.

The comments were made as local media reported yesterday that the Maldives Monetary Authority (MMA) had opted to allow “private groups” to purchase T-bills.

Such bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills are said to have a maximum maturity of six months, in which time they must be repaid, according to Inaz.

The economy, particularly national debt, has become an increasingly important issue for the coalition government of President Dr Mohamed Waheed Hassan.

Parliament’s Financial Committee in May released projection that the Maldives’ budget deficit will reach 27 percent of the GDP by the end of 2012, a 175 percent increase on earlier forecasts.

In recent weeks, the government has downplayed delayed payments of civil servant salaries as being the result of a banking “administrative error”, while also admitting to facing “economic difficulties” in covering months of outstanding premium payments resulting from the Aasandha universal healthcare programme.

Yesterday, Abdulla Yameen, parliamentary leader of the government-aligned Progressive Party of Maldives (PPM) told local media that the country was in “dire need” of financial assistance from the international community to help set right the economy.

Yameen and fellow PPM MP and Spokesperson Ahmed Mahlouf were not responding to calls from Minivan News today to clarify the comments.

T-bill extension

Finance Minister Abdulla Jihad said the decision to extend the availability of T-bills to private enterprise was a condition outlined by the Asia Development Bank (ADB) to secure loan funding. He was unable to give the exact amount of the loan at the time of press.

According to Jihad, T-bills had been previously only open to private financial institutions, a market place that he said was presently “saturated” in terms of demand, limiting the amount of T-bills the institutions were willing, or had the capacity, to purchase.

“The issue was to open the market to private groups,” he said.

In regards to criticism from the previous administration about state spending, the Finance Minister pointed to a recent order for all government institutions to immediately reduce their budgets by 15 percent – a pledge Jihad stressed had been successfully realised.

However, former Finance Minister Inaz said by that extending the T-bill scheme without addressing wider concerns of groups like the International Monetary Fund (IMF) over government expenditure, authorities were only prolonging current economic instability rather than tackling the present spending shortfall.

“My reaction to the MMA’s proposals is that issuing T-bills to the private sector or these private groups is not going to help the situation. The budget deficit should be reduced at all costs. Then these T-bills could be introduced as a way to meet capital expenditure,” he said.

“Expenditure should of course not be reduced to a level that would kill off independent institutions and the democratic reform of recent years. But the best way forward is to maintain expenditure say to the levels set in the 2010 or 2011 budget, while increasing income.”

While accepting that current political tensions between the government and the now opposition Maldivian Democratic Party (MDP) made it difficult reach parliamentary agreement, Inaz said that the Majlis would need to agree on any changes to the state budget.

Inaz also called on policy makers to adopt a “broader mindset” by reviewing the present government’s decision, announced earlier this year, to restore import duties and reduce GST.

He believed that taxation measures such as the GST remained the easiest solution to boosting revenue.

Inaz contended that a focus on more direct taxation would allow the government to serve as a facilitator to encourage the private sector to generate economic activity.

T-Bill reliance under Nasheed

Despite concern over the timing of the MMA’s proposals, Inaz conceded that the previous administration had itself relied on debt financed through the sale of T-bills that amounted to about Rf 1.4billion in 2011. However, he claimed that the final budget passed under the Nasheed government in December 2011 was designed to reduce the nation’s budget deficit, while also cutting down on short-term debt obligations such as T-bills.

“The T-bills issued in 2011 amounted to Rf1.4 billion (US$90.8 million). We foresaw the need growing every year, but this is very difficult to maintain as the maximum maturity for T-bills is six months, during which time they must be paid back,” he said

However, Inaz added that before the controversial transfer of power in February that brought President Waheed into office, the Nasheed government had pledged to reduce its reliance on T-bills by focusing on generating revenue through economic reforms such as GST.

“This year though we were set to reduce our reliance on T-bills to about Rf 700 million (US$45.4 million) with a view to cutting back completely through repayments in the next two years or so.”

Local media reported in April last year that government debt accrued through the sale of T-bills to banks and financial enterprises was estimated to be equivalent to more than a third of this year’s Rf 12 billion (US$778.2 million) national budget, according to Maldives Monetary Authority (MMA) figures released at the time.

