Maldivian economy grew by 8.5 percent in 2014, says MMA

The Maldivian economy grew at 8.5 percent in 2014, the central bank has said. Growth was driven by a solid increase in tourist arrivals and the strong recovery of the construction sector.

The government’s fiscal performance in 2014, however, was weaker than anticipated due to shortfalls in revenue and overspending on recurrent expenses, the Maldives Monetary Authority said in its Annual Economic Review.

The International Monetary Fund (IMF) in March provided a much lower figure of five percent for economic growth, and highlighted the need for improved data collection on macroeconomic statistics.

According to the MMA, the government’s total debt reached 65 percent of GDP in 2014, while the fiscal deficit stood at MVR1.6billion or 3.4 percent of GDP, higher than the estimated MVR1.3billion or 2.8 percent.

The tax authority has meanwhile collected MVR951.3million (US$61.9million) in tax revenue in March. The figure is 2.7 percent higher than forecasted as several tourism companies had paid late land rents and fines after the Maldives Inland Revenue Authority (MIRA) froze the accounts of some 20 businesses in April.

MIRA has received MVR 5.61 billion (US$ 360 million) in revenue this year, an increase of 27.3 percent compared to 2014. The tax authority, however, did not state if revenue collection meets targets.

Robust growth

Some 1.2million tourists brought in an estimated US$2.6 billion to the Maldives in 2014. Arrivals grew by 7 percent and was largely driven by arrivals from China. European arrivals recorded a marginal growth due to a decline in Russian tourists.

The growth in bed nights stood at 4 percent – slight lower in magnitude than the growth in arrivals – reflecting the decline in average stay from 6.3 days in 2013 to 6.1 days in 2014. The downward trend in average stay, which has become more marked since 2009, is due to a shift in the composition of inbound tourist markets towards countries such as China, the MMA said

Meanwhile, total tourist revenue remained buoyant and grew by 13% (20% growth in 2013) to reach an estimated US$2.6 billion during 2014. The significant difference between the growth in revenue and bednights may reflect the increase in tourist expenditure on high-end services in the industry, the MMA said.

Airline movements by international carriers, such as Mega Maldives, Cathay Pacific and budget airlines such as Tiger Airways, also increased during the year, and facilitated the growth in tourist arrivals.

Three new resorts were opened, increasing total registered number of resorts in the Maldives to 112. Registered guesthouses reached a total of 216. Some 80 new guesthouses were registered at tourism ministry, but only a total of 95 in operation.

The construction sector bounced back from two consecutive years of negative growth. The revival was mainly due to the ease in obtaining construction materials after India waived restrictions on the export of stone aggregate to in March 2014. This allowed the resumption of large-scale public sector infrastructure projects and major housing projects, the MMA said.

The fisheries sector declined by 6 percent,  following a strong growth of 8 percent in 2013, due to a decline in fish catch, and also because of the significant dip in international tuna prices.

The fishing industry in the Maldives represents about one percent of GDP in 2014. It accounted for 10% of total employment in 2010. Export revenue from fish and fish products accounts for 47 percent of merchandise exports.

Poor fiscal performance 

The government collected some MVR14.5billion in revenue in 2014. But total revenue fell short of the target as some of the new revenue measures planned in the budget did not materialize.

The implementation of of a T-GST hike – from 8 percent to 12 percent – was delayed from July 2014 to November 2014; tourism tax, initially anticipated to be collected throughout the year was only collected from February to November.

There was a “considerable shortfall” from the lease period extension fee collected during the year. The lump-sum resort acquisition fee from the 12 new islands planned to be leased out for resort development did not materialize either.

As a result, total revenue was MVR351.0 million less than budgeted and amounted.

The total expenditure of MVR16.5 billion was slightly lower than budgeted, but only because the government stopped spending on development projects and redirected funds to financing recurrent expenditure.

In the banking sector, the main area of concern continued to be credit risk, as indicated by the high level of poor-quality loans. Non-performing loans “remain a concern with a ratio of 16 percent,” the MMA said.

Gross international reserves increased to US$614.7 million at the end of the year. Out of this, usable reserves accounted for US$143.9 million. The “marked expansion” owed to the improvement in foreign currency receipts of the government, the MMA said.




