Tag: economy

Government underestimating tourism economy by more than US billion, claims economist

The Maldives has significantly underestimated the value of tourism to the local economy by over a billion dollars, according to a report by economics lecturer and Assistant Manger of the Maldives Monetary Authority (MMA)’s Monetary policy and Research Division, Ibrahim Ameer.

In the first month following the introduction of 3.5 percent Tourism Goods and Services Tax on the tourism sector, the Maldives Inland Revenue Authority (MIRA) collected US$7.2 million from 800 of the 871 registered tax payers.

“This means the whole tourism industry’s revenue (market value) would amount to approximately US$210.0 million for the month of January and approximately US$2.5 billion for the whole year,” observes Ameer.

In comparison, the government’s official figure for the total market value of all goods and services produced in the country – not just tourism – is US$1.5 billion.

In his report, Ameer recalculates the budget deficit based on updated GDP figures and concludes that the deficit sits at nine percent, “as opposed to 17 percent of GDP in 2010 as per government authorities.”

“I suspect these underestimated figures are used by the authorities to prolong the preferential treatment Maldives has and in some cases continues to receive as a [former] Least Developed Country (LDC),” Ameer surmises, suggesting that “ our country’s problems are primarily a case of the state’s inability to collect revenue through taxation rather than a budget deficit.”

“It should be agreed that as the country marches towards full democratization, with new independent statutory institutions, local and atoll councils and increased civil service salaries, the country needs to rethink it tax policy,” Ameer states.

In an agreement reached with the International Monetary Fund (IMF) last week, the Maldives has committed to:

  • Raise import duties on pork, tobacco, alcohol and plastic products by August 2011 (requires Majlis approval);
  • Introduce a general goods and services tax (GST) of 5 percent applicable to all sectors other than tourism, electricity, health and water (requires Majlis approval);
  • Raise the Tourism Goods and Services Tax (TGST) from 3.5 percent to 6 percent from January 2012, and to 10 percent in January 2013 (requires Majlis approval);
  • Pass an income tax bill in the Majlis by no later than January 2012;
  • Ensure existing bed tax of US$8 dollars a night remains until end of 2013;
  • Reduce import duties on certain products from January 2011;
  • Freeze public sector wages and allowances until end of 2012;
  • Lower capital spending by 5 percent

Comparison figures Ameer provides for corporate, income and GST/VAT tax regimes regionally and around the world, show the proposed figures for the Maldives are substantially lower.

India, for example, has a 25 percent business profit tax (BPT), individual income taxes of 0-30 percent, and a GST of up to 12.5 percent. Pakistan has a 35 percent BPT, 7.5-35 percent income tax and a GST of 17 percent. Barbados, another tropical island tourism destination, collects a BPT of 25 percent, income tax of 25-25 percent and a GST of 15 percent.

In his conclusion, Ameer argues against substantial cuts of the Rf12 billion state budget, noting the impossibility of reducing that to match the government’s present RF7 billion in revenue, and presses for the careful introduction of taxation.

“We could save some expenditure through cutting waste, prioritising projects and eliminating corruption. On the other hand, we must all agree that in certain areas wage and salaries given are very low compared to many countries,” he suggests.

As a result, “it is difficult to retain skilled and highly educated people in the country. This is why we see so many bright Maldivians leaving the country to work abroad. In the education sector, where the future of the country is molded and where the bright and the best are needed to teach future generations, the remuneration is pathetically low. The average wage for leading teacher with a Master’s degree is Rf 8354 (US$540).”

“The academic and education sector should be highly competitive and more rewarding if we are to build a better future and save ourselves from the sort of ‘brain-drain’ that we cannot afford. The situation is more or less the same with the healthcare sector of this country, with many of the brightest doctors and nurses opting for work abroad in countries as diverse as New Zealand and Canada,” Ameer observes.

He notes that the disproportionately high rents in Male’ swallowed 70-80 percent of the income of many residents in the city, “and as a result, disposable income is lower than it should be to encourage a more competitive market place and economy.”

“Because only Male’ is equipped with all the necessary facilities, like education and health care, more than one third of the population is living here. This creates irreparable social and economic damage,” Ameer claims.

Much of the visible development in Male’ he claims is the a result of a “coffee-shop bubble, a smokescreen that is bound to burst dragging the economy into depression.”

“To achieve sustainable development we need to see past supermarkets, boutiques and coffee shops in every corner,” he suggests.

“The wealthy need to realize that it is more lucrative to have businesses that decline, over our dependence on imports. The present business model increases imports and puts more pressure on the foreign exchange. It only widens the disparity between the rich and the poor when there is a negative impact on the economy.”

Read the full report

Likes(0)Dislikes(0)

Q&A: Finance Minister Ahmed Inaz

Finance Minister Ahmed Inaz was approved by parliament in late April 2011, replacing Ali Hashim who was among President Mohamed Nasheed’s cabinet ministers to be ousted by the opposition-majority parliament. He was approved just as the government implemented a managed float of the rufiya, and spoke to Minivan News about the recent and rapid changes to the country’s economy, the challenges it is facing and the future outlook.

JJ Robinson: An International Monetary Fund (IMF) mission is in town following the conclusion of the Article IV consultation last year. What is the current status of the government’s involvement with the IMF?

Ahmed Inaz: The IMF is discussing a new three program [with the government]. We are talking about structural adjustments that need to be brought in, and on the revenue side we are agreeing measures we foresee need to take in the next two years. We are trying to agree on the policy side.

They have their suggestions and recommendations and we have the policies the President is proposing, and we are trying to come a common agreement hopefully by the start of next week. I’m hopeful we will re-enter the program.

JJR: The IMF delayed the third tranche of funding in November last year citing “significant policy slippages” on behalf of the government. Did the third tranche get delivered?

AI: The question is not about that, the question is what can be practically done in this country. The new government came in with a new democratic setup, but not the budget to support that. The budget didn’t carry the cost of the new reforms.

It is not a matter of whether we can cut down expenditure – yes there are fat layers in the country, not only in the civil service, also in the judiciary and independent institutions. But the fundamental issue is that because of the democratic transition we have a state with recurrent expenditure higher than its revenue.

To make matters worse, the salaries of the state payroll are higher than our income. You can see where the problem lies.

What we foresee is that there are two ways in which we have to work to rectify this issue.

One is to trim the fat layer, by matching outputs with staff and increasing productivity.

The other thing is by increasing our revenue. We need to move from the current inefficient way of raising revenue – which bases revenue on import duties – to a more direct taxation policy.

We currently have the import duty which is a burden for businessmen, because they are taxed before they sell. We will abolish most duties, apart from those on items that are environmentally damaging, those that affect health, and other discouraged items.