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Comment: Will early polls end this drift?

At one-level, it is business as usual in Maldives – at another, it is calm before possible storm.

While an element of political stability attaching to the government of President Mohammed Waheed Hassan Manik in recent weeks after the destabilising events of February 7, has ensured that day-to-day business of the Government does not suffer, it has also flagged new issues that could challenge the internals of the uneasy coalition that he has been heading.

Together, they have the potential to create a façade of self-belief, which otherwise boils down to self-illusion and self-destruction of the kind that the MDP predecessor in office had practised while in power.

It took the MDP and President Mohammed Nasheed greater and persistent efforts to arrive at where they did in less than three years in office. Given the composition and contextualisation of the Government coalition after he resigned on that fateful February 7, they would instead have to put in greater efforts and display equal sincerity to make their present scheme work – and well into the future.

In the absence of a commitment about the future, particularly over the presidential polls, whenever held, the ruling coalition is already drifting towards unsure approach not necessarily to administration, but to their politics. At the centre of it all, however, is their individual approach to the presidential polls and individualistic perceptions about their comparative electoral strength, as much within the combine as outside.

In a way, the drift also owes to a creeping underlying yet unmistakable belief of individual Government parties that the ‘common political threat’ from the MDP has receded, and at the same time the presidential polls, due in November 2013, cannot be delayed eternally – even if President Nasheed’s demand for early elections could be scuttled.

They had worked it in the past, when President Maumoon Gayoom was in power. Ushering in multi-party democracy, many now in the Government had joined hands with the MDP to oust the incumbent through the power of the ballot. In contrast, the February 7 exit of President Nasheed might have been controversial but the ‘ganging up’ political adversaries against him within three years of his emerging as the Maldivian mascot for democracy was also owed to the ‘democratic distrust’ that had crept into the political scheme. Today, the talk of presidential polls, whenever held, is the distinguishing and delineating factor, so to say.

For his part, President Nasheed has been travelling overseas increasingly, carrying his message about the ‘coup’ that forced his resignation. The inherent differences within the Government parties, often based on individualist approaches and claims, is coming out in the open – and inevitably so. Ironically, it could be construed as a measure of lessened threat from President Nasheed and the MDP. It is thus that the PPM and PA, owing allegiance respectively to President Gayoom and his half-brother Abdulla Yameen, have formed a parliamentary coalition, excluding the DRP parent of the former and also the Jumbooree Party (JP), identified with billionaire-businessman Gasim Ibrahim.

The PPM has also begun openly accusing DRP leader Thasmeen Ali of colluding with the MDP Opposition, which charge the latter had denied vehemently. Yet, the DRP has been put on the defensive within the ruling combine, and embarrassingly so.

What can a ‘running-mate’ do?

With a substantial showing in the presidential polls of 2008 and recent by-elections to the People’s Majlis or Parliament and local councils, the JP has been ‘poaching’ MPs and other leaders from other parties – including one MP from the DRP partner in Government. The MDP in particular cannot complain, as under the Nasheed presidency in the democracy era, they had started off the game.

The Constitution provides for a run-off, second round polling between the top two scorers, if none of the candidates crossed the mid-way mark in the first phase of presidential polls. The strategy and effort of individual political parties in the Government thus is to be able to get into the second round, and negotiate with the rest from a position of strength. This would precisely be a repeat of the 2008 polls, in their perception, when Gasim Ibrahim, and another runner-up, Dr Hassan Saeed, at present Special Advisor to President Waheed, transferred their first-round votes to Candidate Nasheed, who was the Opposition topper with 25 per cent vote-share against incumbent President Gayoom’s 40 per cent.

Today, the roles have reversed, what with President Nasheed being seen as the potential candidate to top the list. Having nominated him as their presidential nominee already, through a democratic process prescribed under the law, the MDP believes that he would win hands down in the first round. He would have to, given the present alignment of political parties, as there is nothing to suggest that he would be able to fill the gap if pushed into the run-off phase. It is in this context, the PPM charges against DRP colluding with the MDP needs to be viewed. However, the DRP seems to believe that the party’s cadre-base and vote-base are as much anti-Nasheed in their political preferences as they are anti-Gayoom, leaving the leadership with little manoeuvrability in alliance-formation. It is a real threat facing the DRP, particularly after ‘rebel MDPs’, comprising elected but ousted party president Ibrahim Didi and his deputy AlhanFahmy, with whom the party might have shared a common dilemma, chose to join the JP, instead. Didi now heads the JP and party founder Gasim Ibrahim is a sure candidate for the presidency.