President ratifies fiscal responsibility bill to limit govt spending and public debt

President Dr Mohamed Waheed Hassan Manik ratified the fiscal responsibility bill on Monday (May 6) and issued a decree to delay the enforcement of 22 provisions that require specific guidelines for implementation.

The legislation submitted in 2011 by the previous administration was passed 42-10 by parliament on April 15 this year.

“The Act ensures accountable, transparent and sustainable government implementation of the state fiscal policy,” according to the President’s Office website.

Following ratification and publication of the Act in the government gazette, President Waheed issued a decree in accordance with article 39 of the Act (Dhivehi), which authorises the president to delay enforcement of any provision of the law by one year if it requires rules or a mechanism to be set up before implementation.

The executive decree issued on Monday delayed the enforcement of articles 10 to 28 and 32 to 34 of the Act.

The new law sets limits on government spending and public debt based on proportion of GDP, stipulating that public debt must not exceed 60 percent of GDP from January 1, 2014.

Moreover, borrowing from the central bank or Maldives Monetary Authority (MMA) to manage the government’s cash flow should not exceed one percent of the average revenue for the past three years, while such loans would have to be paid back in 91 days at the market interest rate.

The provision was however among the 22 postponed for the next 12 months, which also included sections requiring the government to submit statements or reports to parliament outlining its fiscal strategy, debt repayment plans and budget position.

The ratification of a law on fiscal responsibility comes amidst concern over soaring levels of public debt, which is projected to reach MVR 31 billion (US$2 billion) or 82 percent of GDP by the end of 2013.

Nominal GDP in 2012 was MVR 34 billion (US$2.2 billion).

Economic growth in 2013 is meanwhile forecast at 4.3 percent, down from 7.1 percent growth in 2010 and 7 percent in 2011.

An International Monetary Fund (IMF) mission in November 2012 explained in a statement that economic growth slowed to 3.5 percent last year on the back of “depressed tourist arrivals earlier in the year and weak global conditions,” which have been “only partially offset by strong performance in construction and fisheries-related manufacturing.”

The original forecast for economic growth in 2012 was 5.5 percent.


According to figures revealed by the Finance Ministry in December 2012, nominal GDP in 2011 was MVR31,447 million (US$2 billion) while the estimate for 2012 was MVR34,148 million (US$2.2 billion).

Real GDP in 2011 was MVR20,461 million (US$1.3 billion). Nominal GDP per capita in 2012 was estimated to be MVR 80,260 (US$5,206) per annum.

Real GDP measures the value of all goods and services produced in a country expressed in the prices of a base year – 2003 in the Maldives.

The Finance Ministry also revealed that the ‘total external public and public guaranteed debt’ was estimated to reach MVR 13.7 billion (US$888 million) in 2012.

Of the MVR 4.1 billion (US$330 million) of the loan assistance spent in 2012, more than 50 percent was from multilateral financial institutions and 28 percent from bilateral donors.

A total of MVR 1.9 billion (US$123 million) from loan assistance has been spent for various projects in 2012 while the rest was spent for budget support.

As of September 2012, MVR 561 million (US$36.4 million) was received as budget support – US$16 million from the Asian Development Bank and US$20 million from a standby credit facility extended by the Indian government.

Moreover, the government spent more than MVR 1 billion (US$64.8 million) in 2011 and MVR 1.1 billion (US$71.3 million) in 2012 to service foreign debts as interest and repayments.

The figure was expected to remain the same in 2013.

In addition, the government spent MVR 660.5 million (US$42.8 million) in 2011 and MVR 2 billion (US$129.7 million) in 2012 to service domestic debts.

Government spending on loan repayment and interest payments was expected to reach MVR 3.1 billion (US$201 million) in 2012.

Including an estimated MVR 13 billion (US$843 million) in domestic debt, the total public debt is expected to reach MVR 27 billion (US$1.7 billion) in 2012 and MVR 31 billion (US$2 billion) in 2013 – 82 percent of GDP.


Maldives a tourism leader in Asia-Pacific region

The Maldives was among the most popular destinations in the Asia/Pacific (APAC) region for the month of July, with a 27 percent increase in visitors.

Hong Kong followed closely with a 22 percent increase in visitors.