The rest will be abolished and we will move into a direct taxation policy when the business profit tax starts in July. We have also started collecting revenue from a Tourism Goods and Services Tax (TGST), and we propose that we increase this as well as introducing a general GST for the public, and an income tax.

This would not be a payroll tax. It would be an income tax on people earning above Rf 30,000 (US$2300) per month. We think this is more justifiable.

Some may feel that this will collect only a very small amount of revenue – but this not just revenue from employment, but income from business dividends, house sales and so forth.

JJR: The former auditor general reported difficultly getting people to declare assets. Is this difficult with high net-worth individuals in the Maldives?

AI: One thing you have to understand is that this is a path other countries have walked. I remember when I was doing my graduate studies, even then we were talking about this. It was something the educated intellects were advocating. It never happened because there was no political willingness – willingness we now have.

I believe that once we start we will sort the rest of the issues. The TSGT is already being taken from big resorts as well as small guest houses on remote islands – very small businesses. They declare – amazingly, they declare.

I think this is something the country can take, and then we can move to rectify problems and perfect the system.

JJR: The general popularity of the idea seems quite sour with members of the opposition. How do you propose getting this tax through the opposition-majority parliament?

AI: All the businessmen I have met – all the reasonable businessmen I have met – believe that the country has to move to a much more structured, predictable and more coherent system of governance. And to do that we need an economic system that supports social change, and supports the change we have brought politically.

To sustain their businesses it is important that they have social and political stability. It would be a grave mistake if one stands up and says they don’t support [income tax], because that will bring instability to the country and harm businesses.

The other thing is that once you have a system of redistributing wealth through direct tax, such as we are proposing, this is spent on infrastructure, welfare, education, transport – all of these things that directly benefit wealthy businessmen, because they don’t have to pay for it on an individual basis. So the cost of doing business will be lowered.

I believe MPs, businessmen and business-MPs will support this. Those I have met have given their full support – they just want to be consulted first.

JJR: Don’t you think that as a potentially populist issue this may become a victim of the country’s adversarial politics?

AI: I think the opposition is very mature. When we were in the opposition, then the opposition was very mature. I think they will choose the best for the country. We are doing the tough job here – by 2013 the game will be easier. We are laying the foundation for the country, not only by changing the political scenario but bringing huge economic changes. I think they will support it.

JJR: Back to the IMF. A theme in their reports last year – and also those of the World Bank – was that while the Maldives’ income might be increased gradually, the country’s immediate problem was the inflated state budget, leading to a high deficit, while the country was at the same time insisting on a pegged currency. The government’s attempt to introduce cuts last year were scuttled – in your mind what were the reasons for this?

AI: One thing was that the business profit tax was delayed in parliament – for reasons I don’t think I have to elaborate. The TGST we proposed was higher than what are getting now, and that has also had an impact on us.

Also we have to remember that the redundancy of the civil service is not an easy thing – the country’s employment has been totally dependent on the government. It is a very big change, and we have said we want the government to be a policy maker, a regulator, but not doing business, so jobs are created in the private sector.

I’m happy to say our redundancy program – with assistance from the Asia Development Bank (ADB) – has to this date enrolled 800 people and already some of them have already been paid and moved out of the civil service. We hope over the next few weeks we will achieve our target of 1300 – the idea is that they will retrained and not return to the government for at least three years.

JJR: A key criticism of the government’s economic policy from the opposition is its spending on political appointees.

AI: Out of total government expenditure, 75 percent is paying the payroll. The political appointees are three percent of that payroll.

I believe that any appointee, whether political, civil service or judicial – any unproductive appointee – is a burden on our system and we should make them redundant.

JJR: Enmity between the Finance Ministry and the Civil Service Commission (CSC) last year led to the ministry filing charges with police against the CSC, just as the cuts issue entered the court system. What is the relationship like now between the Ministry and the CSC?

AI: We are working very closely with them and they have been very cooperative on the redundancy issue.

JJR: A number of private sector businesses have expressed concern that while the Maldives Monetary Authority (MMA)’s decision to enforce the use of the rufiya for all transactions is fine when you have a freely-convertable currency, it presents a serious problem when the banks refuse to sell dollars to them.

AI: The government doesn’t print dollars, and the government doesn’t earn dollars, except for fees and taxes, which is a very small percentage of the total demand for dollars in the country. The dollars are earned primarily by the resorts and fish exporters.

What we want is a system where the foreign exchange system operates as a market. We have introduced a banded float [within 20 percent of the pegged Rf12.85 to the dollar]. What we want is that the dollar earners will sell this to the market, and within the next three months an equilibrium will be achieved.

I don’t mean a low rate – I mean an equilibrium. Once that is set and the speculation and market adjustment has competed, we will have addressed the fundamental reason as to why the black-market existed.

Firstly, because the existing laws and regulations were not enforced, and existing legislation relating to money changers legislation was not being enforced – we cannot have 220 money changers in the country. I have not seen this in other countries. They have to be proper money changers who have invested a certain amount of capital, just like the banks.

I emphasise this but I still don’t get the commitment I need from stakeholders to address it.

Secondly, the monetary regulation states that rufiya is the legal tender for all transactions, with the exception of the government’s collection of taxes and fees. I think we should enforce this irrespective of the sector. We should have rufiya prices – what other country has prices in another country’s currency?

You can still pay in dollars – but this is the exchange rate. For [the customer] it may still seem as though you are paying in dollars, but the transactions are actually happening in rufiya. In Colombo you pay in local currency, even if you use your credit card. We need to have that enforcement irrespective of the sector.

In the medium term we need to address the budget deficit, especially recurrent spending, which has to be matched with income. A state cannot be operated without matching recurrent expenditure to its income – that is madness. A state has to have a prudent economic system – capital expenditure can still be borrowed, because future returns are there.

We working with the ministries to streamline and reduce the deficit in the budget. Next year we are hoping to have a balanced budget.

JJR: The opposition-majority parliament has substantially added to the last two budgets submitted by the government, and the President has been compelled to ratify these. How do you deal with this?

AI: We are trying to work on the legal side as well as the practical, and make sure this is enforced – at least that recurrent expenditure and income is matched, and that any additional bill passed during that particular year is supported with a revenue measure.

They can’t just simply tell us to pass a budget, and then pass bills giving us additional expenditure – every bill comes at a cost. What we propose is that they think about this and rectify it – this is very important.

The third long term goal is increasing productivity and exports, to make sure that whichever government is in power, our manifesto continues and the country can move forward. We need exports to be increased, and earn dollars. Long term, that is the only solution to counter this [economic situation]. In the long run there should be a regulatory framework that supports this.