The problem with coalition politics of the nature, which has suited experienced and matured presidential democracies as in the US, is that the running-mate to the presidential candidate is expected to bring in additional votes to fill the winning-gap. President Nasheed does not have anyone before him who could be described as such, if the MDP’s calculations about a first-round victory for him need testing on the ground. Individual Government parties are keener on demonstrating their individual vote-share with a second round in mind than forming an alliance for the first round, where political partners could choose their presidential candidate and vice-presidential running-mate through electoral negotiations. It was so in 2008, when Candidate Nasheed chose Waheed, founder of the GaumeeItthihaad Party (GIP) as his running-mate, but his experience since assuming office, flowing from his inability to share power with his Vice-President, might dissuade others of the ilk from attempting some such measure at present.

‘Transitional justice’ and vindictiveness

It does not stop there. In recent days, the Majlis, where the Government parties are in a majority, has passed a resolution for a parliamentary committee to probe certain decisions of President Nasheed while in office. It is unclear if the immunity available to former Presidents, which President Nasheed had underlined after demitting office, would extend to cover parliamentary resolutions of the kind. More importantly, in an impromptu yet immediate effort at national reconciliation after electoral results were known in 2008, President-elect Nasheed announced legal immunity for his predecessor.

He also called on President Gayoom soon after his election, and the latter too facilitated smooth and seamless transfer of power, putting at rest all speculation that he would try to thwart the democratic expression of his people. Though once subsequently, President Gayoom was summoned to a police station for an enquiry regarding a criminal case dating back to his days in office, nothing was allowed to come off such efforts, which were as half-hearted as they were off-handed.

The Government and the parties forming a majority for it in the Majlis have been talking about filing criminal and constitutional cases against President Nasheed and his erstwhile Cabinet members and MDP leaders. Some of it has proceeded on expected lines while no major case has been filed against any top leaders thus far. Indications are that the Government might take its time deciding on whom to target, how, why and when – more in terms of political expediency rather than legal/constitutional accountability.

As and when it happened, the MDP is sure to cry foul, and charge the Government with political vindictiveness. Its political argument might stand vindicated if the higher judiciary, as has been happening since the February 7 change-over, stands in the way. The Waheed leadership, however, has thus far kept its promise of not interfering with the judicial freedom, a charge levelled against the predecessor leadership – and, not without some justification, as the locking up of the Supreme Court by the nation’s armed forces in mid-2010 showed.

Charges and counter-charges of vindictiveness of the nature have their political fallout. The MDP, while in power, had revived such talk by constantly referring to ‘transitional justice’ when President Gayoom failed the party’s expectations by returning to active politics. A catchy phrase nonetheless, ‘transitional justice’ boiled down to legal action against the Gayoom leadership for alleged wrong-doings during its tenure. During the ‘December 23 Movement’ run-up to the February 7 episode and later, MDP hard-liners have not tired of blaming the ‘pacifist’ Nasheed presidency for taking a lenient view of his predecessor’s undemocratic and corrupt actions – including five-time imprisonment for his would-be successor.

Yet, any talk now of reviving ‘transitional justice’ on the MDP’s part if returned to power, or similar ranting by the incumbent Government parties has the potential to make the run-up to the presidential poll more tension-ridden than already.

Tottering economy

Though the MDP’s predictions of a post-resignation steep fall in tourist arrivals have not been proved right, the nation’s economy continues to totter, going beyond concurrent global and regional inconsistencies of the times. JP’s Gasim Ibrahim, a former Finance Minister under the Gayoom dispensation, has begun talking about a ‘bankrupt Government’ while Presidential Advisor Hassan Saeed too has been cautioning the nation that Maldives cannot afford to live beyond its means. Here, they share the perception of the MDP and President Nasheed, when the latter was in office, yet the Waheed Government has revisited some of the IMF-dictate economic reforms policies of the predecessor-administration. Recently, the Government took a Rf 300 million loan from the Maldivian Monetary Authority (MMA), a State institution, and there is an accompanying controversy over approaching Parliament for a post facto endorsement instead of prior clearance.

