Rise in blackmarket exchange rate no setback for currency stability aims, claims Economic Development Minister

Two months after the government announced plans for greater economic stability by devaluing its currency against the US dollar, the Maldives’ Economic Development Minister has said increases in black market exchange rates are no setback to the country’s long-term financial aims.

Amidst local media reports that the value of the Maldivian rufiyaa – capped until April this year at Rf12.85 against the US dollar – was trading at Rf16.5 on the black market, Minister Mahmood Razee said that authorities would likely wait for an allotted three month-period to pass before considering any additional financial support measures.

Despite this approach, the Maldives National Chamber of Commerce and Industry (MNCCI) has claimed that local enterprise is not being supported by financial institutions like banks in terms its needs – particularly for importers reliant on foreign currency to bring in goods to the market.

However, sticking to earlier estimates that the managed float of the rufiyaa within 20 percent of the 12.85 exchange would require about three months to begin to bring stability, Razee claimed that it remained too early to say if additional support measures were needed from the government to bridge the dollar supply.

“I don’t see the black-market exchange rate as a setback as it is low [tourism] season right now, meaning we are earning fewer dollars,” he said. “Now it has been a couple of months since we changed the dollar rate. When [the currency float] was announced in April we said it will take around three months to see if the rate will stabilize. We do not know yet whether there is just a dip in [dollar] supply or something else.”

When addressing potential changes already bought about to the exchange rate since the dollar float was introduced, Razee said he believed it remained too early to speculate on what longer term impacts had taken place in regards to the availability of dollars.

The Economic Development Minister added that if there were no signs of stabilisation by next month, then he expected the Ministry of Finance to begin looking at additional measures to try and bring some market stability to the economy.

“I’m not privy to the exact information on what these measures could be right now,” he said. “What we have been doing is working with national authorities in markets like India to see what means of assistance there might be.”

The rufiyaa has sat at the maximum limit of Rf15.42 following the government’s managed float of the rufiyaa within a 20 percent band.

Treasurer of the Maldives National Chamber of Commerce and Industry (MNCCI), Ahmed Adheeb Abdul Gafoor, told Minivan News that he believed that the managed currency float had served only to exacerbate the difficulties facing local businesses that were being given little choice other than to rely on black market exchange rates.

“The banks are not providing dollars to businesses, especially for importer and traders who are the backbone of the economy and vital to distributing goods,” he claimed. “With Ramazan ahead, we have been told that the State Trading Organisation (STO) will be providing 27 goods and commodities at stable prices, but we will have to see if this is possible.”

Adheeb claimed that in the immediate term, banks had simply not been providing additional credit lines for businesses requiring foreign currency exchanges, a demand he said that was having to be satisfied through additional financial channels.

“The solution I believe is that banks will have to provide,” he said. “Credit card payments are being settled in rifuyaa, yet many importers are not being satisfied when it comes to their own needs.”

Speaking as a private citizen Adheeb said that more changes were needed in how banks dealt with business as well as how government were looking to encourage sustainable foreign finance.

“We have seen no encouraging signs [from the float] and I don’t think this is a good policy at this time,” he said.

The MNCCI treasurer said that he believed that alongside government talk of minimum wages, it would be wise to discuss maximum wages in certain cases to try and balance national; budget more effectively.

“I don’t understand why this is a policy not being discussed,” he added.


Commodity prices vary “significantly” between retailers, reports Economic Development Ministry

The Department of National Planning and the State Trading Organisation (STO) have conducted a price comparison exercise across Male’ in a bid to show that while some retailers are charging inflated prices for basic commodities, most prices have risen little.

Speaking yesterday evening from the President’s Office, Economic Development Minister Mahmood Razee said the statistics, which were compiled by the Department of National Planning in collaboration with his ministry, indicated that although certain prices had been found to have risen in the last few months, there was no pattern to link these costs solely to a controversial managed float of the local currency.

