Tuesday, December 29, 2009

Are you happy with your life? Take part in the survey

Please take part in this survey, an effort to obtain an idea about the happinness level of Maldivians. There are several factors that determine the average happiness level of a population / community. Some of the factors include, their income levels, how often you get access to paid holidays, the level of health sector development, the food and nutrition standards, and family values or family ties.

The survey will be open till January 15th 2010.

Thank you

Monday, December 14, 2009

Sea level Raees

Our president has done a great job obtaining the attention of both international and local media through his campaign on environmental issues. The underwater cabinet meeting was telecast on many well known international tv channels, and reported on many newspapers. His speeches, and media interviews also cover the impact of environmental change to the Maldives. Particularly, that sea level rise will result in Maldives being submerged in water, and that all Maldivians are gonna ‘die’.

Having the attention of the international media is one thing. A president repeatedly advertising the death of its country, while at the same time participating in seminars/forums attracting foreign investments and aid, is yet something of great concern.
I’m sure the president shows admirable character; through his articulate skills, entertains and convinces huge groups of people on different issues. My guess is that as he used to be a journalist, it seems that he’s a firm believer in ‘letting the truth out’, no matter what. So, Indian tv channel got the story about Maldivian terrorists fighting in Pakistan.
Many of my friends who are in regular contact with foreign investors have told stories of some huge investors being a bit uneasy about the president’s remarks regarding the fate of Maldives. I’ve also seen some of the e-mails sent by such investors on the subject.
I guess there are serious issues that need to be brought to the attention of the government, and the president.

For a start, president Nasheed needs to rethink his real objectives, and give priority to the welfare and future of the nation instead of promoting his personal fame in the international forefront. His recent remarks and speeches in the international media has had un-measurable damages to the Maldivian economy. Foreign investors are scared and reluctant to make new investments in Maldives, as the president appears on TV and other media interviews to announce that the country’s going under water pretty soon, and also, that the country has a stock of terrorists who are being trained from Pakistan.

Existing investors are also in a state of confusion, and may in the near future leave the country after selling off their investments.

I’m not suggesting that we stay in denial, by just ignoring the harmful effects of climate change and sea level rise. We need to work out plans and put in place adaptive measures to tackle environmental disasters. We need to reduce our carbon emissions, and call other countries to do the same. At the same time, we need to keep living instead of giving up on everything, saying that we all gonna die soon. We need to attract foreign investors to come and set up their businesses here. Especially, when the government’s main policy on economic reform is to privatize existing state owned enterprises, and where possible rely on public private partnerships for provision most of the public goods and services.

Wednesday, December 9, 2009

Random thoughts on 2010 government budget

I’m still not very much convinced that we’ve formed all these independent institutions with their fat salaries, at the right time. I know, we need political reforms, we need to protect human rights, we need to maintain police integrity, all this and that. But first of all, we should be able to afford all this. Looking at the 2010 budget, we are spending about Rf 12 million on human rights commission, Rf 14 million on anti-corruption commission, and a combined Rf 10 million on police integrity commission and the employment tribunal. A grand total of Rf 463 million for the budget of all the independent institutions. On the other hand, a mere Rf 14 million for teacher training faculty, Rf10 million for training nurses, Rf 5 million for faculty of tourism.

From an economic point of view, the latter expenses will definitely directly contribute to the productivity of the labor force, and GDP of the country. What we spend on teacher training, nurse training, and even training for tourism personnel are future investments with high economic returns. But, Rf 12 million for human rights commission?? I’d like someone to explain to me, or justify why we should spend that much money on that institution. And Rf 14 million on anti-corruption? I’d definitely would like to conduct a study to find out how corruption is decreasing in our country, and how much corruption money is ‘saved’ as a result of the efforts of this commission. Then it’d be easier for us to justify spending that money.

I think we need an effective system that can measure, or determine the productivity or the effectiveness of all these independent institutions. At the moment, it seems that most of these institutions are just a means of providing employment, with ‘fat’ salaries and allowances. The end result is that we end up with a wage bill of almost Rf 4 billion for 2010.

Recurrent Expenditure

Even the 2010 budget has an extremely high percentage of recurrent expenditure (70 percent), just like the past years. Tragedy is, out of the Rf 11.9 billion budget proposed for 2010, Rf 4.6 billion would be the deficit, that has to be financed mostly through loans. Which means, our children will pay for our salaries, as these debts will be repaid in the days to come. I say, if we are taking loans, or incurring debt now, such funds should be spend on capital investments that will be beneficial even for our children, especially if we are asking them to pay part of it. Our recurrent expenditures should be financed through the revenue that we earn now.

