MMA Governer resigns before calling on state to minimise expenses

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

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

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

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

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

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

Achievements during five years as governor

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

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

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

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

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

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

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

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


MMA chief slates government’s revenue raising measures

The Governor of the Maldives Monetary Authority (MMA) Fazeel Najeeb has criticised the proposed 2014 state budget for containing tenuous revenue-raising measures, expressing concern that the MMA may have to print money should the government fail to realise expected revenue.

The Ministry of Finance and Treasury has proposed a record MVR 17.5 billion (US$ 1.1 billion) budget for 2014 with a projected deficit of 2.2 percent of GDP. The government expects MVR8.5 billion (US$ 552 million) from taxation and a further MVR3.5 billion (US$ 224 million) from new revenue raising measures.

These measures include hiking Tourism Goods and Services Tax (T-GST) from 8 to 12 percent, revising import duties, a continuation of the tourism bed tax, raising airport departure charge for foreign passengers from US$18 to US$25, leasing 12 islands for resort development, introducing GST for telecommunication services and charging resort operators in advance for resort lease extensions.

The Majlis must amend existing legislation to realize the additional MVR 3.5 billion.

Najeeb told the People’s Majlis Budget Committee last night the government must not proceed with new development projects unless and until the revenue is realized.

“If not, ultimately the government will come to the MMA to find the cash to proceed with those projects. And then again we have more rufiyaa in the economy to chase after the few dollars,” Najeeb said.

Najeeb noted the proposed measures relied heavily on taxing the tourism sector and said adding new taxes to a nascent tax system introduced in 2010 may create problems. He further said that making resort owners pay lease extension fees upfront was robbing the state of future revenue for a “temporary benefit.”

The government had also proposed revising import duties and increasing departure charges to finance the 2013 budget, Najeeb said. However, the Majlis had failed to approve them, resulting in the MMA having to print the money, he added.

According to MMA figures, the central bank has printed over MVR1.7 billion (US$ 109,677,419) this year alone. Najeeb claimed the MMA had been forced to print the money so that the government could pay overdue bills.

The World Bank has criticized the measure in a new report and said monetisation poses “macro-risks” including the devaluation of the rufiyaa.

The report also notes that the government is increasingly relying on short-term commercial borrowing in the form of selling treasury bills (T-bills) to the banking, private sector, and high net worth individuals at steep interest rates.

Speaking on the matter, Najeeb said the Maldives was accumulating debt “without stop” due to short term T-bill sales. He suggested capping T-bill sales and obtaining Majlis approval to sell T-bills beyond the capped amount.

According to the MMA’s figures, the government has accumulated MVR8.5 billion in T-bill debt at the end of November.

Najeeb said the short-term debt had become a “burden” on the state and suggested negotiations with creditors to change short-term debt to long-term debt. Noting that the economic growth is not keeping pace with state expenditure, Najeeb stressed the need for economic diversification and reduction of the government size.

President Abdulla Yameen had pledged to reduce state expenditure on assuming office but has so far only made modest cuts limited to halving the presidential salary and reducing salaries of state and deputy ministers.

Foreign reserves are critically low at US$341.8 million, or approximately 2.5 months of imports, while public debt stands at 81 percent of GDP, the World Bank has said. Debt is projected to rise further to about 96 percent by 2015.

“This debt path is unsustainable and suggests there is little room for additional borrowing,” the World Bank has warned.


STO head assures oil imports problem will be resolved

The Managing Director of the State Trading Organisation (STO) has assured that the country’s looming oil payment crisis will be resolved tomorrow after the central banking authority committed to financing overdue payments.

“MMA [Maldives Monetary Authority] has given certain commitments – we still need to arrange everything – tomorrow we are going to work on it,” Shahid Ali told Minivan News today.

Shahid told MPs last week that the STO would run out of oil as early as November 10 if it did not pay some of its US$20million oil debt.

“The exact amounts have not been agreed upon,” Shahid explained today (October 3). “Tomorrow we need to make at least some payments.”

During an emergency meeting of the Majlis Finance Committee last week – with both MMA Governor Dr Fazeel Najeeb and Finance Minister Abdulla Jihad in attendance – Shahid told MPs that government-owned companies owed the STO more than MVR600 million.