The opposition has maintained that demonstrations raging across Male’ this week were against the government’s decision to implement a managed float of the rufiya and are led by youth unhappy with rising commodity prices.  These claims were made despite the active involvement of dismissed opposition Deputy Leader Umar Naseer, and MPs Ilham Ahmed, Ahmed Mahlouf, Ali Waheed, and Ahmed Nihan.

However, Razee added that discussions were ongoing with the STO – a main buyer of goods to the country – to try and maintain import supplies of 27 key food items in attempts to try and keep prices stable as well as enacting a cabinet pledge to cut import duty on diesel fuel by 50 percent.

Speaking ahead of a fourth night of protests by young people, parliamentarians and political activists on the streets of Male’, Dhivehi Rayyithunge Party (DRP) MP Ahmed Mahlouf said that although he had not been made aware of the content of the statistics at the time, he believed that protestors would not believe or be satisfied by the government’s claims and reaction.

“At this time, I think it would be difficult to accept that this is a genuine or positive message. At this point I don’t think [this] one press conference will help people,” he said.

Mahlouf added that he believed comments made by President Nasheed earlier this week, where he allegedly denied knowledge of the street protests concerning increased living costs that have garnered news coverage all over the world, had been extremely offensive to people gathering on the streets .

“It would be better to have a statement from President Nasheed apologising for the stupid comments he has made,” he added. “These comments have only made protestors more angry.”

Government findings, which were compiled on April 2 by officers visiting ten different stores across Male’, were said to highlight prices found to vary, sometimes significantly, between the retailers.

Speaking at press conference last night alongside Finance Minister Ahmed Inaz and representatives from the Maldives Monetary Authority (MMA), Razee said that when talking about changes in prices, it was important to try and determine how extensive they were.

“Yes, there are changes in prices, however, we should also see that in terms of essential commodities, what are the different brands that are there [in stores] and the price variations between them?” he said.

Following price comparisons conducted on May 2 at 10 different stores in Male’, Razee took the example of the prices of five powdered milk products, where prices between the stores were said to vary between Rf150 and Rf345. In addition he also pointed to the price differences in diapers, which he claimed varied between Rf118 and Rf150 for the same product.

The figures presently supplied by the government to Minivan News did not appear to verify these price fluctuations.

Razee added that he was unable to speculate on how long some of these potential differences in prices may have been present in stores across the capital or when and for what purpose they may have been implemented.

“What we are saying it, if you look at the price fluctuations that were there in 2006, 2007 and 2008, and if you look at the price fluctuations of the last few years, you will see there is no clear cut format or reason to believe this is directly related to the float of the currency,” he said. “Yes, it would have a bearing, but what needs to [be understood] is that there may changes to the prices. However, these are varied.”

Razee claimed that the government was not using this explanation as an excuse to avoid acting on public price concerns and said that measures were being taken to try and offer stable prices for certain “essential products”.

“We are in consultation with the STO and we have identified together 27 elementary items, out of which six are currently imported directly. [STO] is going to import the other items [on this list] as well to try and maintain price stability and ensure the availability is there,” he said. “In addition to this, the cabinet today advised the president to remove 50 percent of the duty on diesel. So this will give some relief to power generation, electricity bills and transportation costs.”

Finance Minister Inaz added that the government had decided to release some of its statistics to try and highlight current prices being paid by goods in relation to the last few years.

“It is very easy in a small economy to play with and manipulate the confidence of the economy,” he said. “Confidence is the most important factor to build an economy and it can be easily twisted. We agree the prices have gone up, but we want to maintain these price levels at a competitive level compared to other international rises.”

Cost statistics

The government, in figures compiled by Department of National Planning, outlined a number of changes in the average prices paid for goods between March 2010 and March 2011.