JJR: Speaking of the regulator, where does the Maldives Monetary Authority (MMA) fit into this? It was only recently that the government was calling for the resignation of MMA Governor Fazeel Najeeb for failing to help address the situation.

AI: I don’t want to dwell on that. For me the governor – whoever is there – I should work with them. What I want is the regulations to be there. For example, the devaluation of the currency within this 20 percent band – that has to be supported.

Once we make a decision, such as the devaluation, we cannot go back. The fundamental health of the economy told us that we had to do this. The President met with the MMA Board, which advised, and a decision was made. It is not time for us to affect the confidence of the economy – an economy cannot survive without confidence. That is the crucial factor an economy needs – and state institutions need to ensure that confidence is there.

JJR: If the government was convinced that the value of the rufiya was going to fall somewhere within that band, why not float the currency altogether?

AI: The reason what that if we float the currency it would have short-term consequences and immediate jumps. A band means the government will defend that band – that is what we are doing with the weekly auction of dollars to the banks.

Secondly we have numbers from the TGST income that suggest we have been underestimating our economy. By having our policies in place – productivity increasing policies and growing additional exports – we are confident we can pull the value of the rufiya down to 10 in the long term – that is our aim. It is not a joke.

JJR: There is a lot of concern, particularly in resort circles, that the new policy restricting expatriate remittances will reduce the willingness of people to work in the Maldives. What was the logic behind that decision?

AI: We understand that expatriate employees are very important. We will never hurt them and we will ensure that their interests are protected. The regulation that the Ministry and MMA are working on will only limit repatriation of what they earn legally under their contract. If they remit more, obviously they will have been earning illegally.

They are living and spending in the Maldives as well – but they can still repatriate up to what they earn. What we are trying to do is limit illegal workers [remitting dollars out of the country].

JJR: If at the same time you are enforcing use of the rufiya when there is some doubt as to whether you can walk into a bank and exchange that into dollars to remit it overseas – does that not impact confidence in the economy?

AI: We believe the market is currently unstable because of the changes we have brought, and that these changes will take three months for the various variables to work. In that period the government will work with the MMA to ensure that stability exists.

There will be a lot of low confidence and instability, and that will not only be felt by the expatriates. All our imports and consumables, medicine, education – is imported. But we are confident we can get through this.

JJR: Potential foreign investors looking at the economy and observing the recent changes may be unsettled by this instability. How do you address this concern?

AI: The current government is a centre-right government, and we are opening our doors to an unimaginable level for foreign investment.

We will not be treating foreign investors different from local businesses. We will not put in unreasonable controls on the economy, and we will make sure foreign investors are consulted, as with the locals.

We have not done this in the past.because we have been very tightly focused on politics as well as the economy, and haven’t been able to communicate as much in English perhaps as we should have.

I believe [foreign investors] have confidence in our economy, and we will ensure their investments are protected in this country, and that wel continue to have policies to encourage further investment. This country does not have a solid financial sector so we need foreign investors very much. That is understood by the current government, and the policy is to attract foreign investors.

JJR: So economy before politics from here on in?

AI: Yes. Until the next election!

Likes(0)Dislikes(0)

Clock is ticking for Nasheed and Maldivian economy: Frontline

Nasheed’s supporters say that his government inherited the “worst economic situation of any country undergoing democratic transition since the 1950s”, writes R K Radhakrishnan for India’s Frontline magazine.

“The budget deficit stood at 31 per cent of the GDP, inflation stood at 12 per cent, and the economy was reeling from a massive fiscal expansion, which saw the government wage bill increase by almost 400 per cent between 2004 and 2009.

For the Maldives, the belt-tightening could not have come at a worse time: it had barely recovered from the effects of the devastating Indian Ocean tsunami when the slowdown in the West (which affected the flow of tourists) hit home. This was followed by the serious disturbances in the Arab world, a region that the Maldives is tied to historically.

The protests were organised by the opposition parties even though these were labelled as youth-led. This led to a bizarre situation. Since the main opposition, the Dhivehi Rayyithunge Party (DRP), claimed that it had nothing to do with the protests, the government was left with no one to talk to. The government had maintained that a faction of the DRP [Z-DRP], led by former President Maumoon Abdul Gayoom, was behind the protests. It said that Gayoom was inspired by the events in Cairo’s Tahrir Square and that he was hoping to overthrow the government after crippling its functioning.

“There are indications that the current violence taking place in Male has… everything to do with a political struggle for who should lead the main opposition party, the DRP, into the next presidential election. It is unfortunate that that struggle is being played out on the streets of Male rather than, as should be the case, by holding an open and transparent primary,” the Maldivian Foreign Minister, Ahmed Naseem, said in Colombo last fortnight when asked about the protests.

Reports indicated that the number of people detained was about 300, but the Foreign Minister dismissed it. “Only 16 persons have been held,” he said. The Maldives Police Service said on May 8 that of all those arrested during the previous week of protests, six remained in detention under judicial warrant. All six had previous criminal records, it said.

“The government understands that many people are concerned about the economy and the recent price rise, and is committed to working to address these concerns through a process of dialogue. For example, yesterday [May 5] the Cabinet decided to halve the import duty on diesel fuel. However, the current economic difficulties reflect, at their heart, deep-seated structural problems inherited from the former government…. The government is working closely with the IMF to address these problems. This has already resulted in the deficit being reduced from 31 per cent to 16 per cent,” the Foreign Minister added.

The government looked forward to receiving credible, alternative economic proposals from the opposition, said Mohamed Zuhair, Press Secretary with the President’s Office.

For now, the protesters have gone home. But with better ferry connectivity, ironically put in place by President Nasheed, they can come back anytime and paralyse Male.

Full story

Likes(0)Dislikes(0)

MMA’s enforcement of legal tender for all transactions “absurd”, says private sector

The private sector has expressed concern at the Maldives Monetary Authority (MMA)’s announcement last week that it it intends to enforce the use of rufiya for all transactions conducted in the country.

The move effectively outlaws dollar transactions in the Maldives, with the intention of funneling foreign currency through the local banking system in a bid to combat the country’s dollar shortage.

President Mohamed Nasheed backed the central bank’s move, and the prohibition of the use of any currency other than rufiya for payments including remuneration for work, services, fees or rent.

The ‘grey’ dollar economy has existed in parallel to the local currency, and has insulated businesses such as resorts from the inflation of the rufiya, pegged at 12.85 to the dollar for almost a decade despite the global economic recession, printing of currency and issuing of T-bills.