What could help to bring back political order, which alone would ensure governmental stability at a time when the crying need of the economy seems the same? On political stability alone would depend foreign investments, which would be among the near-permanent sources of economic revitalisation for countries such as Maldives, particularly so in the South Asian neighbourhood, and for a long time to come before they became self-reliant. For instance, the February 8 violence that followed President Nasheed’s resignation, forced or otherwise, while not exactly rattling foreign tourists, who form the backbone of the nation’s economy, however may have make new investors to hold back their decisions, at least until political stability that they can feel and vouchsafe for returns to the Indian Ocean archipelago.

It is not as if early presidential polls would automatically ensure political stability. The problem with the Nasheed presidency was the MDP’s inability to retain its political coalition until after the parliamentary elections six months later. This meant that the Government under the Executive President system did not have a parliamentary majority – it did not have one even at inception – leading to horse-trading on the one hand, and rejection of Government’s initiative on the other. That included a resolution calling upon the Government to obtain Majlis’ approval for every major contractual decision, as with the ‘GMR case’, and refusal to endorse some Cabinet nominees of the President. Similarly, post-poll, the new President would have to ensure peace on the streets, which alone would ensure not only investors’ confidence in the nation but also the people’s confidence in democracy.

For now, all talks of early presidential polls have been shelved after the Government parties made a near-mockery of the All-Party Roadmap Talks by taking up a long list of 30 issues that were not on the original agenda, but included ‘black magic’ as among those needed national priority and hence attention. There is no talk again of reviving the all-party talks, which willy-nilly seems to be getting linked to the progress of the National Commission of Inquiry (NCI), appointed by President Waheed and expanded to include an MDP nominee and an independent member from Singapore, at the instance of the international community.

The expanded NCI has been tasked to submit its report by July-end, but the chances are that they may require extension(s) to be able to come up with anything concrete – which by the nature of things, could at best be recommendatory in character, and not mandatory in nature.

The chances are that whichever side whose arguments the NCI does not buy would not accept the findings and act on the same. And the Government, as is known, would be keen on reviving the Roadmap Talks, whose agenda included early presidential polls, only if the NCI hands down a split-verdict. All this would boil down to only one thing. That the stake-holders in the Roadmap talks could well begin with committing themselves to the findings of the NCI, and also begin taking their job seriously so as to build a national consensus, not only over the presidential polls but equally so on other issues, too. In the absence of such a course, any divergence of opinion between the Executive and the Legislature in the months after fresh presidential poll could bring the nation to a virtual stand-still, or lead to further horse-trading, which would be a mockery of democracy, all the same.

Worse still, between now and the presidential polls, whenever held, the inevitable internal dissensions within the ruling coalition, if it could be called so, could lead to mutual acrimony of the administrative kind and initiative, even as their attempt to cobble together an electoral strategy to keep the MDP adversary at bay could strain the infant democracy, still.

The writer is a Senior Fellow at Observer Research Foundation

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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“We must stop spending beyond our means”: Dr Hassan Saeed

“As I said two years ago and repeat today, we must stop spending beyond our means,” explains Dr Hassan Saeed, Special Advisor to the President and leader of the Dhivehi Qaumee Party (DQP), writing for Haveeru.

“We need to redefine the role of government. Its core purpose should be to provide efficient services to the public not job creation for a privileged few. Instead we need the government to be supporting entrepreneurship amongst our people and the creation of small and medium sized businesses which are able to innovate and foster efficiencies in our economy.”

“Population consolidation needs to start so we can deliver public services fairly to all people as well realising economies of scale in delivery. This cannot be just an aspiration; action has to start now.”

“If nothing is done, there will, very soon, be an abrupt turn-off of the spending tap, with a vast deficit to deal with, leading to many unpredictable consequences.”

Read More…

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Government silent over Maldives bankruptcy claims

The government has refused to comment on claims made in local media by leader of the coalition-aligned Jumhoree Party (JP) that the Maldives was now bankrupt and already unable to pay some civil servants.