These price changes include:

• One kilogram of loose rice – up 1.07 percent from last year

• One kilogram of ordinary flour – down 1.89 percent from last year

• One kilogram of frozen chicken – up by 8.73 percent from last year

• One medium sized coconut – up 69.71 percent over last year

• One hundred grams of garlic – up 22.34 percent last year

• One kilogram of potatoes – up 8.74 percent last year

• One kilogram of imported onions – down 12.64 percent from last year

• One kilogram of yellow coloured dhal – up 17.63 percent from last year

• One 500 millilitre bottle of Kinley mineral water – down 30.30 percent from last year

• One 185 gram can of Felivaru brand fish chunks in oil – up 22.24 percent from last year

• One unit of state-supplied electricity – unchanged from last year

• Thirteen kilogram of cooking gas – up 12.12 percent from last year

• One litre of petrol – up 32.65 percent over last year

• One packet of Fitti brand small baby diapers – up 4.35 percent from last year


Focus on “direct revenue” needed as state earnings increase, says Razee

The country’s Economic Development Minister has called for a greater focus on introducing new “direct revenue” streams like taxation to the country to try and balance national income even as the government reports an increase in income.

Mahmood Razee said he believed that increased government earnings between January and March 2011 should be seen as an encouraging development in the country for both public and private finance, with initiatives like the tourism Goods and Services Tax (GST) introduced in January expected to be rolled out across other national industries.

However, he stressed that more cash generating measures would be needed by the state to balance the country’s books.

The claims were made as the Maldives Inland Revenue Authority (MIRA) recorded a 59 percent increase in government first quarter income on the back of new initiatives like the tourism GST.

The Maldives has come under huge pressure in recent years from financial institutions like the International Monetary Fund (IMF) to try and reduce extensive state spending, resulting in a large deficit between income and expenditure that the government’s Finance Ministry have claimed to be trying to address.

While preliminary figures had pegged the 2010 fiscal deficit at 17.75 percent, “financing information points to a deficit of around 20-21 percent of GDP”, down from 29 percent in 2009, the IMF has reported.

Razee claimed that the increases in government income was a step towards more balanced expenditure as the MIRA revealed that Rf947m was generated during the first quarter of 2011. These earnings were up by 21 percent on predicted incomes for the year and 59 percent over revenues taken during the same period in 2010. However, earnings from the tourism GST introduced from January 2011 onwards were not in place back in 2010.

Tax revenue over the quarter rose by 81 percent, aided mainly by the tourism GST, which generated an estimated Rf351m in February and March alone, up one percent on expected earnings, according to the MIRA.

Of these tax earnings, the financial report stated that Rf82m had been collected in the local currency, while the remaining Rf864m was collected in US dollars (US$67m).

The MIRA report added that government earnings from initiatives such as the switch of a tourism lease rent to a tourism land rent had seen non-tax revenue increase by 46 percent over the period, despite a 28 percent decline in royalties after recent amendments to the Fisheries Sector.

“With the change from tourism lease rent to tourism land rent, the revenue from [this amendment] has increased by 7 percent,” the report stated. “Additional revenue of Rf 146m has been received during this quarter from Resort Lease Period Extension following to the second amendment made to the Tourism Act.”

More Work

According to Razee, despite the increased revenue, more sources of income, particularly in terms of foreign currency, were needed to offset budgetary concerns.  This apparent need comes in light of a lack of US dollars being made available through Maldivian banks that this month saw a long standing Rf12.85 peg on the exchange rate controversially being amended within 20 percent above or below the figure.

“The solution is to look to more direct forms of revenue like the general GST, though there is still some way to go with work in trying to balance revenue with the expenditure side,” he said. “Additionally, when we look to taking [state] loans they will need to be able to build greater productivity and more investment into the economy.”

With the Finance Ministry aiming to introduce a general GST system beyond services and goods provided to holidaymakers, Razee believed that government’s recent experience with taxing tourism income had helped bring a much great understanding of the true state of the country’s finances.

“Obviously with the GST in place, we understand much better the exact tourism receipts being generated,” he said. “Without them, it was much harder to fully understand the revenues being generated.

Razee claimed that the implementation of the general GST tax would also require the private sector to be more “professional” in their accounting, in theory ensuring wider industry benefits in the long-term.


Razee confident budget aims can be met as voting day looms

With voting to finalise the 2011 state budget expected to take place later today, acting Finance Minister Mahmood Razee said he remains confident that the government remains on target to meet its financial objectives, though stressed it was too early to say without “seeing amendments” suggested by parliament.