“Even during times of economic uncertainty, the Asia/Pacific region continues to perform strongly, reinforcing its image and position as a powerhouse of international travel and tourism,” said Pacific Asia Travel Association (PATA) Strategic Intelligence Centre director, John Koldowski.

Asia Pacific (APAC) tourism destinations continue to see an upward trend in visitors annually. July 2011 saw a seven percent regional rise in arrivals compared to the same month in 2010.

Although Japan suffered a 36 percent drop in July arrivals, allegedly due to the earthquake and tsunami, Northeast Asia on the whole saw a six percent gain on July 2010. The Pacific, meanwhile, experienced a 3 percent drop in foreign arrivals in July 2011.

A Care Ratings Maldives report recently stated that Maldives tourism has made an impressive comeback since the 2009 global recession, and investment from China and India is expected to surpass precedents in coming years.

This year, the Maldives reached 700,000 arrivals by September. According to Tourism Ministry statistics, 19.9 percent of these arrivals were Chinese.

The increased activity within the APAC region could have a cultural impact at home. “Maldivian staff are more familiar with Western culture,” said Maldives Association of Travel Agents and Tour Operators (MATATO), Mohamed Maleeh Jamal. “Many speak Italian, French, German. So, the shift required to cater to more Asian guests and customers has lead many Maldivians working in the industry to familiarize themselves with Chinese, Japanese and Korean languages and cultural practices.”

Jamal pointed to the 2004 tsunami as the turning point for the Maldives’ tourism market.

“Before then, tourism was dominated by western European countries, and travel companies in China and the Middle East had limited access. Resorts were reaching occupancy levels regularly, and so expansion was not necessary,” said Jamal.

After the tsunami, however, interest from western Europe declined and the tourism sector was forced to work more closely with neighboring countries and their travel agencies. “The Maldives was also receiving complaints that the market wasn’t diverse enough,” said Jamal.

Jamal added that China is an important trading partner for the Maldives, and there was room to expand the business relationship.

But the Maldives has several advantages in the Chinese market. “All countries want to get tourists from China, and the Maldives has an advantage,” said Jamal. “It carries an image of paradise islands and tropical vacations, which is very appealing. In addition, the Maldives is becoming a celebrity hot spot. Given the celebrity worshiping culture that is increasingly common in China, the Maldives is very appealing.”

Jamal commented that Sri Lanka is trying hard to compete with the Maldives’ market.

Tourism is the largest contributor to Maldives’ GDP and foreign currency, accounting for 70 percent of the national GDP indirectly. Maldives Marketing and Public Relations Corporation (MMPRC) aims to draw 1 million tourists to the Maldives by the end of 2012.

PATA international visitor arrival figures suggest that improved economic stability is bolstering APAC’s tourism trend.

According to Care Ratings, Foreign Tourist Arrivals (FTA) surged this year as China’s economy flourished and European economies made a slow comeback. Chinese tourists are projected to account for 15 percent of Maldives FTA by 2020.

But PATA studies note that the source market is shifting into northern Europe and Asia.

Koldowski pointed to a 50 percent increase in Russian arrivals so far this year, and a 14 percent jump in South Asian arrivals in July with 90,000 more visitors than the same month in 2010.

Southeast Asian arrivals to the region grew by 12 percent during the same time frame.


Transport vehicles need renewable energy plan: Blue Peace

“Solar power is not the only source, and it is not enough. We have to pursue other sources as well,” said BluePeace founder Ali Rilwan about the Maldives’ recently proposed mission to cut emissions by 60 percent, using solar energy primarily.

The government’s plan was approved by the Cabinet last month, and a recent proposal from the Renewable Energy Investment Office (REIO) was submitted for crowdsourcing on the internet last week.

Rilwan called the mission admirable but incomplete. “Proposals have been made, but we haven’t seen anything in the Maldives in years,” he said. According to Rilwan, the Maldives is overlooking one of the most significant energy-consuming functions in the country: water transport.

Over 25 percent of the Maldives’ GDP is spent on diesel used for boats.

“Wetlands and vegetation absorb carbon dioxide, and the oceans are being affected by boats’ daily diesel use. But nobody has studied the specifics of carbon sinking, to calculate that 60 percent emissions reduction we need to evaluate how much needs to be done,” he elaborated. “We don’t know, we might be carbon neutral already.”