JP Leader and MP Gasim Ibrahim claimed that despite government efforts, the Maldives was now bankrupt and unable to pay some civil servants after steady economic decline within the nation, according to newspaper Haveeru.

Just last month, Parliament’s Financial Committee revealed that expected revenue for 2012 had plunged 23 percent, whilst spending was set to increase by almost 24 percent.

President’s Office Spokesperson Abbas Adil Riza today said that he was unaware of the bankruptcy comments linked to Gasim and could not comment on the matter, referring Minivan News to Minister of Finance and Treasury Abdulla Jihad.

Both Jihad and Economic Development Minister Ahmed Mohamed were not responding to calls by Minivan News at the time of press.

Although the country’s Civil Service Commission (CSC) said that it had been involved in discussions with the Minister of Finance to try and overcome economic concerns, Chairman Mohamed Fahmy Hassan said that there had as yet been no issue with payments to staff.

“As of last month, all payments have been made in full, however it is the Finance Ministry who would know about the current situation,” he said.

Speaking to Minivan News on Saturday, Maldives National Defence Force (MNDF) spokesperson Major Abdul Raheem said despite some reports circulating to the contrary, he was not aware of any problems with payments to military officers.

Spending review

In attempts to counter its present spending shortfall, the government has unveiled proposals such as a revision to the country’s import duties and Goods and Services Tax (GST) to alleviate its financial difficulties.

The proposals have come under criticism from former finance chiefs serving under the previous government, who allege that such changes “do not make sense”.

Whilst committed to reducing state expenditure, Jihad recently announced his aim to avoid cutting the salaries of civil servants in order to tackle the nation’s budget deficit, seeking to make savings in other areas of expenditure first.

“Civil servants are the lowest ranking of all government employees. We will try to cut all non-wage expenditure by 15 percent. Salaries will be considered after this,” he said at the time.

Despite this pledge, Jihad added that a review of public salaries was set to be conducted by a pay review board that would also focus on independent commissions in order to reach an agreement on the necessary reductions.

Civil Service salaries

Between 2004 and 2009, the country’s fiscal deficit increased exponentially on the back of a 400 percent increase in the government’s wage bill.

The year’s 2007 to 2009 included the most significant largesse as the World Bank found wage expenditure to have increased from Rf 2 billion to almost Rf 5 billion even as revenues began to recede.

According to statistics from the Civil Service Commission (CSC), the number of permanent civil servants has more than halved between 2006 and June 2011.  There has been some contention in the past, however, that the transfer of many civil servants to state owned companies under the previous government masked the true figures.

The Maldives Monetary Authority (MMA) published figures for May that estimated the government will spend Rf2.6billion (US$168 million) on salaries and wages in 2012.

Maldives Bankrupt?

JP Leader Gasim – himself a former finance minister – claimed the Maldives had already been bankrupted after steady economic declines in recent years. He said that the evidence of the country’s troubled economy may not be immediately apparent, but would be seen in the “near future” as the state lacked the “necessary finance” to settle debts, according to Haveeru.

Gasim was reported as saying that “pointing fingers and blaming others” would not provide the country with an economic solution, calling instead for parliament to pass bills to alleviate the economic situation. The nature of these bills were not specified in local media.

Gasim’s phone was today switched off, while JP presidential candidate Ibrahim Didi was not responding to calls.

However speaking to local media, the JP leader added that the “actions of some” had negatively impacted on the nation’s economy, pointing to what he claimed were calls for a boycott of the Maldivian tourism industry.

Gasim, Maldives Vice President Waheed Deen and Progressive Party of the Maldives (PPM) MP Abdulla Jabir are among a number of figures associated with the present coalition government that are included in a list of resort owners included in the Maldives Tourism Advisory (MTA).

The advisory, established by the Friends of Maldives NGO, has a website utilising a ‘traffic light’ system recommending guests avoid resorts alleged by the Maldivian Democratic Party (MDP) to be directly linked in bringing about February’s controversial transfer of power.

Travel associations in the country have in turn criticised the MTA, expressing “serious concern” over what it alleged was a “concerted international campaign against several of the country’s resort operators.

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Maldives facing worst economic situation in recent history: MMA Governor

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.”

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