“This regulation has existed since 1987,” observed Ahmed Adheeb, a local financial expert working in the private sector, adding that the lack of enforcement had protected the private sector from the country’s monstrous deficit and spend-happy state budget.

The MMA’s announcement came at time when “the convertibility of rufiya [into dollars] is in question because of the deficit, and the pumping of rufiya into the system.”

“Is this the right time to enforce this regulation?” Adheeb asked. “We met with the government and told them clearly that that our industry will face a lot of consequences if this happens.”

Local travel agents were one example of businesses that would be affected, Adheeb said.

“They [earn dollars] and contribute a large inflow of dollars into the economy. If they have to pay resorts in rufiya, they will lose their competitive advantage.”

The enforcement would take “the openness and flexibility of out of the economy, when the real issue lies with the state budget,” he said. “This will make business so difficult – it is very dangerous to the economy for the government to start sorting out industry before the state budget. And what of the practicality of it?

“The government needs to address the deficit and cut down its expenditure. State income will increase gradually, but if we keep spending like this we are headed for disaster.”

Minivan News spoke to the manager of one import business, who relies on resort customers paying in dollars to be able to buy stock from overseas.

The MMA’s decision, he claimed, was “absolutely absurd.”

“They can do what they like – but does this mean resorts must pay in rufiya? At a time when there’s no currency stability? Will resorts have to post rufiya prices in tourist brochures? If the objective is to drive foreign investment out of the Maldives with a raft of new taxes and a confused and bizarre monetary policy, then they’re being quite successful,” he said.

Another manager of a commodity import business Minivan News spoke to bluntly stated that she would be unable to comply with the regulation “because we trade in dollars.”

She added that  her business, which banks locally and was sorely hit by the dollar shortage and the reluctance of banks to convert local currency, had improved following the government’s decision implement a managed float of the rufiya.

“We found resorts were more willing to pay in dollars once we set our rate at Rf15.42,” she explained. “But unless the banks are going to exchange rufiya to dollars consistently and at a sensible rate, this is going to cause absolute uproar. And how on earth are they going to police things like payment of rent?”

Economic Development Minister Mahmoud Razee told Minivan News that the government was “trying to make sure that foreign currency goes through the banking system, by enforcing the legal tender.”

“The reason we are doing this is so importers can go to the bank and request dollars from the banking system,” he said. “This will not stop people having a dollar account, it will just stop transactions not in the legal tender.”

Every restaurant at tourist resorts would be obliged to change its menu to rufiya prices, he acknowledged, “but almost every resort and hotel already has a money changer.”

“The MMA will be able to take action if there is a transaction that does not take place in legal tender, and take [the parties] to court,” he said.

The MMA’s announcement came days after the government announced exchange control regulation on the salary of expatriates, legally limiting their ability to transfer money outside the country.

“We don’t want a lot of illegal workers sending foreign currency out of the country, working on the side and taking jobs from locals,” Razee said, explaining that expatriate workers would be obliged to prove they were working in the country legally at the point of transfer, and be restricted in the amount they could send overseas.

“The Ministry of Finance will set a percentage, say 90 percent, of the salary that can be remitted,” he said.

Adheeb was critical of the decision, suggesting that the government had chosen a critical time to impose exchange control.

“We have said it is not going to work as we have a small population and we need foreigners to work here,” he said. “[Issues concerning] non-skilled labour are a problem of regulation, but importing skilled labour gives us a competitive advantage at a time when there are issues converting the rufiya,” he said.

“I question the practicality off this – the banks are currently struggling to deliver services to their existing customers. How will they know if an expat is an illegal expat? This will just create a blackmarket for illegal banking transactions.”

Likes(0)Dislikes(0)

Trade Ministry to fine businesses selling staple products higher than control price

The Trade Ministry will force the sale of staples including rice, flour and sugar according to a price control list.

The ministry said that businesses selling flour, sugar and rice higher than the price control list will be fined up to Rf 100,000 (US$6500).

‘’Items should be available at the specified prices at all venues trading in these items from May 16, 2011,’’ the ministry said, adding that the enforcement was justified under Article 7 (a) of the Consumer Protection Act (Act number 1/96).

According to the ministry’s price control list for the capital Male’, flour has to be sold at Rf3.28 per kilo, sugar Rf4.30 per kilo and normal rice Rf4.28 per kilo. For the rest of Kaafu Atoll, the price of flour per kilo is Rf3.56, sugar Rf4.58 per kilo and normal rice Rf4.56 per kilo. Meanwhile in Seenu Atoll in the country’s south flour must be sold for Rf3.98 per kilo, sugar Rf5 per kilo and normal rice Rf4.98 per kilo.

The control price of flour per kilo for Haa Alifu Atoll is Rf3.81, Sugar Rf4.83 and the price for normal rice is Rf4.81.

For Haa Dhaalu Atoll, the price of flour is Rf3.76 per kilo, Sugar Rf4.78 per kilo and normal rice Rf4.76 per kilo.

In Shaviyan Atoll flour has to be sold for Rf3.71 per kilo, Sugar Rf4.73 per kilo and normal rice Rf4.71 per kilo while in Noonu Atoll flour has to be sold for Rf3.66 per kilo, sugar Rf4.68 per kilo, normal rice Rf4.66 per kilo.

In Raa Atoll flour has to be Rf3.68 per kilo, sugar Rf 4.70 per kilo and normal rice has to be sold Rf4.68 per kilo.

As for Baa Atoll, price of flour mentioned in the control list is Rf3.61 per kilo, sugar Rf4.63 per kilo and normal rice Rf4.61 per kilo.

According to the list, price for flour in Lhaviyani Atoll has to be Rf3.61 per kilo, sugar Rf4.63 per kilo and normal rice Rf4.61 per kilo.

While in Fuvamulah flour has to be sold at Rf3.94 per kilo, sugar Rf4.96 per kilo and normal rice Rf4.94 per kilo.

Recently a group of youths along with some opposition political figures protested in the streets of Male’ calling for the government to reduce the price of products and reduce living costs, and opposed the government’s decision to implement a managed float of the rufiya within a 20 percent band of the pegged rate of Rf12.85 to the dollar.

The move comes on top of a decision last week to halve the import duty on diesel, used to fuel the country’s extensive dhoni fleet.

Likes(0)Dislikes(0)

“Prices of goods have been a lie”, says President Nasheed

Extract from a speech given by President Mohamed Nasheed at Sunday night’s Maldivian Democratic Party (MDP) rally, concerning the state of the economy.

Our nation remains a nation, as I often say, because our ancestors went fishing, collected cowries, climbed palm trees, constructed boats, built resorts and operated them. Our nation remains a nation not just because rulers ruled and judges judged. Our nation remains a nation because workers have laboured.

