Tag: finance

MIAL to take over airport operations by July 1, says Finance Minister

The government has declared it intends to transfer the operation of Ibrahim Nasir International Airport (INIA) from the Maldives Airports Company Limited (MACL) to a new state-owned company, Male International Airport Limited (MIAL).

Finance Minister Abdulla Jihad told local media that MIAL would take over the airport’s operations by July 1.

“The company has been registered. Now remains the work by MACL to hand over operations. It will begin soon, without delay,” the Finance Minister said, according to Sun Online.

“The new company will run the airport. The ownership of the airport will remain with MACL until arbitration is completed. But the work on transferring the employees and such will continue, when they take over operations. An official handover of the assets will also be conducted,” Jihad was reported as saying.

His comments follow the leaking of a letter recently sent to the Finance Ministry by Axis Bank, one of backers of the GMR-Malaysia Airports (GMR-MAHB) consortium which the government evicted from the Maldives in December 2012, after declaring the concession agreement signed under the former administration “void from the start”.

A copy of the direct agreement attached to the leaked letter showed the Finance Ministry guaranteed the loans taken by GMR-MAHB, which was signed and stamped in November 2008 by both MACL and then-Finance Minister Ali Hashim.

Axis Bank has called in the guarantee and is currently seeking US$160 million from the government and MACL. In the letter copied to both the Finance Ministry and MACL, the bank expressed concern that the government was attempting to turn MACL into a shell company while arbitration was pending, and warned it not to transfer the company’s assets or function to a new entity.

“Given that Axis Bank’s claim under the direct agreement is against MACL, you will understand that Axis Bank views with the greatest concern any attempt to dissipate the assets of MACL in favour of MIAL or any other third party,” wrote Axis Bank’s CEO Bimal Bhattacharyya in the letter, dated April 22.

“If MACL ceases to manage and operate Male’ airport, and MIAL instead performs that role, then MACL will lose almost all of MACL’s revenue stream, and become a shell,” he wrote.

The letter demanded the government “undertake not to allow any assignment, transfer or disposition of any of MACL’s rights to manage and or operate Male airport to MIAL or any third party… or allow MIAL or any third party to perform any function of managing or operating Male’ airport which is presently performed by MACL”.

“Please understand that Axis Bank views any dissipation of MACL’s assets with grave concern, and will take the necessary legal action to prevent such a dissipation”, the bank advised.

MIAL’s appointed CEO Bandhu Saleem at the time told Minivan News that “until the arbitration is complete, I think it will be very difficult to start a new company.”

Meanwhile, uncertainty over the fate of the airport and the outcome of both the arbitration process and the upcoming presidential election led the global body representing the world’s airports, Airports Council International (ACI), to issue an alert to its members advising them to “conduct due diligence while considering any investment in the Maldives, considering the latest developments, uncertainty of outcome of elections, the legal and financial risks of the current arbitration and the nascent legal framework.”

ACI informed its members that the takeover was the subject of arbitration proceedings expected to last 9-12 months, and further noted that as the government had guaranteed the bank loans used by the developer, these were also the subject of separate proceedings.

With elections scheduled for September, ACI advised it was possible that “any leadership changes arising out of the elections [could] have a material impact of the future of the Male’ airport and the decision of expropriation.”

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Amana Takaful posts MVR 4.5 million profit since Maldives Stock Exchange float

Sharia-compliant insurance company Amana Takaful (Maldives) PLC has announced a cumulative profit of MVR 4.5 Million (US$292,208) since listing on the Maldives Stock Exchange back in 2011.

Following the company’s second annual general meeting held Sunday (April 28), Amana Takaful  said a 10 percent dividend of MVR 2.6 million (US$168,831) would be paid among its Maldives-based shareholder members for the group’s performance during 2012.

Growth for the company during last year was said to be driven in particular by demand for medical and motor insurance following amendments to government regulations that has seen a number of insurers moving to offer 3rd party coverage in these areas.