Dhiraagu shares

The shares we own in dhiraagu, I’m sure it’s a capital investment, as we earn dividends every year. And the company pays well. Last year, the company paid the government over Rf392 million as dividends, this year we expect it to be over Rf 447 million. However, according the proposed budget numbers, in 2010 we are expecting only Rf 166 million. Meaning, Rf 280 million less than this year. I’m sure that this is partly because the government has sold part of its shares recently for a sum of $40 million. By selling these shares, we’ve reduced our share of future dividends. If so, I’d like to find out, HOW DID THEY SPEND THAT $40 MILLION?? If this $40 million is also spent on recurrent expenditure, then it’s a pretty stupid thing hu? But, if we invest that $40m on something productive, its completely a different story.

Revenue estimates

It’s a good move by the government to go towards business profit taxation and having an ad valorem tax on the tourism sector. That’s the ultimate and the most sustainable form of government revenue. But the Rf 300 million revenue from business profit tax in 2010,, I don’t know how realistic it is, as there are many legal and administrative pre-requisites for it to become a reality.

The Rf 1.3 billion to be raised from privatization; I would want to know the details of how they plan to obtain it.

Final thoughts

Government needs to figure out ways to reduce its recurrent expenditure, including those of the independent institutions. And these recurrent expenditures have to be covered only through the revenue that is earned. Definitely not through selling shares of revenue earning corporations.

So many mistakes have been made in the past; like collecting advance lease payments from resorts, and they have been spent on recurrent expenditure. In order to avoid reliance on ‘once-off’ extra ordinary revenues, a good tax system needs to be put in place. Working towards introducing business profit tax, and having a GST on tourism is also a good thing.

Sunday, December 6, 2009

Government sells T-Bonds

On 3rd December, the government of Maldives launched Treasury Bonds (T-Bonds) for the first time in the history of the country. It is also the first time a government security denominated in US Dollars is issued.

Since 2006, the government has been issuing Treasury Bills (T-Bills) with maturities of one month and three months. However, with the introduction of T-Bonds (with has a longer maturity; exceeding one year), government would be able to obtain finance for a longer period. The introduction of T-Bonds and the halt of reliance on the Central Bank for deficit financing is an important step towards an independent monetary policy, without the fiscal dominance that we’ve been used to in the previous years.

T-Bonds also enable the development of the capital market, and these securities can be traded in the secondary market. With the auctioning of the existing T-Bills, there would be further development of our capital market, as it would provide opportunities for private individuals to invest their savings on government securities.

However, in order to effectively establish a securities market, there are certain prerequisites; including a credible and a stable government; sound fiscal and monetary policies; a good regulatory infrastructure; smooth and secure settlement arrangements; and liberalized financial system with competing intermediaries. Hence, we still have a long way to go.

The negative side: With the government borrowing from the commercial banks, and paying high interest rates, will crowd-out private investments. There will be fewer funds available for private investments, and lower investments now would mean lower economic growth.
One thing is sure, with no more printing of Rufiyaa to finance the budget deficit, the pressure on inflation will be eliminated; and the pressure on the exchange rate will be eased. The next big challenge is to strengthen the fiscal discipline, as the finance comes at a huge cost.

Friday, August 21, 2009

Ramal'an Mubarik to all

I extend all my good wishes and greetings of the holy month of Ramal'an to all bloggers and all muslims across the world.
Let this month be full of good deeds, and enhancement of all our ties with our family and friends.
God bless you, and God bless Maldives.

Monday, August 10, 2009

The state of our economy: will we survive this crisis?

Recently a lot has been talked about the economy in the media, discussion forums, and informal gatherings. We have been experiencing a prolonged imbalance in the foreign exchange market since September last year, and the situation has gotten worse now. The businessmen can’t get enough dollars at the official exchange rate of 12.85, while we depend on imports for almost hundred percent of our consumption. Obviously there’s a supply shortage in the market due to foreign exchange crisis, and as a result, prices are expected to increase further.

According to a recent conference, the foreign exchange reserves in the country is about 67 million dollars as at last week, and we would expect it to deplete it even further during the next month. Such depletion in the reserves would make it impossible for the central bank to defend its peg on the currency, meaning, if it was to abandon it, the price of US dollars could suddenly rise even further, making goods much more expensive in our markets.