When diesel was first introduced to boats in the Maldives in the 1970s, law required that sails be kept on boats, said Rilwan. Not only was this method energy efficient, it also had cultural value.

“The sail wasn’t just carbon-neutral, it was a cultural tradition. We also used to have sailing competitions as part of our tradition. But now the sails are no longer required, although you’d think they would be a good idea for a tourist destination like the Maldives.”

Rilwan said the Ministry for Human Resources and Sports last year supported a “not so carbon friendly” motorcycle competition last year, allegedly on Hulhumale.

In January 2010, the Maldives joined 137 countries in signing the Copenhagen Accord declaring their intention to go carbon neutral by 2020. The document is not legally binding but it recognises climate change as a leading issue worldwide.

A government official said the Maldives has since focused on decarbonising the electricity sector, which accounts for over 31 percent of industrial project expenses.

Decarbonising the Maldives over the next 10 years is expected to cost the Maldives US$3-5 million.

Earlier this week, the Maldives signed the Renewable Energy through Feed-In Tariff.

The tariff is expected to reduce electricity costs by promoting a shift from oil fuel to renewable energy sources.

Rilwan praised the government’s “political will and efforts to negotiate” renewable energy in the Maldives. But he said investment in renewable energy was expensive, and that the Maldives lacks expertise.

REIO’s crowdsourcing initiative aims to improve that shortfall.

“While we are working now on the initial production planning and development we will also be looking to use local and international expertise to develop storage capacity,” said Minister for Economic Development Mahmoud Razee.

The initial plan, which is up for debate on an on-line forum, does not account for night time energy and energy storage due to its high cost. A government official said today that limiting use of solar energy to the daytime would still reduce costs significantly. Meanwhile, storage costs are expected to drop to an affordable rate in the next five to ten years.

The official added that plans addressing land transport vehicles’ energy emissions will be announced in the coming months. He noted that not only are electricity-based motorcycles and cars affordable, but Male’s small size negates the concern of going too far from a recharge station.

Although water transport energy reductions have not yet been addressed at the government level, Renewable Energy Maldives (REM) Director Hudah Ahmed said today that the company will soon be testing one of the first hybrid dhonis.

“Solar power is a viable option for the Maldives,” said Ahmed. “But we always say that energy efficiency comes before renewable energy. Consider how to do the best with what you have and what you need before you try to reinvent the system with a whole new resource.”

The REM hybrid dhoni uses a converter, and could reduce diesel consumption by 30 percent. Ahmed said the big idea is to replace current ferries and fishing boats with hybrid dhonis.

Ahmed suggested the Maldives investigate ocean thermal energy conversation (OTEC), a method of generating energy from the temperature differences between deep and shallow waters. “It isn’t commercial yet, but REM says it shouldn’t be ruled out. I think there are some areas in this country where OTEC could be useful,” said Ahmed.


Tourism sails on with luxury in fragile setting

Maldives tourism has made an impressive comeback since the 2009 global recession, and investment from China and India is expected to surpass precedents in coming years, finds a report from Care Ratings Maldives.

Nonetheless, the Maldives occupies a precarious market, and government controls limit foreign investment, the ratings agency found.

In 2005 Asia surpassed America as a tourist destination, coming in second to Europe. According to Care Ratings, Foreign Tourist Arrivals (FTA) surged this year as China’s economy flourished and European economies made a slow comeback. Chinese tourists are projected to account for 15 percent of Maldives FTA by 2020.

Plans are being made to expand capacity accordingly. The Maldives tourism sector will add 77 new resorts and increase bed capacity by 47 percent over the next three years, the report finds. Additional safari vessels are also expected to be added to the industry, which already boasts a fleet 150 strong.

By the end of 2011, the report projects the direct employments in tourism will have grown from 35,000 to 38,000. Fifty percent of these are likely to be expatriate hires.

Revenues are also expected to increase by 10 percent by the end of the year, claims the report.

Tourism is the largest contributor to Maldives national GDP and foreign currency, however the sector is restricted and vulnerable. The reports lists terrorism, global economic crisis, and limited land and human resources as obstacles to growth. It also points out that environment is a major factor of success.