Jihad informed the committee that he had asked the MMA to provide MVR50 million to the STO but was told that the central bank could only arrange for MVR20 million as the public bank account was overdrawn.

The MMA governor said the state did not have the financial resources to provide the requested amount, adding that the central bank would be forced to print money to meet the government’s requirements.

In the event that the country runs out of oil on November 10, Jihad then said he would resign from his post.

“I am asking the MMA for cooperation to provide the funds. This is a basic necessity. Otherwise there is a fear that we could completely run out of oil. Funds have to be arranged for citizens’ basic needs even if the public bank account is overdrawn,” he said.

Minivan News was unable to reach Dr Najeeb at the time of press.

When asked if the MMA was printing money in order to finance the oil payments, Shahid simply repeated that the authority had “given certain commitments”.

The MMA’s quarterly figures show that the Maldives’ petroleum imports amounted to US$248.4 million in the first half of 2013 – representing 29 percent of the cost of all goods brought into the country.

Najeeb also told the Majlis Public Accounts Committee last week that state reserves were insufficient to balance the country’s growing deficit.

Local media reported Najeeb as warning that the state was on the verge of being forced to print money.

“Parliament must also consider ways to reduce the structure of the State. I think this is very serious. Or else, the value of our money will keep dropping,” the Governor was quoted as saying.

The MMA’s most recent Quarterly Economic Bulletin revealed that government finances had “further deteriorated in the first six months of 2013” due to a sizeable shortfall in expected revenue coupled with a marked increase in recurrent expenditure.

After measures to raise 15 percent of total revenue budgeted for 2013 – MVR1.8 billion (US$116.7 million ) – failed to materialise, Finance Minister Abdulla Jihad was forced to seek parliamentary approval to divert MVR 650 million (US$42 million) allocated for infrastructure projects in the budget to cover recurrent expenditure.

In recent months, the government has become increasingly reliant on the issuance of short term treasury bills in order to plug gaps in the current budget.

Whilst introducing a proposed MVR16.4 billion (US$1 billion) budget for next year to the Majlis last week, the Finance Minister urged the government to pursue austerity measures.

In November 2012, a team from the International Monetary Fund (IMF) advised that strengthening government finances was “the most pressing macroeconomic priority for Maldives”.


New Rf5 notes enter circulation

Maldives Monetary Authority (MMA) today released new Rf5 notes into circulation, as per discussions held over the past several months.

The new notes are said to differ from existing ones, which will be kept in circulation.

According to MMA, the security thread on the original note has been replaced with a new thread, bearing a design in place of the original “MMA AMM”, Haveeru reports.

The new notes are dated March 7, 2011, and bear the signature of MMA Governor Fazeel Najeeb.


IMF approves three year programme as Maldives commits to new tax regime

The International Monetary Fund (IMF) has given preliminary approval for a three year economic programme in the Maldives, after the government agreed to “a package of policy reforms that will help stabilise and strengthen the Maldives’ economy.”

The IMF has spent two weeks in the Maldives meeting with President Mohamed Nasheed, Minister of Finance and Treasury Ahmed Inaz, Governor of the Maldives Monetary Authority Fazeel Najeeb, senior government officials, donors and the Majlis.

“The Maldives’ economy is growing robustly on the back of strong tourist arrivals, but it continues to suffer from large fiscal and external imbalances,” the IMF observed in a statement.

“The Maldives has recently faced challenges with respect to inflation, but there is no indication that inflationary momentum has risen. The introduction of the exchange rate band was a welcome step, but it needs support from a tightening of fiscal and monetary policies. The mission and the authorities agreed that such a tightening of policies would be important to promote fiscal and external sustainability, continued growth, and low inflation.”

The IMF agreed to a “medium-term” policy from the government to reduce its budget deficit “substantially”, “both through additional revenue measures – which would require the support and approval of the Majlis – and through expenditure restraint.“

“The authorities have introduced an initial voluntary separation plan for government employees and are continuing their detailed analysis of the public service, with an eye toward right-sizing government over the medium term,” the IMF noted.

