The Maldives has been ranked as one of the world’s most economically-repressed countries, in the 2011 Index of Economic Freedom report produced by the Wall Street Journal and Washington think-tank The Heritage Foundation.
The Maldives is ranked 154th out of the 183 countries ranked, a slight drop on last year but still significantly below the global and regional average, placing 34th out of 41 countries in the Asia Pacific region.
Economic freedom, as defined by the report, “is the fundamental right of every human to control his or her own labor and property.”
The Maldives scored well for several indices, including business, fiscal, trade and labour freedom, but scored poorly for government spending, corruption and property rights.
“The Maldives’ weaknesses include chronically high government spending, inefficiency of the outsized public sector, and widespread corruption,” the report observed.
The government’s role in the economy through state-owned enterprises – and employment of over a third of the country’s total labour force – was “crowding out private-sector activity.”
Furthermore, “public-sector graft remains a challenge for foreign firms operating in the Maldives”, while “bureaucracy can be non-transparent and prone to corruption. Dispute resolution can be slow, complicated, and burdensome.”
Minister of Economic Development Mahmoud Razee noted that with regard to corruption, “in the past the country has not had the institutions to monitor and provide transparency, but now the information is available. It’s the difference between having a dirty or a clean window – one lets you see inside to the full picture.”
Several companies investing in the Maldives – including Indian infrastructure giant GMR and Malaysian security technology firm Nexbis – have had their share prices become collateral in local political rivalries following accusations of corruption.
“It’s one thing to be accused of something,” Razee said. “I’m sure most companies think about this [problem], but we have not seen it become a huge issue.”
Development of the private sector was stymied by “costly credit and limited access to financial services” the report noted, and while labour regulations were flexible, “enforcement is not effective in the absence of a dynamic labor market.”
The International Monetary Fund (IMF) has consistently urged the Maldives to reduce the size of its bloated civil service wage spend, which ballooned 400 percent between 2004 and 2009.
“With the government borrowing at the rate it has, it reduces the amount of credit available to the private sector, and that constrains the ability of the private sector to provide jobs and employment,” leader of the Maldives IMF delegation, Rodrigo Cubero, said in November last year.
“That then constrains economic growth. Furthermore, by spending more than it earns, the government is putting pressure on imports and the exchange rate.”
Razee noted that the introduction of new tax regulation such as the GST and Business Profit Tax, “while not the panacea to everything, shows the government’s willingness to come to terms with [the country’s economic condition].”
“If you look at the level of companies interested and investing in the Maldives, it has not lessened,” he said.
On a positive note, the report observed the potential of the government’s mobile phone banking project, dubbed ‘Keesa’, to enhance development in the private sector. Keesa is being jointed developed by the Maldives Monetary Authority and Dhiraagu, with World Bank assistance.
Summarising, the report observed that higher levels of economic freedom “correlated strongly to a country’s overall well-being, taking into account factors such as health, education, security and personal freedom.”
Hong Kong and Singapore were ranked top, followed by Australia, New Zealand, Switzerland and Canada. North Korea, Zimbabwe and Cuba were ranked at the bottom.