Despite criticisms by some opposition MPs regarding what they see as a lack of detail in the budget over the exact nature of government spending – particularly in areas of decentralisation and broadcaster funding – Razee said this morning that he believed any potential member-submitted amendments would not set back proposed aims of trying to reduce spending.

“We would only be concerned [by the amendments] if the total budget goes over the 12.37bn (US$962.6 million) originally set,” he said.

Razee added that it would also be vital to try and ensure the predicted 2011 budget deficit remained at about 16 per cent, after coming under pressure from financial institutions like the International Monetary Fund (IMF) to cut the current figure of around 26.5 per cent.

“We would need to maintain the deficit at that level [16 per cent].  Most of the discussions we have had about the deficit have been in line with this,” he said. “However, I don’t know what will happen until voting.”

The passing of the annual budget is constitutionally required to be completed before the end of the previous calendar year, with the government having claimed to be focused on spending cuts as part of plans to try and reduce the country’s budget deficit.

There has been concern over whether the budget will be passed on time, with debate taking place within parliament over the last few days as members have attempted to add amendments to the annual expenditure before passing it through the Majlis.

Budget criticism has come from both opposition MPs like Ahmed Nazim and independent members like Mohamed ‘Kutti’ Nasheed over claims that there is insufficient detail about the exact nature of certain government spending projects.

Nazim has claimed that although opposition members were just as committed to ensuring the country’s budget was completed within the deadline, there remained concerns over issues such as the government supplying about Rf54 million to the Maldives National Broadcasting Corperation (MNBC) without seemingly including it in the budget.

“There are so many problems with the budget, which is lacking details regarding a number of projects and figures,” he said.

Nasheed, an independent MP, also said last week that he had identified some preliminary concerns over spending allocation in the budget, particularly in areas such as decentralisation, despite claiming he was optimistic that the finance document would be passed before the New Year deadline.


Opinion divided over budget evaluation deadline

Acting Finance Minister Mahmood Razee has said progress is being made within an ongoing multi-party evaluation of the 2011 State Budget, despite claims by Ahmed Nazim, the Deputy Speaker of Parliament, that talks “have not gone well” due to a lack of details on planned state spending.

Opinion appears divided within the ongoing parliamentary joint committee evaluation, which is being overseen by members from both the country’s finance and economic committees, upon how near the budget is to being agreed upon by parliament before the deadline of the New Year.

Razee, who was allowed to present the budget this month despite ongoing battles in the Majlis over cabinet appointments, said he was confident the government could still meet its aims to cut the country’s budget deficit to about 16 per cent, despite allowing for concessions requested by opposition MPs.

The government is under considerable pressure from the International Monetary Fund (IMF) to reduce the deficit, which President Mohamed Nasheed last month said was around 26.5 per cent.

Speaking to Minivan News today, Razee claimed that the parliamentary joint committee was generally “committed” to trying to find an agreement that would allow for reductions of the budget deficit. He therefore hoped to have the evaluation completed by Sunday, December 27.

“The basic principles [of the budget] remain the same, the budget deficit needs to be reduced and this is accepted by most parties,” said Razee. “We maybe will need to make some adjustments during the evaluation. A budget deficit of 16 per cent is what we are targeting given the current circumstances.”

Ahmed Nazim conceded that a need to meet a looming New Year deadline to approve the 2011 budget would require members within the parliamentary committee to put aside their political differences and “let bygones be bygones”.

However, the parliament Deputy Speaker claimed that the finance Ministry has “not been communicating” with the Majlis on the budget, a situation he said that was reflected within the evaluation process.

Nazim cadded that anticipated delays in providing information on the budget could make the discussions “go right to the wire” in terms of meeting an evaluation deadline of December 30.

“We are not looking for concessions, the government has a mandate to pursue its own economic policies,” he said. “But there are so many problems with the budget, which is lacking details regarding a number of projects and figures.”

As the evaluation process has continued, Nazim claimed that Information had been arriving “in bits and pieces” to help provide greater detail on budgetary spending, however he said expected that the evaluation process will ultimately take a “long time” to complete.