“Monetary policy would be tightened to complement fiscal adjustment, counter inflation, improve confidence in the rufiya, and support international reserves. Gradual accumulation of international reserves, along with the fiscal space created through debt reduction, would reduce Maldives’s vulnerability to external shocks. Financial sector reforms will support the soundness of the banking system and increase the depth of the foreign exchange and financial markets.”

The IMF observed that if approved by the IMF’s Executive Board, the Maldives’ subscription to the program would likely encourage other key donors to contribute further financial support.

Speaking at a joint press conference held by the Finance Ministry and the Maldives Monetary Authority (MMA), Finance Minister Ahmed Inaz acknowledged that previous concessions made by the government with the IMF – such as reducing the public sector wage bill, “didn’t materialise because some of them were not politically possible in the country at the time.”

“But given the current situation we are hopefully the proposed medium-term measures we are proposing will be possible when [parliament] sessions resume.”

According to Inaz, under the new IMF program 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

“This is not about how much we get from IMF or donor agencies, this is something we been advocating, even if we have not been heard,” said Inaz. “We have always been saying that the deficit should be balanced with additional revenue measures.”

Cutting the deficit by sacking state employees – current 75 percent of the state budget – was not possible at the moment, he said, “although we are trying our best with redundancy payments.”

“Hopefully 1350 [voluntary redundancies will bring us Rf101 million in savings next year, but that not enough. State revenue has to increase with the new constitution. We hope the Majlis will approve these bills, and we hope much of the burden of the deficit will be released in 2012.”

Governor of the MMA Fazeel Najeeb acknowledged that “there will be some eyebrows raised and some reservations on the measures – this is inevitable in any country changing its taxation regime.”

“There are instabilities and I hope these will be short term. But I think what we are doing is in the interest of the economy and will bring it out of the mess it is in. I think it is necessary that we act together now,” Najeeb said.

The IMF package, he noted, represented “a joint commitment by the Ministry of Finance and the central bank: a state affair in the interests of the economy and the country.”

“Everybody in the country realises and recognises that there needs to be a change in the status quo. The status quo is a fiscal stance that is unmanageable.”

Asked whether he felt the new taxes were likely to be passed by parliament, “I think when it comes down to the details of what and how the legislation takes shape, that should be left to Majlis. What I can say is that status quo needs to change, and I don’t think this can be only reduction [in expenditure]. There needs to be a considerable amount of income increase. A combination of revenue as well as expenditure.”

Until recently the government was publicly calling for Najeeb’s dismissal by the Majlis due to a perceived lack of cooperation on tackling the currency crisis facing the country.

Asked if the IMF deal represented a new era of cooperation, Najeeb said the MMA “is always willing to cooperate with the government. There are issues on which we professionally disagree, but that shouldn’t be interpreted as lack of cooperation.

“We will continue to cooperate as we have done before, and whenever we are called upon to participate in press conferences such as this one, we will do it. We will leave it at that.”

State Minster for Finance Ahmed Assad said that despite media efforts “to sensationalise” the relationship between the MMA and the government, “we are not going to fight in public. Any fight will be within the walls of the MMA, or the Ministry of Finance. Because these are technical policy issues on which we don’t agree.”

“The MMA is not elected by the people and is not responsible [for the economy] – it is the President who heads the government and therefore the responsibility falls on the government to point the economy in the right path,” Assad said.

“Therefore whatever we do, the MMA is there to support us. If we’re wrong they’re there to criticise us. If we choose the right path their sole goal is to assist us. There are times that we disagree but that is purely professional. We should not have a hostile attitude towards this.”

Assad observed that even with the new taxes proposed by the government, the Maldives was still had the most generous tax system in the region – even compared with other island nations, and neighbouring countries such as India and Sri Lanka.

“We can’t say taxes are exorbitantly high and will bring total destruction to the industry,” he suggested.

The President’s Press Secretary Mohamed Zuhair meanwhile said the agreement with the IMF represented “a vote of confidence” in the government’s handling of the economy.

“We inherited huge amounts of debt and millions of dollars in unpaid bills from the former administration but have nevertheless managed to cut the budget deficit in half, bring down inflation and raise government income to put our economy on a steady path to prosperity,” Zuhair said.