A spokesperson for the company claimed that 3rd party motor cover was anticipated to continue to help drive growth for its Maldives operations in the coming years as a result of recent legislation imposed on the country’s motorists.

During its AGM, Amana Takaful also announced an underwriting result – earnings from premiums after deducting the costs of operating expenses and insurance claims – of MVR 20.7 million (US$1.3 million). This was said to be a 61 percent increase on the previous year.

As well as Sharia-compliant insurance, a growing number of private groups in the Maldives have moved to offer Islamic financing to their customers.

Specialist groups such as the Maldives Islamic Bank (MIB) are set to be joined in the segment by Bank of Maldives (BML), which this month announced the appointment of a four-member Sharia Advisory Committee.

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Afghan ambassador and UN resident coordinator present credentials to President Waheed

Shaida Mohammaad Abdali, the new Ambassador of Afghanistan accredited to the Maldives, presented his credentials to President Dr Mohamed Waheed yesterday (April 29).

During a ceremony held at the President’s Office, Ambassador Abdali also discussed strengthening bilateral ties between the two countries, while Dr Waheed noted both nations’ efforts to consolidate democracy in recent years.

The ceremony was held a day after United Nations Resident Coordinator Tony E. Lisle also presented his credentials to President Waheed.

During the ceremony on April 28, the president spoke of challenges needing to be addressed in the Maldives regarding the judiciary, as well as the country’s health and education sectors.

President Waheed also underlined challenges in overcoming what he called the “difficult fiscal situation” presently facing the country.

Lisle began his tour of duty on April 21. The resident coodinator role requires him to oversee national development programs by collaborating with the various UN agencies operating in the country.

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Maldives’ currency reserves “dwindling to critical levels”: World Bank

Currency reserves in the Maldives have “dwindled to critical levels”, according to the World Bank’s bi-annual South Asia Economic Focus report.

The report highlighted that growth in South Asian countries – including the Maldives – is still below pre-economic crisis levels.

“Much of the recent slowdown in economic growth can be attributed to stagnating investment,” the World Bank stated in its findings. “Economic recovery could falter in the absence of a stronger investment climate.”

South Asian countries are “now more vulnerable” due to widening current account balances, slowing foreign direct investment, and persistently high inflation that has “limited the ability” of central banks to counter economic downturn via monetary policies.

Rising imports, and the Maldives dependency on those imports, also leaves the country more vulnerable to commodity price increases, argued the findings.

“Countries will need to improve their business climate to attract the private sector investment needed for these new entrants to find productive jobs, thereby reducing poverty and boosting shared prosperity,” said Martin Rama, Chief Economist for the South Asia Region at the World Bank.

Improving tax revenue collection and curbing energy subsidies are required for further progress to be achieved.

Maldives Monetary Authority (MMA) statistics released in January 2013 indicated that gross state reserves have shrunk to MVR 4.9 billion (US$317.7 million).

This is essentially only enough for one month of imports.

Between November and December 2012, reserves dropped 14 percent, or MVR 849.7 million (US$55 million). In comparison with the start of 2012 – when the State reserve was MVR 5.3 billion (US$343 million) – January 2013 had seen an eight percent decline.

MMA statistics explained that the reason for the downward slide at the end of 2012 was due to depletion of state funds in local and foreign banks, according to local media.

The ballooning 2012 budget deficit alerted the International Monetary Fund (IMF), which previously expressed concern that without raising revenue and cutting expenditures, the country risked exhausting its international reserves and sparking an economic crisis.

Finance Minister Abdulla Jihad told MPs in December 2012 that additional revenue was needed to finance the fiscal deficit and rein in soaring public debt, which was projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.

The governor of the country’s central bank said back in May 2012 that the Maldives was facing its worst economic crisis in recent memory.

Fiscal responsibility

Despite parliament recently rejecting an increased airport service charge, legislation on fiscal responsibility submitted in 2011 by former President Mohamed Nasheed’s government was passed with 42 votes in favour and 10 against at a sitting of parliament on April 15.

If the bill is ratified, the government would be prohibited by law from obtaining loans after January 1, 2016, in order to finance recurrent expenditure or loan repayments.