“We are looking for a reasonable budget,” said Nazim. “Reasonable, like for example, with housing funds, where the government is looking to sell land in Male’, but where is the land that can be sold? They have gone on to say it will actually be land in Huhlumale’ and other islands.”

Due to the levels of cost involved, the Deputy Speaker added that the evaluation committee has “asked for breakdowns” regarding individual expenditure – pointing to an apparent lack of funding in the budget for the Maldives National Broadcasting Corperation (MNBC), despite the government admitting it will be providing money.

“There is no budget [for MNBC], yet they have given Rf54 million [to the broadcaster],” claimed Nazim.

Mohamed ‘Kutti’ Nasheed, an independent MP who is not involved with the evaluation committee, said that despite holding some preliminary concerns over spending allocation, particularly in areas such as decentralisation, he believes the budget will be completed within its New Year deadline.

“I think it will be done, there is willingness,” he said.

However, Nasheed claimed that he had been concerned that the initial budget had failed to outline any finance plans for local councils once they are expected to be formed following February’s elections.

IMF concerns

Beyond trying to outline funding of the state for the year of the ahead, the passing of the annual budget within a constitutionally mandated deadline of the end of the calendar year is also being seen as vital to groups such as the IMF.

Back in November the IMF delayed its third disbursement to the country because of the government’s inaction on the matter of the budget deficit during 2010, pending the release of the 2011 budget.

While the IMF program itself is worth US$92.5 million, other foreign donors and investors consider the IMF’s opinion of a country’s fiscal policies when making decisions.


Joint committee’s budget evaluation underway

A parliamentary joint committee formed to evaluate the 2011 state budget was underway today, though a finalised plan for national spending is still thought to be a few days away, Acting Finance Minister Mahmood Razee has said.

Speaking briefly today during a recess of the joint committee, which is formed from members of both the finance and economic committees, Razee said that the discussions would likely be ongoing during the next few days and that he was unavailable to comment on any outcome before then.

Haveeru reported yesterday that Gasim Ibrahim of the Jumhooree Party (JP) had been endorsed as chair of the evaluation committee that consists of 21 MPs. The paper reported that 12 votes will be required to pass any matter through the committee.

The Chair position was contested by nominations from the Maldivian Democratic Party (MDP), which favoured Bilehdhoo MP Ahmed Hamza, and the Dhivehi Rayytithunge Party (DRP), which proposed Parliament’s Deputy Speaker, MP Ahmed Nazim. Both nominations failed to receive the required number of votes, Haveeru said.

The budget approval, which is constitutionally required to be complete before the end of the year, has come amidst a period of upheaval within the Majlis over the appointment of ministers, which includes a head of finance for the country. This upheavel resulted in Acting Finance Minister Mahmood Razee delivering the state budget after the country’s Supreme Court ruled on December 10 that that ministers rejected by a parliamentary vote could not hold their positions.

Parliament allowed Acting Finance Minister Mahmood Razee to present the 2011 state budget, despite Speaker Abdulla Shahid said that he would be seeking legal advice over whether this was permissible.

Deputy Speaker Mohamed Nazim put forward a motion to declare a “special situation” whereby Razee would be granted the authority to formally present the motion. The chamber voted 55-9 in favour.

The text of the Constitution requires the “Minister of Finance” to submit the budget for approval “prior to the commencement of each financial year” – in the Maldives, the calendar year.

Seven ministers – Finance Minister Ali Hashim, Education Minister Dr Musthafa Luthfy, Foreign Minister Dr Ahmed Shaheed, Fisheries Minister Dr Ibrahim Didi, Home Minister Mohamed Shihab, Defence Minister Ameen Faisal and Attorney General Dr Ahmed Ali Sawad – did not receive a majority of votes from 42 MPs in attendance within parliament last month.
Following the vote, Ahmed Thasmeen Ali, head of the opposition DRP, took the case to the Supreme Court arguing that Ministers rejected by parliament should be dismissed from office.