There are several reasons for the crisis; the main root of the problem being, the incredible hike in the deficit of the government ever since Mr. Qasim assumed the post of finance minister. The deficit that has been financed domestically by printing Rufiyaa, has led to the rise in the money supply without any regard to the output growth in the economy. At the same time, the demand for dollars has been increasing with the increasing number of expatriates and their remittances, Maldivians travelling abroad, and our imports. Meanwhile, tourism receipts have declined by 10 percent, fish exports also have fallen, adding up to the current shortage.

The options available to the government; the main one, is to reduce its deficit, so that printing more Rufiyaa can be stopped. But how will it do that? According the governor or MMA, and even the president and the finance minister, the government is doing its best to reduce the expenditure. But why isn’t it going down? Major chunk of the government expenditure goes into the salaries of its employees. So, if we need to reduce expenditure, we definitely need to cut wages, or reduce the number of employees. It may not be politically such an easy thing to do, however, if we do not address this issue now, the president or the finance minister may not be able to save our economy. These economic measures may not be so ‘popular’ in the short run, politically, however, these are necessary ones, in order to keep our house in order.

Simultaneously, the government needs to collaborate with the parliament in order to make urgent and necessary adjustments to increase government’s revenue through changes to the existing tax system. For instance, increasing the bed tax, or expediting other new revenue measures proposed in the budget.
Public awareness need to be increased on the state of our economy, so that we could make people realize that postponing our travel plans abroad would be a wise thing to do at this moment. We also need to rely more on domestic produce, and focus on developing and increasing our domestic production.

Any foreign assistance that we get today would only postpone a major disaster in the short-run, if we do not address the fundamental problems in our economy. I hope that the parliamentarians and the government officials work together in the interest of the public, our economy, and our country.

Friday, June 26, 2009

Reducing import tariffs: Will it bring down prices?

The government has recently sent to the Parliament a bill that proposes reductions in import tariffs on certain items like vegetables, fruits, diesel and cooking gas. Many have been asking whether this would reduce the prices of goods and services in our local economy. In fact, it is believed that the intention of sending this bill by the government is to reduce the domestic prices, and tackle the increasing inflation in Maldives. As it is one of the pledges of the current government; to bring the prices down, making it more affordable to an average household.

Will it bring the prices down? I don’t think so. The high inflationary pressure that we are experiencing in our economy has less to do with the costs of our imports; instead it has more to do with the demand. This is very obvious when we consider the last year’s statistics. The oil price peaked a $147 per barrel in July, and started its nose dive afterwards. So did many other commodities that we import to Maldives. During the last half of 2008, our import prices in fact went down. But did our inflation come down? No, it didn’t. At the end of 2008, inflation in Maldives was greater than 12%, because the domestic demand was very high.

Inflation in Maldives has more to do with the boost in the domestic demand, fuelled by the increased monetization by the central bank of Maldives. As one of the bloggers has recently outlined (http://abdullahwaheedsblog.blogspot.com/2009/06/on-brink-of-budget-crisis.html), there were series of salary increases starting from January 2008 to the civil servants, independent commissions, judges, and the parliamentarians. This has led to an unsustainable hike in the domestic demand, and as a result, the businesses have increased their price tags.

Unless, something is done to address the domestic demand, any reductions in the import tariffs will not bring down inflation, but, will only lead to an increase in the profit margins of the importers and the retailers. Hence, at the end of the day, even if the bill was passed by the Parliament, it would have simply meant a reduction in government tax revenue, without any benefit to the consumers in the form of lower prices.

What can be done to address this demand? A good start would be to cut down on government expenses, so that the deficit doesn’t need to be financed through printing more money. Government could embark on reducing the salaries or allowances of all state employees, across the board and save millions every month. The moment you stop the ‘printing machine’, it’s amazing how soon you can see the positive results of it.

Friday, June 12, 2009

The deteriorating social capital

The famous production function in economics is often applied to economic growth of countries, and assumes that increasing physical capital, and productivity of human capital lead to higher growth. According to the Solow growth model, countries can achieve higher economic growth through accumulating physical capital (increasing the capital stock), and improving the quality of human capital through education and better health services.
Maldives also has achieved economic growth in the past few decades through increased investments in tourism and few other industries (accumulation of capital), and increased proportion of population with secondary education. Compared to 20 years ago, even the health standards have improved, and the life expectancy is reported to have increased too.