The rights of Maldivian workers and various benefits are not being spoken about in this country today for the first time. In the 1700s, Judge Hassan Thajudheen forbids Maldivians from working without remuneration. From that day onward, Maldivian workers from day to day have been noting their rights, and their responsibilities as well, to the present day.

In our country, if we want to bring the labour market to the right path, we have to look at or consider not just the worker. I always say, to do something, you have to do something else. After continually doing that, when what we envisioned has been reached, then what we want will have been sustainably achieved.

Prices of goods are not lowered with an army officer in front of the shop. To bring down prices, we have to build a good, strong economy. We have to change our economy into the shape of a strong economy of a middle-income country.

This was not the case yesterday. Most of the goods we sell in this country are imported. We pay for it in dollars. When we don’t know the value of the dollar – that is the goods in the market were bought with dollars and we don’t know its value – there is not a single way for us to know the value of the goods we have bought. Therefore, there’s no way we can know anything.

To build an economy on that basis and to consider it a sound economy is a mockery. It is not something I can do. I too know, [MDP MP] Alhan has said very clearly, we can keep building and building and building debt. The law very clearly gives me the discretion to print money. For the first three months after I assumed office, at the end of every month I was brought a piece of paper, on it was written that I had printed Rf200 million (US$16 million).

With every Rf 200 million, the value of the rufiyaa kept falling. When we took over the government, inflation was at 12 percent. [Prices] were rising at a rate of Rf12 each passing month. Today [inflation] is 0.65.

When prices soared to the highest, the price of a can of powdered milk rose by Rf 4 – two children will drink from one can of milk for a month. How much of an increase in rufiyaa per day has that become for us? I too know the prices of goods in the country. I do go into shops. I know that the price of a small coconut is Rf5 in Filledhoo, but Rf10 in Male’.

We do not lack information. Nor do we lack a course of action. And I am not unaware of what we’re doing and what we are about to do. Leaders of nations are anxious and cowardly when it comes to making changes to the country’s monetary and economic system. They remain hesitant about making changes to salaries, hesitant about making changes to taxation. They remain anxious and fearful of inflation.

However, in truth it is not us who have to suffer from that cowardice today, but our children tomorrow. The question before us today is who should we treat better? The woman we are married to now or our young children? I know it is a difficult question.

Everything we have done in our lives has been for our children. We build harbours for our children; we build homes and sewerage systems for our children. We give pensions as well, for our children.

Today prices of goods have gone up, too, for our children.

The straight value of the dollar to the rufiyaa is not a number I saw in a dream one day and took to heart. The price of a dollar set in 2001 was not based on a transaction between rufiyaa and US dollars. The price of a dollar has been set today based on market transactions. Today you are seeing straight the true price of the goods at market. It is not that prices have not gone up, you have found out the price! What was written before was a lie. It was not a price. It is a picture that rulers have showed you as a price. Our children and children’s children are being destroyed by the seduction of that picture.

Do we want the present or the future? This party was formed because we said ‘we want the future, today is done, the sun has set, what we can win is tomorrow.’ There is no way we can get today. We have to reach, too, for tomorrow.

Most workers in this country are fishermen. 44 percent of the workforce are fishermen. When the value of the dollar is low, its unfairness is felt most by fishermen. The fish they catch is sold out of the country. When the export price improves, the [purchasing] price improves for them. Because the value of dollars has gone up, the income of most workers in the country has gone up exponentially. It has gone up!

I have just come back from Thinadhoo. I went to Kolamafushi too. I know what’s happening in Ihavandhoo and Hoarafushi as well. Maldivian fishermen are today selling a kilo of raw fish for Rf16.50. That is not a price that they would have ever imagined before. A kilo of raw fish for Rf16.50. How much is a cupful of rice? How many cupfuls of rice can you get today for one handharu fish?

I would say the Maldives has not seen any more prosperous times than this.

The second [main source of employment] for workers in the country is in the tourism industry. The service charge in that business is paid in dollars, you know. On April 11, the income of workers in that sector has gone up 20 percent.

About 20 to 25 percent of the workforce in the Maldives is employed by the government. For them, it has become a little bit difficult. Like I said, a Rf4 [increase] from a can of powdered milk, for two children to drink for a month. Total monthly household expenses have gone up by Rf300 or Rf400 for a secretary, for a lawyer, for a labourer. To plug that gap, we must do what we have to do.

The government’s monetary and economic policy is now being implemented. We are now making the changes necessary to instil the characteristics of a middle-income country in our economy. An administrative framework for taxation has been established. A 3.5 percent GST is being levied on tourism services.

The government aim is to completely eliminate import duties beginning on January 1, 2012, for all children’s food, all foodstuff, pens, pencils and paper. We are working towards that end. It will be done on January 1, 2012.

In order to do it, the state needs an additional Rf1.3 billion. Today our budget forecast is Rf2.3 billion as duties. The government is giving up that duty, but while doing so, we have decided to ask the honourable members of the People’s Majlis to increase the tourism GST from 3.5 percent to 5 percent and introduce a 3.5 GST for other businesses.

If we wish to change our economy, we have to make these courageous changes. There is one additional tax. That is, the income tax. It will hurt the most there. We plan to take an income tax from those who earn above Rf30,000 a month. About Rf30 a month. When that amount is paid to the government as income tax, then the whole cycle of the economy will, God willing, become stable – this is where we see ‘The Other Maldives.’

That is where the value of the dollar will be brought down to the level we want and the price of goods and services will fall.

Our task is very clear to me. I know that, God willing, our efforts will bear fruit. This morning, among the changes to be made to the economy, I noted a special point. A lot of workers in the country are foreigners. Most of the time, businesses employ them because they work for cheaper rates. For work done in this country, [a person] should be able to live an ordinary life in this country, whether it is a foreigner or a Maldivian.

The government plans to determine what the minimum wage paid to a worker should be. Here or abroad, when that is paid to workers, we believe job opportunities will not be lacking for Maldivians.

We can bring our country to the right path. I know that there are many people who find what I have to say difficult to hear. But I say repeatedly, I am not someone who will squander our children’s future. We took over government to realise the hopes of the Maldivian people – to establish a system of good governance for the people.

We do not arrest people. We do not torture people. This government will not pillory, handcuff, torture or chain anyone. We talk to the people through verbal interactions, not through fear and intimidation. The Maldives is maturing into a full democracy. The biggest secret of our success is the many citizens of this country fighting for freedom and hoping for better days.