The bill also sets limits on government spending and public debt based on the proportion of GDP, mandating the state to not allow public debt to exceed 60 percent of GDP.

Borrowing from the central bank or MMA should not exceed seven percent of the projected revenue for the year, while such loans would have to be paid back in a six-month period under additional finance conditions outlined under the recently approved legislation.

Moreover, a statement outlining the government’s mid-term fiscal policy must be submitted annually to parliament at the end of the financial year in July.

The current government has pointed the finger at the previous administration for the current budgetary issues, whilst simultaneously implementing a series of policies which have added to its financial obligations.

These deficit expanding policies have included promoting 1000 police officers, the hiring of 110 new police officers, and a reinterpretation of the legal provision for the payment of resort island lease extensions which had cost the government MVR92.4million (US$6million) already in comparison with the same point last year.

The government also chose to reintroduce MVR100 million (US$6.5 million) fishing subsidies and to reimburse MVR443.7 million (US$28.8 million) in civil servant salaries, reversing measures implemented during the previous government’s own austerity drive.

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State reserves shrink to MVR 4.9 billion

State reserves have shrunk to MVR 4.9 billion (US$317769131), according to Maldives Monetary Authority (MMA) statistics as reported by local media.

This is essentially only enough for one month of imports.

Between November and December 2012 reserves dropped 14 percent, or MVR 849.7 million (US$55103761). In comparison with the start of 2012 – when the State reserve was MVR 5.3 billion (US$343709468) – January 2013 has seen an eight percent decline.

MMA statistics explain the reason for the downward slide at the end of 2012 is due to depletion of State funds in local and foreign banks, according to Haveeru.

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State Environment Minister plays down budget dispute, alleges media “misunderstanding”

State Minister for Environment and Energy Abdul Matheen Mohamed has played down a report that his department yesterday slammed the proposed state budget for neglecting the “fundamental rights” of Maldivians, claiming there had been a “misunderstanding” with local media.

The Sun Online news agency yesterday reported that senior environment ministry officials had raised fears before the Majlis’ National Development Committee that it had been allotted an insufficient budget for proposed water and sewerage projects needed across the country.

Environment Ministry Permanent Secretary Ahmed Saleem was quoted as claiming that some 15 projects proposed by his department had been excluded from the budget is being debated within parliament this week. These projects were said to deal with issues including waste management, as well as supplying water and sewerage systems to more islands around the Maldives.

Saleem was reported as saying that complaints over the matter had also been sent to Finance Minister Abdulla Jihad, who had in turn had responded that any amendments to the budget would have to be made through the Majlis with support of MPs.

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

Speaking following yesterday’s meeting with the National Development Committee, Permanent Secretary Matheen claimed that Saleem’s reported comments had been the result of a “misunderstanding” by its author.  He alleged that the journalist had focused on a few points of a long meeting with the committee.

While Matheen said that there were some “concerns” about the present status of the budget allocated to the Environment Ministry, he that alleged the article’s conclusions were “very misleading”.

“The budget issue is very sensitive right now, so i’m afraid I cannot make any comments about the matter at present,” he said. “The islands are all asking what they will have from the ministry.”

Matheen added that he was presently unable to comment on the exact nature of the “misunderstanding” contained within the Sun Online report due to the fact discussions on finalising the state budget were ongoing.

Jumhoree Party (JP) MP Hassan Adil, a member of the National Development Committee, was unavailable for comment when contacted on the challenges in trying to balance ministry expenditure in the current economic climate, asking Minivan News to call this evening. However, Adil was not answering calls at the time of press.

Budget discussion

Presenting the budget to parliament last week, Finance Minister Jihad explained that next year’s budget deficit was to be financed with MVR 971 million (US$62 million) as budget support and MVR 1.3 billion (US$84 million) from Treasury bill (T-bill) sales.

However, as debate on the budget commenced yesterday amidst, regularly coming to a halt due to frequent loss of quorum – most MPs complained of the lack of funds allocated for development projects in their constituencies.  these projects included developments such as harbours, water and sanitation systems, additional classrooms and upgrades to health centres.