The concept of social capital is also important to the development of a country. According to some of the newer versions of growth theories, the social capital tends to directly influence the total production of a country. For instance, other things remaining unchanged, a country with a rich culture that promotes better work ethics, taking responsibilities, honesty, and/or self-reliance will tend to have a higher probability of achieving higher economic growth, compared to a country with no such values, and where people tend to be generally laid-back.

As we go along the path of democratic, economic, and social reforms, it is vital that we focus policies and societal thinking towards development of our social capital. It is disheartening to hear almost every day, cases of pedophiles, murder, drug abuse, and many more. The most depressing aspect of all this, is the fact that proper punishments are not being given to these dangerous criminals. There is a greater role to be played by the government, the court system, civil society, and the people in general to address these issues. We need stronger measures to deal with such people, so that they are not released back to the society without being given harsh punishments.

The legal professionals and the parliamentarians have a greater role to play on this. I wish parliamentarians better utilize their time discussing regulations and ways to strengthen the legal system so that pedophiles could get harsh punishments. Instead we see them ‘wasting’ most of the sessions in a battle of two political parties. Some want to address the issue of reducing the presidential powers, others want to make Theemuge as the presidential palace, and others want to discuss what the attorney general has said the other day. There are more important and urgent issues to be addressed in this country. If we cannot stop or reduce these serious social problems today, we may not be able to save our country.

Thursday, June 11, 2009

Fiscal Discipline

The employees of the Department of Penitentiary and Rehabilitation (DPRS) working at the Maafushi prison have submitted a petition to the Civil Service Commission, complaining about not getting some of their allowances. Most of these staff are required to work on Fridays, Saturdays, and many other holidays, hence are eligible to receive the ‘bandhu dhuvahuge allowance’ according to them. The staff of Maafushi prison are said to be planning a protest by not reporting to work, and present their case to the courts, if the civil service commission or the ministry of finance is unable to solve this problem.

Meanwhile, the government expenditure is still on the rise, and the overall fiscal deficit is expected to reach an alarming 28 percent of GDP at the end of this year. Looking at the statistics, before the tsunami in 2004, the government deficit was mostly below 5 percent of the GDP, and it reached 11 percent in 2005, later came down a little bit in 2006 and 2007. Again in 2008 it reached 12 percent of GDP. The expected 28 percent for this year may lead to unfavorable consequences if it is to be financed through the central bank, as it will lead to higher inflation.

Adding on to the problem, the tourism revenue is on the down side due to reduction in tourist arrivals, and the government revenue is declining significantly, thus increasing the dangers of the possibility of the government not being able to meet all its expenditure obligations. The end result: the protests of the prison staff may be just a start, which could be followed by others, if the ministry of finance is not able to make the payments on time.

The point is, it is time that the government makes drastic structural changes in order to reduce the fiscal expenditure. A good start could be reducing the number of political appointees, and advise the parliament on reducing the salaries of the various independent commissions and the parliamentarians, and even the political posts. That way we would be able to save millions every month. Further, reducing recurrent expenditures of all government ministries and departments is essential.

In a previous post, I’ve stated the amount that we are spending on all the political posts, independent commissions, and the parliamentarians. Hence, the importance of reducing the number of posts and their salaries. For example, the Ministry of Home Affairs has eight state ministers, the Ministry of Fisheries and Agriculture has three, the President’s Office has nine state minister equivalent posts, and the Ministry of Housing, Transport and Environment has also three.

Talking about bringing structural reforms, the government could also seek help and technical assistance from international institutions like the IMF, World Bank, and others to bring about these changes, and work out a strategic plan for the next 3-5 years.

The root cause of the most of our major economic problems facing today is the high budget expenditure and the high deficit that was domestically financed. The global economic recession just added on to that problem in 2008. In order to address this problem, what we need is fiscal discipline!

Monday, June 1, 2009

Civil Servants and Politicians

I remember one of my colleagues, who used to belong to MDP, which was the main opposition party at that time, talking about the frustrations due to the government actions at that time. A few days later, he defected to the ruling party, DRP and was given a high post in one of the ministries, along with the board membership of a government owned enterprise.

This was a common story back then, when all government employees were administered through the public service division of the president’s office. We all got the ‘chit’ from the president back then. Higher posts were given at the government level to favorite people in the ruling party. Many government employees working at different levels even registered themselves as DRP members.