Before concluding, I would tell everyone here not to worry at all. Some nights, they might be squatting at the Chandanee Magu intersection. Other nights, leaning against a door somewhere. We must not be concerned and worried about it. What happened last night was very unfortunate. I didn’t know that protest was going on last night even when I slept.

What I have to say [to the demonstrators] is that our resolve will not be shaken. Neither this party nor I will be shaken. Our policies won’t budge either. God willing, in Alhan’s words, we are going to ‘The Other Maldives’ at maximum.

Likes(0)Dislikes(0)

Business head cautious over president’s cost-cutting plans

President Mohamed Nasheed has outlined tax reforms he claims will help to eventually alleviate concerns over the higher costs of goods and services at the heart of protests that have raged in Male’ over the last two days.

Beyond announcing that May 1 would now serve as a public holiday every year in celebration of International Labour Day, the president aso attempted to outline government plans for economic reform.

Speaking yesterday during a function to mark Labour Day, Nasheed unveiled plans to try and reduce costs for “everyday items” by between 10 to 15 percent by removing import duties, which the government estimates account for Rf2.3bn of budgeted state income during 2011.

The president said he believed these costs can be covered by tax reforms; both on the earnings of members of the public with a monthly wage of over Rf30,000 a month and increasing taxable income from the tourism industry.

“The reforms to our financial system involve creating a tax mechanism, like in other civilised societies, instead of depending solely on import duties,” he stated, while also pledging to introduce a minimum wage rate during the year.

Some prominent investment groups in the country, while supporting initiatives to reduce costs that have led to ongoing public protests in the country, say that the addition of a minimum wage and a Goods and Services Tax (GST) on all businesses operating in the country, needed to be gradually implemented to ensure the nation’s fledging economy can cope with any potential changes.

As part of his reforms, the president claimed that the government planned by next month to propose amendments that would remove import duties on basic items as of 2012.

According to Nasheed, these proposals would be backed by other amendments expected to be forwarded to parliament. This includes an increase in the Tourism GST, introduced on January 1 this year, to five percent from the 3.5 percent introductory rate, as well as implementing an entirely new GST of three percent on general trade outside of travel industry services.

“I have no doubt that these reforms will shift the government from its current sources of income to more sustainable income sources,” he claimed.

To try and counter the more pressing concerns of high costs that have allegedly led thousands of, mostly young, people taking to the streets in protest, the president claimed that it was purseuing a number of financial [instruments] to try and cut down on the impacts of higher living costs such as in establishing a minimum wage during 2011.

“This government came to power with hopes, to give a decent and an honourable life for Maldivians,” he said. The president said that the initiative was part of plans to promote employees rights as well as those of employers within the country through the establishment of “stronger labour relations frameworks.”

“Most political leaders are disinclined to restructure monetary systems, change wage limits, and reform tax regimes because they are pressured to consider the needs of few powerful people,” Nasheed claimed. “But I assure you that the leader you [Maldivian people] have elected is not like that.”

In addressing Nasheed’s plans, the Treasurer of The Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, said that he believed further development such as investment was needed to strengthen the Maldivian economy before taking on major reforms – at least in the short-term.

“Introducing these tax reforms and schemes like the minimum wage will be difficult over the next two years. The Maldives is at a disadvantage when it comes to economies of scale as it is,” he said. “What I would like to see is a transitional period rather than introducing these measures straight away.”

Adheeb claimed that with the planned introduction of the additional GST on general trade and corporate tax, the prospect of setting a minimum wage would need to be studied in terms of possible impact, particularly in the private sector.

“We [the private sector] could end up losing some of our competitive edge over other countries. What we need is some breathing space and for these reforms to be bought in gradually,” he said. “We have to build confidence in the economy especially with small and medium businesses. If the minimum wage is going to be introduced it should be set on an economic basis and not for short-term political benefit.”

Adheeb therefore urged the government to consult employers – especially in smaller and medium enterprises – before putting any initiatives like a minimum wage in place, adding that private enterprises had been a key component in the more successful developments of the Maldivian economy.

“The tourism industry here has been developed mainly by the private and not the public sector,” he said.

Likes(0)Dislikes(0)

Petrol bombs found in mosque during second night of anti-government protests

A second night of violent protests in the capital city ended with the arrest of several demonstrators after petrol bombs were thrown at police in the early hours of this morning.

Protesters gathered last night near the Tsunami Monument in Boduthakurufaanu Magu and marched towards the intersection of Male’s main road of Majeedhee Magu and the tourist street of Chandhanee Magu; the same location as Sunday morning’s sit-down protest.

Protesters demanded the government lower the cost of living and called on President Mohamed Nasheed to resign, claiming people were increasingly unable to afford basic commodities following the government’s effective devaluation of the rufiya.

Police blockaded the area to vehicles and maintained a presence, but unlike Sunday used no tear gas or force on the crowd.

Riot police at the scene were bombared with petrol bombs, stones, water bottles, chilli sauce, “and a hammer”, according to police Sub-Inspector Ahmed Shiyam.

“The protesters were trying to incite police. Some police were injured but not seriously,” he said.

Police yesterday issued a statement claiming that the the first round of violent protests was premeditated after discovering a ready supply of rocks stashed near the intersection.

Several police were injured when the protest turned violent

During last night’s protests, “police received information that petrol bombs were being made in the toilet area of a nearby mosque. Police attended the mosque and found petrol bombs and equipment used to make them.”

Police water cannon and tear gas were deployed in the area, but were not used. A number of violent protesters into custody who were later identified as known gang members. No MPs were arrested.

“We saw two journalists injured by a stone, although not seriously,” Shiyam said.

Senior political figures at the protest included dismissed DRP Deputy Leader Umar Naseer, and DRP MPs Ahmed Mahlouf, Ahmed Nihan. Jumhoory Party (JP) leader MP ‘Burma’ Gasim Ibrahim, and DRP leader MP Ahmed Thasmeen Ali visited the scene at around 1:00am.

Gasim addressed the crowd but did not stay long, while Thasmeen joined the protesters.

Spokesperson for the DRP, Irahim ‘Mavota’ Shareef, confirmed to Minivan News that the protest was authorised by the DRP Council – significant, as Umar Naseer was dismissed from the party last year for leading similar protests on behalf of the opposition without approval.

Meanwhile, Maldivian Democratic Party (MDP) parliamentary group leader and MP ‘Reeko’ Moosa Manik led a group of around 100 MDP activists in an apparent attempt to clash with the DRP supporters, but were quickly cut off from the demonstration by riot police.

Both crowds threw objects at each other, with Moosa’s crowd yelling that they did not believe that living costs had risen.