Meanwhile,  it was revealed last week that the proposed budget for defence expenditure for 2013 was found to be 14 percent higher than the funds allocated during 2012.

A total of MVR 930.9 million (US$60.3 million) was proposed for defence expenditure, which amounts to 5.5 percent of the total budget.

Balance of payments

With the Majlis currently contemplating the 2013 budget, an International Monetary Fund (IMF) mission to the Maldives last month noted that a ballooning fiscal deficit had “implied a rise in the public debt ratio, which now stands at over 80 percent of GDP.

According to the organisation, these developments also helped to boost national imports, thus worsening dollar shortages in the economy and putting pressure on MMA (Maldives Monetary Authority) reserves.”

The IMF forecast for the current account deficit was “nearly 30 percent of GDP this year.”

“Gross international reserves at the MMA have been declining slowly, [and] now account for just one and a half months of imports, and could be more substantially pressured if major borrowings maturing in the next few months are not rolled over,” the IMF mission warned.

The mission recommended formulating “a realistic and prudent budget for 2013″ to rein in the fiscal deficit, suggesting hiking taxes and “selectively” reversing import duty reductions.

According to an overview of the economy presented by the Finance Ministry along with the state budget (Dhivehi) proposed to parliament last week, the current account deficit in 2012 was expected to be 27 percent of GDP.

Water shortages

Following water shortages that authorities said affected over 100 inhabited islands back in May, Addu City Mayor Abdulla Sodig at the time claimed financial support was the key challenge in ensuring sufficient supplies of drinking water to the public, even with the assistance of local resorts and the Maldives National Defence Force (MNDF).

Minivan News reported back in April that in the country’s southerly Addu Atoll, an estimated 90 percent of the local population were reliant on rainfall to bolster their drinking water supplies.

Numerous islands in the atoll are said to experience severe supply issues for drinking water annually as a result.

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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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State expenditure rises 13.5 percent for first eight months of 2012

State expenditure for January to August this year increased 13.5 percent on the same period last year, according to figures from the Department of Planning.

According to statistics from the Finance Ministry, the Maldives is facing a budget deficit of MVR 2.1 billion (US$136 million) on the back of revenue of MVR 7.7 billion (US$499 million), and expenditure of MVR 9.8 billion (US$635 million).

Meanwhile, revenue figures published by the Maldives Inland Revenue Authority (MIRA) for September showed an increase in revenue of 16 percent compared to the same month in 2011, however this was 2 percent less that expected.

More than a third of total revenue (36.4 percent) came from tourism land rent, an increase of US$1.8 million on the previous year to 14.6 million, followed by the Goods and Services Tax (GST) which increased US$2.6 million to US$7.2 million – representing 28.6 percent of total revenue for the month.

Source: MIRA

The MIRA figures do not include import duties which are received by customs.

The Maldives Monetary Authority (MMA)’s September review observed that while an increase in tourism arrivals had registered improvements in both monthly and annual terms, real GDP growth was expected to fall to 5.5 percent in 2012, a fall of two percent on 2011.

“As per the latest government cashflow statement, the overall fiscal deficit of the government
worsened during Jan-Aug 2012 compared to the same period of 2011,” the MMA observed, predicting a higher than expected budget deficit for the year.

Fishing – the Maldives’ second largest industry after tourism and responsible for almost 40 percent of the country’s employment, has steadily declined in terms of both catch and export earnings. MIRA’s figures for US dollar earnings highlight the country’s near total-dependency on tourism as a means of earning foreign exchange.

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Government’s proposed revenue raising measures excessive, warn resort managers

Several resort managers have voiced concern that revenue raising measures proposed by the Finance Ministry will affect the financial viability of the tourism industry while providing little improvement in service or support in return.

The proposed measures were part of an ‘austerity’ package sent to parliament’s Finance Committee last week in a bid to address the country’s crippled financial condition.