Then came the Civil Service Act. Deputy ministers, state ministers and ministers suddenly became political posts. An independent civil service commission was formed, and all government employees became ‘civil servants’ apart from those who worked in independent commissions. Permanent Secretaries were appointed in each ministry; he or she was declared as the head of the ministry from the civil service. When this sudden change occurred in our country, there were many among the deputy ministers or, even as ministers who belonged to the group of technocrats, or those who did not have a strong political affiliation to any party. Most of them were being promoted through the ranks of that particular ministry of office, and with a track record of service to the government. So, the change did not immediately affect the daily functioning of the ministries. And then, in November 2008, there was a new government.

With the new government, came new ministers, state ministers, deputy ministers, advisors, political secretaries, consultants, councilors, and so on. Some of the new ministers, state ministers, and deputy ministers were completely new to the public administration system, or some of them have not worked in the government for a very long time. Some of the political post holders were not having the relevant technical background, or know-how to perform the job duties. Very soon, conflicts started arising between the politicians and the civil servants. The politicians have started publicly accusing the civil servants of not performing their job duties, or declining to cooperate with the politicians. The civil servants complain that most politicians do not have the necessary qualifications of the skills for the job. There’s this on going fight between the civil servants and the politicians.

It was announced earlier that the present government wants to have a smaller government, or a few civil servants, and reduce the government expenditure as much as possible. As far as I know, the civil service commission wants to hire as few as possible, and the government also wants to have a smaller civil service.

Let’s look at the situation that we have now, and the resulting costs of it. If a minister (or a state minister) wants to achieve some targets, the civil servants wouldn’t do it. The politician hires a person as an advisor or a consultant (a political post), to achive that target after blaming the civil servants. After blaming the civil service commission for failing to provide enough and efficient staff. What is the end result? That political advisor or the consultant is paid a higher salary than the civil servant, and the irony of it, is that the advisor is also paid by state’s budget. From the same budget from which the civil servants are paid. Three civil servants could be hired for the salary given to the political advisor, however, political posts are created in order to ‘by-pass’ the civil service commission!

Tuesday, April 28, 2009

The deadly outbreak of swine flu and its economic impact

According to BBC, 103 people have died in Mexico but 20 of them are confirmed to have died from the swine flu. There are 20 confirmed cased of swine flu in USA, 6 in Canada, 1 in Spain, and suspected cases are being tested in UK, Israel, Brazil, Australia, and New Zealand.

As a result of this deadly outbreak, the economy of Mexico has come to a halt, as schools, restaurants, and other public buildings are being closed and many people are staying indoors.

BBC further reports that already shares of airlines have fallen, and many tourists are expected to cancel their holidays or travel plans.

As we are very much dependent on the tourism receipts, any negative shock on the world travel and tourism can have a devastating impact on our economy. The annual growth in tourist bed nights has started to fall in December 2008, and in February 2009 there was a 12% decline and a 13% decline in March. Tourist arrivals forecast for this year is already in the negative, and with the swine flu outbreak, we may expect further decline in tourist arrivals, hence reduced tourism revenue, import duty revenue, and other forms of government revenue. This could also badly affect our foreign currency position, and the government deficit.

The economic impacts of this flu world wide may also be devastating. The World Bank has already given $200 million to Mexico to combat the flu domestically. Similar assistance may be required by many other countries if it continues to spread across borders.

Economists and analysts have been forecasting world economic growth to improve by the end of 2009 and at the start of 2010. However, with the swine flu in the horizon, we are talking about possible decline in world travel and other economic activities on top of the money to be spent on curative and preventative measures. This could mean that the world economies may remain in a recession through 2010.

Sunday, April 26, 2009

A million dollars per month: price of political reform

With the new parliament of 77 members, we will be spending for their salaries, more than Rf4.6 million every month, so Rf55.4 million annually. With the current 50 members, we are spending Rf3 million a month, hence Rf36 million per year.

For all the political posts, we are spending more than Rf 7 million a month, meaning about Rf83.5 million a year for their salaries. How do we get this figure? There are 37 state ministers earning more than Rf40,000 per month, 51 deputy ministers or in the same rank as a deputy ministers, 19 atoll councilors, and 172 island councilors. The number of political posts is expected increase even further.

Considering the newly formed independent institutions or commissions, we are spending Rf1.25 million per month, or Rf 15 million per year on the salaries of the senior posts approved by the parliament. We have an Auditor General earning Rf100,000 per month, five Supreme Court judges earning Rf50,000 per month, and a president in the Human Rights Commission, Elections Commission, Civil Service Commission, and the Judicial Service Commission. All of them earns about Rf50,000 per month.