“The tourism industry is capital-intensive in nature due to the high cost involved in leasing the land, developing the land and constructing a self-contained tourist resort,” states the report. Maldivian resorts frequently sell the appeal of the natural environments, but the Maldivian construction industry lacks the capacity to process raw materials.

Importing processed materials drives the average resort room construction cost up to US$30,000 to US$60,000, one of several factors which makes tourism in the Maldives a high-end market.

Human capital is mentioned as a complicating factor. Resort employment could account for one-tenth of the Maldivian population, 32 percent of which is unemployed. However, only half of resort employees are Maldivian.

Coincidentally, a recent study found that social stigma limited female Maldivian employment in the resort sector to 3 percent, a number far below the demographic’s potential.

Another challenge to growth is government oversight. “The industry now is very much regulated by the government of the Maldives,” states the report. “Tourism is now developed and managed according to country-wide policy based on a master plan.”

All Maldivian islands are government-owned, and resorts can only be leased for 25 to 50 years. Construction is limited by the “One Island One Resort” policy, which allows only one resort per island, and structures are limited to 20 percent of the land available.

Over the past three decades, the ministry has introduced three tourism master plans.

Although the report recognizes the complicating effect of government restrictions on developers and investors, it states attributes these plans with significant growth.

“The growth of the industry in the last couple of decades was mainly due to the efforts taken by the government to promote the tourism industry and the progress was largely on a planned path determined by the First Tourism Master Plan (1983-1992), the Second Tourism Master Plan (1996-2005) and the Third Tourism Master Plan (2007-2011).”

The Maldivian government also created the Maldives Marketing and Public Relations Corporation (MMPRC), which promotes the Maldives as a brand in the world tourism arena.

Last week, MMPRC recognized the value of the Asian travel market by co-hosting a travel agents networking event with GMR. In a nod to the region’s booming business culture, MMPRC MD Simon Hawkins pointed out the advantages of hosting meetings at Maldives resorts.

MMPRC aims to draw 1 million tourists to the Maldives by the end of 2012.This year, the Maldives reached 700,000 arrivals by September.


Half of Rf12.37 billion state budget to be spent on employees

The Finance Ministry has unveiled a state budget of Rf12.37 billion (US$962.6 million) for 2011 with a target of reducing the deficit to 15.3 percent of GDP in the coming year, down from 26.25 percent in 2009.

The Fiscal and Economic Outlook 2009 to 2013 published alongside the budget on the Ministry’s website this week states that the main objective of the government’s fiscal policy is to bring expenditure in line with revenue and maintain the deficit within a sustainable range.

The Finance Ministry reveals that while capital investment amounts to 21 percent of the budget, 49 percent of expenditure in 2011 will be on salaries and allowances for government employees.

“If the cost of health insurance to employees is included, half of the state budget is spent on employees,” reads the budget summary.

Foreign loan assistance along with Rf1.4 million (US$108,949) in income from privatisation and Rf1.3 million (US$101,167) expected from the sale of treasury bills was proposed to plug the budget deficit.

In November, the International Monetary Fund (IMF) delayed its third disbursement under a US$92.5 million program pending the approval by parliament of significant austerity measures in the budget.

In its Country Report for the Maldives published in June, the IMF warned that as a result of the failure to enforce pay cuts and the injection of an additional US$62.2 million in spending by parliament, “the annual deficit targets for 2010 and 2011 will be missed on current policies.”

An internal World Bank report produced for the donor conference in May identified dramatic growth in the public sector wage bill as the source of the ballooning budget deficit.

A 66 percent increase to salaries and allowances for government employees between 2006 and 2008 was “by far the highest increase in compensation over a three year period to government employees of any country in the world,” the report noted.

The deficit in 2010 is now expected to be at 16.4 percent of GDP, above forecasts of 14.8 percent in the 2010 budget.

While the economy grew by 4.8 percent in 2010 after a 2.3 percent contraction in 2009, nominal GDP, which accounts for a 5.5 percent inflation rate, grew by 12.2 percent this year.

Revenue and expenditure

Government income fell by 23 percent in 2009 in the wake of the global financial crisis, which saw tourist arrivals decline by 4 percent and revenue from import duties down by 25 percent over the previous year.