After warning protesters several times to leave the area, police dispersed the crowd by slowly moving into the intersection. The protest was finally dispersed around 3am early this morning.

Thrown rocks left on the street in the aftermath of the protest

Speaking to Minivan News, DRP MP and leader of the party’s youth wing Ahmed Mahlouf claimed that last night’s crowds were larger than the previous protest – particularly the number of young people present.

“The crowds are much greater than last night and I am confident that the turnout will be even bigger tomorrow night,” he said.

The protests would be begin at the artificial beach area every night at 8:45pm ahead of a “huge” protest scheduled for Friday, Mahlouf said.

He acknowledged that the protests had descended into levels of violence that “could not be accepted” with some groups of people throwing stones and cans of petrol at police that at one point also threating to set a shop on fire.

“There is some suspicion that the MDP may have paid these individuals to do this.  There were so many stones and petrol bottles thrown at police as well as hitting stores,” he said.

“We cannot accept these levels of violence and as protestors we just want to raise our voices and get our point across about high prices.  Even last night we were asking police to arrest these people, though this difficult to do in large groups of people.”

The protests have been claimed by some opposition politicians to have been organised by, and represent, youth groups in the country rather than a single partisan interest.

Amidst plans by organisers for further protests throughout the week, Mahlouf said his party would nonetheless be having a meeting today to decide whether to talk with police about possible means to reduce potentially violent confrontations.

“A lot of these techniques were used by the MDP before they came into power,” he claimed.  “I do not want to see a repeat of that.”

However, the MP claimed that a number of senior MDP activists had also joined the protests and spoke out concerning government economic policy, including some friends of President Mohamed Nasheed.

“We know people aren’t with them any more and that they don’t believe what he [President Nasheed] says,” he said.  “Even in the MDP leadership elections where he supported the appointment of both Ibrahim Zaki and Mohamed Aslam, the party has voted against him.”

MDP spokesperson Ahmed Haleem Zaki claimed that the intervention of opposition groups like the DRP in the protests formed part of wider plans to create “drama” that distracted from a failure to pass so-called anti-gang legislation in the Majlis this week.

“Today parliament is supposed to be considering passing a bill that would give more power to police to arrest gang members,” he said. “This is a political problem where we have an important bill needing to be passed and the opposition parties do not want it to go through.

Haleem did confirm that fellow MDP MP ‘Reeko’ Moosa Manik had turned up with some supporters during the protest, but said he was not himself responsible for instigating violence.

“Moosa was hit by stones and was then taken to hospital, but I can’t confirm if he was seriously injured or not,” he said.

Haleem claimed that Moosa intended to try to call for an end to violent confrontations and denied that his presence may have exacerbated confrontations at the protest site.

“We do not want violence as we are the [country’s] ruling party. Moosa was there to support police and ask protests to go home peacefully,” he claimed.

When questioned over whether MDP supporters were amongst the young people protesting, Haleem said that the party accepted that the cost of living was a major issue and that the last two years had thrown up a number of difficulties for the government in balancing the nation’s finances.

“However, we had the previous government who treated Maldivian money as if it was their own family fortune for many years,” he said. “They left the economy in such a situation that the government has been forced to take drastic measures. People know that the cost of living is high all over the world from China, to the US and the UK.”

According to Haleem, opposition parties had sought to use the protests to court drama and political instability in order to try and garner negative press coverage of President Nasheed through major news networks like CNN and Al Jazeera.

“I think [Nasheed] is very popular right now and that is why the opposition want drama,” he said. “[The opposition] thought they could compare the protests to mass movements in Egypt’s Tahrir Square – a site linked to the fall of former Egyptian leader Hosni Mubarak – but people are not stupid and know very well that this isn’t the case. After four or five months we expect the economic situation to have improved.”

Meanwhile, MDP coalition partner the Adhaalath Party, led by State Islamic Minister Sheikh Hussein Rasheed, has issued a press statement in support of the anti-government protests.

The Adhaalath Party said it believed that the youth protest was “a peaceful gathering.”

”Lowerer living expenses is one of the main pledges of this government,” said the party. ”We call on the government to find a wise solution for this issue.”

The Adhaalath Party said that the protest was conducted lawfully and that ”it is not acceptable to use tear gas and batons to disperse a lawful protest.”

The party also expressed concern that police officers and protesters were injured during Sunday night’s protest.

Currency in crisis

The government has struggled to cope with an exacerbating dollar shortage brought on by a high budget deficit – triggered by a spiralling public sector expenditure – in comparison with the foreign currency flowing into the country. Civil service expenditure has increased in real terms by 400 percent since 2002.

Banks subsequently demonstrated reluctance to sell dollars at the pegged rate of Rf 12.85, and high demand for travel, commodities and overseas medical treatment forced most institutions to ration their supply or turn to the flourishing blackmarket.

After a short-lived attempt to crack down on the illegal exchange of dollars, the government floated the rufiya within a 20 percent band, effectively allowing it to be sold at up to Rf 15.42 to the dollar.

The International Monetary Fund (IMF), which has been critical of the government’s growing expenditure despite a large budget deficit, praised the decision as a step towards a mature and sustainable economy.

Police extinguish a thrown petrol bomb

“Today’s bold step by the authorities represents an important move toward restoring external sustainability,” the IMF said in a statement. “IMF staff support this decision made by the authorities. We remain in close contact and are ready to offer any technical assistance that they may request.”

However, many companies dealing in dollar commodities immediately raised their exchange rates to Rf 15.42, along with the Bank of Maldives.

The government’s move, while broadly unpopular, acknowledges the devaluation of the rufiya in the wake of increased expenditure and its own inability to overcome the political obstacles inherent in reducing spending on the country’s bloated civil service.

Yet as Maldives relies almost entirely on imported goods and fuel, and many ordinary citizens have found themselves harshly affected by short-term spike in prices of up to 20 percent as the rufiya settles.

“We do not really know, based on the breadth of the domestic economy, what the value of the Maldivian rufiyaa is right now,” Economic Development Minister Mahmoud Razee admitted at a recent press conference.

The government has said it hopes the rufiya will stabilise within three months.

Likes(0)Dislikes(0)

Economy’s pigeons come home to roost

The stated cause of the opposition-led protests in Male’ – the party claims the rallies are “youth led”, however opposition politicians are a leading fixture at the demonstrations – is the increase in the cost of living due to the government’s recent decision to implement a managed float of the rufiya, within a 20 percent band of the pegged rate of Rf 12.85.

An ongoing dollar shortage, reluctance of banks to exchange local currency, and a flourishing blackmarket that reached Rf 14.2-14.8 to the dollar, culminated in mid-April with the government finally acknowledging that the rufiya was overvalued – after a short-lived attempt to crack down on ‘illegal’ exchanges.