Increased government spending – such as the repayment of civil service salaries cut during the former administration, and promotions and lump sum payments to the police and military – has not been offset by additional income.

As a result, the government has sought a succession of loans this year to pay its expenses at a time it is facing political challenges to its legitimacy, and country is facing plummeting investor confidence, a drop-off in foreign aid, an ongoing foreign currency crisis, and the challenges of its 2011 graduation to the UN’s definition of ‘middle income’.

As well as a raft of austerity measures, including the cancellation of electricity subsidies for citizens in Male’ and “reform” of the universal healthcare scheme, proposed revenue raising measures include plans to:

  • Raise import duty on oil to 3 percent
  • Impose import duty on items whose value exceeds MVR6.4 million
  • Raise import duties for liquor
  • Introduce GST for telecom services and sale of flats (both are now GST-exempt)
  • Raise GST rate for luxury items
  • Raise T-GST to 15 percent
  • Raise airport service charge for foreigners to $30
  • Increase visa fee for foreigners by MVR150

Minivan News spoke to several resort managers about the potential impact of such measures on the tourism industry. Of particular concern was the proposed increase in Tourism GST from 6 percent to 15 percent.

“That would be the biggest hit along with the liquor duty,” observed one manager.

“With the standard 10 percent service charge we’d be talking 25 percent on top. That’s too much,” he said.

Furthermore, a sudden increase in T-GST would force resorts to absorb the increase, due to contractual obligations.

“If such an announcement came after [the] contracts are signed, many operators would be forced to absorb the additional percent again,” the manager observed.

“Higher duty on liquor would be the most directly felt increase in guests’ daily extras. Our sales would take a hit,” he added.

An increase in already high oil prices due to government import duty would further increase prices.

“Oil has become more and more expensive since oil was first used. Another rise in prices would be just another rise, which, in the case of oil, would come anyway. Of course extra costs will eventually be passed on also from suppliers and will at one point always end up on the client’s bill. How much more of such a hike our clients will take, I couldn’t say. Already now the low- and mid-priced market segments are moaning,” he said.

The increase in airport charges to US$30 for foreigners would also increase the overall cost of the destination for potential visitors.

“Many other places charge one as well and I guess it has come to be accepted. If this is then garnished with higher visa fees, taxes of 25 percent, an eco-tax, bed-tax and the whole lot, it might quickly get too much though,” the manager warned.

Another resort manager told Minivan News that given the country’s almost total reliance on tourism, the government “needs to see itself as a tourism body as much as a government of a nation.”

“Tourism bodies in a general have five key responsibilities in order to increase the economic benefit of tourism for a nation,” he said: “Attract guests to the destination, have them stay as long as possible, have them invest back as much as possible into the local economy, have them recommend the destination to their friends and/or return themselves, and encourage balanced tourism development.”

The Finance Ministry’s proposed revenue raising measures “have negative implications for all five points of any basic tourism body plan,” he observed.

“As seen in the past 2-3 years, most countries have based their austerity strategies on reduced government expenditure and encouraging increases in revenue growth. This has been completed by efficiency plans for civil servants and key strategies to increase revenue,” the manager noted.

“In its actions over the last five months, the Maldives’ government has increased civil servants’ salaries, increased other costs, and are now looking at taking action that will compromise their main revenue stream. This is very different to other countries with similar financial challenges,” he stated.

“Whilst I understand that there is a need for a major revision on the Maldives economy, I would hope that cost reduction measures are implemented within the government that will balance the need for increased taxes on Maldives’ tourists. Areas of increased taxation such as oil and customs duty would be more acceptable psychologically for the tourism economy rather than an increase in direct tourists taxes and charges,” the manager added.

According to a survey conducted by the Tourism Ministry in 2011, 46 percent of tourists to the Maldives believed that the accommodation was too expensive.

Soft drinks, alcohol were also rated expensive by 42 percent, while food, water and souvenirs received a similar ranking from 41 percent of tourists polled.

Tourism Minister Ahmed Adheeb and Deputy Tourism Minister Mohamed Maleeh Jamal were not responding at time of press.

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