Offering resorts under development that were facing difficulties with financing an additional year to pay rent contributed to the decline in government income, resulting in a 36 percent decrease in revenue from resort rent in 2009.

While Rf6.8 billion (US$529 million) in revenue in 2010 was forecast at the end of last year, current estimates place the figure at Rf6 billion (US$467 million)  – an 11 percent  shortfall the Finance Ministry attributes to parliament’s failure to pass legislation on corporate profit taxation as well as delays in implementing a goods and services tax (GST).

Moreover, as only three out of 13 resorts expected to open in 2010 began operations this year, estimates of Rf1.7 billion (US$132 million) in revenue have been lowered to Rf1.1 billion (US$85 million).

However, income from state-owned enterprises is now expected to be higher than originally forecast at over Rf1 billion (US$77.8 million) by the end of the year.

Revenue in 2011 is projected to be Rf8.7 billion (US$677 million), a 44 percent increase from 2010 expected to be driven by the introduction on business profit taxes, GST and extension of resort leases.

Income from taxation is projected to account for 59 percent of government income in 2011, with Rf612.5 million expected from business profit taxes.

The Finance Ministry notes that delays in passing taxation legislation is “the biggest obstacle” to continued assistance from international agencies.

Main industries

The seven-year trend of decline in fisheries is expected to continue in 2011, with the industry expected to have contracted by 5.8 percent by the end of 2010.

After a 29 percent decrease in the construction industry in 2009, the industry is expected to have registered growth of 2.6 percent in 2010.

With nine new resorts under development next year, the industry is projected to grow by 9.7 percent in 2011.

A strong rebound by the tourism industry – which accounts for 27 percent of GDP – saw revenue in 2010 14 percent higher than projected in 2009.

While tourist arrivals increased by 13 percent in the first nine months of 2010 compared to the same period last year, arrivals are expected to have increased 20 percent by the end of the year.

Moreover, a 70 percent decline in occupancy in 2009 was followed by a 74 percent increase in 2010 – with 131,107 more visitors than 2009 recorded in 2010.

Nominal GDP per capita in 2010 is calculated to be at US$4,628 and is projected to climb to US$5,114 in 2011.


World Bank reports Maldives’ debt caused by former government

The World Bank has issued a report saying the Maldives was on the verge of economic collapse in 2008 when President Mohamed Nasheed’s government was elected, reports Miadhu.

According to the report, before the 2009 presidential elections, the Maldives was headed towards an economic crisis similar to that of Zimbabwe. The World Bank said the economic difficulties the country was facing was due to the previous government’s reckless fiscal discipline.

In late 2008 the country’s Gross Domestic Product (GDP) fell by almost 5 percent, while the government’s expenditure rose to almost 30 percent of the country’s income.

Adding to the previous administration’s increase in spending in their last two years in government, 50 percent of the state’s wage bill was going to civil servant salaries.

When the new government took over, the country’s debt stood at 110 percent of GDP according to Minister of Foreign Affairs Dr Ahmed Shaheed.

The International Monetary Fund (IMF) and the World Bank have made recommendations to President Nasheed’s administration on how to reduce the debt in a responsible manner, and the government has been implementing these recommendations.


National debt easing, says Dr Shaheed

Minister of Foreign Affairs Dr Ahmed Shaheed has told Miadhu that the Maldives’ national debt stood at 110% of GDP at the end of 2008 according to International Monetary Fund (IMF) reports.

Dr Shaheed said he is “not ashamed” to tell the truth about the country’s financial situation, because international financial institutions are monitoring the country’s external debts.

He said the country’s debt was due to the previous government’s extravagance in buying presidential yachts and offices. He added that this debt was the reason for the government reducing civil service salaries as they had no alternative.

Dr Shaheed said certain leaders of political parties are trying to spin the facts, contradicting the IMF’s reports.

Dr Shaheed said working with the international community and multilateral financial institutions is easing the country’s debt. The USA has readmitted the Maldives into the General System of Preferences, its duty-free quota system as well as signing an agreement with the US’s Overseas Private Investment Corporation (OPIC) which encourages companies to invest in the Maldives.

The Maldives also hopes to be admitted into the US’s development assistance project, Millennium Challenge Account, as well as the Paris Declaration on Aid Effectiveness.