High demand immediately led to most banks and companies dealing in dollar commodities – such as airline ticketing agents – to immediately raise their rate of exchange to the maximum permitted rate Rf15.42.

With the Maldives almost totally reliant on outside imports, including fuel and basic staples such as rice, the government’s decision has effectively led to a 20 percent increase in the cost of living for most ordinary Maldivians.

Moreover the Maldivian economy is dependent on oil to such an extent that is spends a quarter of its GDP on it – US$245 million – the vast majority on marine diesel, making imported energy one of the single largest drains on the country’s economy.

Customs documents obtained by Minivan News in January showed that Maldives was spending almost US$100,000 more per day more on fossil fuels than it was in the summer of 2010. At that time, oil was US$86 a barrel. By the same calculations but with today’s oil price, the Maldives is paying an additional US$450,000 per day for oil compared to summer prices last year.

Amidst rising commodity costs and external pressures, the country’s insistence on maintaining a fixed rate while increasing government spending had late last year begun to affect shop shelves and raise the ire of the International Monetary Fund (IMF), which delayed the third tranche of its funding due to “significant policy slippages” concerning the government’s failure to curtail spending. That amount in itself was not substantial, but the IMF is used as a financial bell-weather by most major donors.

The government’s unwillingness to face the political difficulties inherent in its budget deficit of 21 percent – the legacy of a 400 percent increase in civil service expenditure since 2002 and a hot printing press – was compounded by the addition of an extra layer of local government added to the state payroll, and the country’s graduation from the UN’s ‘Least Developed Country’ status to ‘Middle Income’, and the loss of concessional credit and certain trade concessions.

In an article for Minivan News, Director of Structured Finance at the Royal Bank of Scotland Ali Imraan observed that ‘growth’ in the domestic economy had been driven by the public sector and “paid for by printing Maldivian rufiya and clever manoeuvres with T-Bills, which the government has used since 2009 to be able conveniently sidestep the charge of printing money. In simple terms: successive governments printed/created money to drive domestic economic growth.”

Imraan pressed for the Maldives to invest in private sector revenue growth “rather than building airports on every island”, and implement a progressive taxation system targeting high earners in the interest of income equality. He also urged the Majlis to uphold the constitutional stipulation whereby MPs – such as those with business interest in the tourism sector – removed themselves from voting on issue in which they had a vested interest, and further suggested that the government resolve the matter of stalled tourism developments “awarded to parties with no money or track record.”

“Moratoriums on lease payments or debt repayments may look innocuous enough, but they rob the country of vital growth opportunities and hence ultimately rob the people. We should not stand for it,” he said.

Imraan’s latter suggestion proved somewhat prescient when the Tourism Ministry renewed the lease for Hudhufushi in Lhaviyani Atoll, despite the resort island’s owner owing more than US$85 million in unpaid rent – most of it fines for non-payment.

The government’s decision to implement a managed float of the currency came as a least one local sales agent for international airlines operating in and out of the Maldives closed its doors to customers, blaming an inability to pay the airlines because of a lack of US dollars circulating within the economy.

Parallel economy

The Maldives’ profitable tourism industry is considered to be indirectly responsible for 70 percent of the country’s GDP, and certainly the vast majority of its foreign currency earnings.

However historically little of the industry’s financial success has reflected on the Maldives’ domestic economy, with the inflow of money limited to the flat rate bed tax, import duties and worker salaries – most of that in rufiya.

With the introduction this year of a 3.5 percent tourism goods and services tax, a business profit tax and a revision of the rents paid for resort islands, the government now has a number of economic levers it can pull to increase revenue in the future.

However it has struggled to explain that to people now paying 20 percent extra for basic commodities – an affront to the MDP’s pledge to reduce the cost of living – and seems have been caught unawares by this week’s populist protests.

Both factions of the opposition have meanwhile seized the political opportunity to take the focus off the party’s internal troubles, but have offered few alternatives beyond demanding the government “reduce commodity prices”.

“I believe a lot of people are very unhappy with rising prices. People are asking the government to bring down the prices,” opposition Dhivehi Rayyithunge Party spokesman Ibrahim ‘Mavota’ Shareef told Minivan News.

“It has been a sudden and tremendous jump and people were not prepared for it. This feeling is shared across party lines.”

Shareef accused the MDP of financial mismanagement and recklessly increasing spending, without investing “in productive resources that ensure future revenue for the country, and reducing expenditure in areas that do not affect the people – such as foreign missions.”

“They need not reduce the civil service, because these are the lowest paid government employees and reducing their numbers would have not tangible effect. But the top players in government – the political positions – and positions in the paper companies created by the government are many areas [that can be reduced],” Shareef claimed.

“Before the tsunami the country’s finances were very well managed, and even after the tsunami, given the circumstances, they were well managed. Tourism infrastructure was damaged, islands needed reconstruction and in some cases resettlement. We had to spend a lot of money, and increased the budget from Rf4 billion to Rf5.5-6 billion. It was still a manageable level, and although it was not the best option we had no choice at the time,” he claimed.

The opposition – and the Civil Service Commission (CSC) – for much of last year opposed the reductions in the 21,000-strong civil service demanded by the IMF, with the issue becoming mired in the court system.

The opposition contested that it is unfair to reduce the number of civil servants while increasing the number of political appointees. While the government now has only 170 political appointees on its books, Shareef claimed “they do not show up on paper because of the paper companies the government created in the name of corporatisation to try and fool the International Monetary Fund and the World Bank. I don’t think a country of this size – 350,000 people – needs to have so many political appointees.”

The government has since changed tactics, offering incentives to civil servants as young as 18 to leave the state payroll.

Under the scheme, the application deadline for which was May 31, civil servants and government employees are eligible for one of four retirement incentive packages: no assistance, a one time payment of Rf 150,000 (US$11,700), a payment of Rf 150,000 and priority in the small and medium enterprises loan scheme (for those 18-50 years of age), or a lump sum of Rf 200,000 (US$15,600) and priority in government training and scholarship programmes (for those 18-40 years of age).

The move to incentivise the departure of civil servants is likely to draw further support from the IMF, which has finished its Article IV consultation and may be weighing up the provision of further support.

Meanwhile, the government is unable to respond to demands from the constituency to reduce commodity prices without explaining the complexities of the situation it finds itself in. Yet neither is it realistic “to pin our hopes on some sort of tourism growth bonanza in the short term,” wrote Imraan. “We might as well play the Euro lottery every week if this is the only plan.

Likes(0)Dislikes(0)