The grand total that we are spending on the political posts, independent institutions, and the parliamentarians is about Rf11.2 million per month or Rf134.5 million per year. This means we are spending more than USD10.5 million an year on the salaries of all these people. With the new parliament, we would be spending more than a million dollars per month, hence more than 12 million dollars every year. And the number keeps on increasing with the increase in the number of political posts. The question is, is it worth it? I mean spending all this money on all those politicians? Are we getting an effective economic return from all this spending?

There will be an additional Rf19.4 million that we would be spending with the increase in the number of parliamentarians to 77 from 50. There are more than 400 candidates contesting for these 77 seats. I say, if the salary is about 30,000 instead of 60,000 will there be so much candidates wanting to become a parliamentarian? I don’t think so. Probably we should reduce the salary to 30,000 so that we would be able to save at least Rf27 million every year.

Tuesday, April 21, 2009

Change we need

Aiman, a 30 year old civil servant, obtained his tertiary education through a government scholarship. After finishing his bachelors degree, he was offered a highly paid job in Australia. However, Aiman chose to return back to Maldives, as he had an obligation to serve the government for almost 7 years. In order to serve this ‘bond’, he started work in the government, in a low paid job, not being able to make use of or apply the skills and knowledge obtained in his bachelors degree. Almost six and a half years have passed since then. Aiman is afraid to accept any Masters degree scholarship from the government, as it would add to the existing ‘bond’.

Haneef, a doctor by profession, also with a similar story; obtained a scholarship from the government, had to return back home soon after graduation, to serve the country. In return, the government provides a relatively low salary. Haneef says the work is not challenging enough, and not adding much value to his professional career. Many of his friends have chosen to find PG opportunity is USA, and settled down there with an attractive income package.

Musaid, 25 years old, a teacher, working in one of the atolls, as he has a ‘bond’ too. Day in and day out, goes into a classroom of 20 students, supervises sports activities, and ‘marks’ exercise books every night. He wants to achieve more, contribute more to his country.

The place I work, there are almost 50 graduates, or even more. Most of the government ministries and departments also have many graduates. Most of us are engulfed in the existing corporate culture, and end up trapped in a system that doesn’t promote our own personal or professional development.

The reason for telling all these stories is not to prove that they all are being stupid, or that the government is being stupid, or that the services of them are not valuable. We need services of people like Aiman, Haneef and Musaid. However, we need in Maldives a change in the way do things in government ministries, organizations, or departments. We need to revisit the corporate cultures, work ethics and human resource management. I say, this has to come from somewhere. And one way we can bring this change is through transfer of management know-how or transfer to know how, work ethics, and many more. We need to provide our graduates with first hand experience, by providing them the opportunity to work in another country for at least 2 years before they return back home.

If the scholarship assistance MOUs with the foreign countries can have such a condition, whereby Aiman, Haneef, Musaid and many others can obtain work experience, and learn how things are done in other countries, they could add more value to their work, and contribute to the development of the corporate culture of Maldivian organizations.

Sunday, April 12, 2009

Does anyone care?

Last night, a dangerous accident occurred in Chandhanee Magu. Four people were injured. Last week in Male’, a 51 year old man died after a motorcycle hitting him while he was walking on Medhu Ziyaaraiy Magu (http://www.miadhu.com.mv/div/news.php?id=17001).
It has become almost impossible to walk around the streets of Male’. The number of motorcycles in Male’ has increased disastrously in the past 2-3 years. The number of ‘private’ cars has increased alarmingly. There’s hardly any space for anyone to walk. Does anyone care?
Male’, being a highly populated city, among cities with the highest population densities in the world, requires special attention, as far as importing vehicles to this small island are concerned. Thanks to Sheesha, and many other importers, who provide easier installment terms, making a brand new motorcycle affordable to almost anybody with a fixed income. However, we do have a Transport Ministry as well, who should be worrying about the growing traffic problems, and devising policies that could address the increasing number of vehicles being imported into the island. I say, we need urgent action; imposing a strict quota on imported motorcycles and cars; and if possible increase the import duty on all these vehicles, so that the numbers can start to fall.
According to news reports, some 521 vehicles parked illegally have been penalized by the traffic police ( you can see them busy every night around the streets of Male’, towing vehicles). Again, the best solution would be to control the importing of these vehicles.
It’s not safe to be out on the streets anymore. No matter you walk, ride or drive.

Thursday, March 19, 2009

Lower salary vs unemployment

Recently we all have heard of too many stories of strikes, press conferences, and interviews regarding changes in the pay structure for the civil servants and other state employees. I can understand that 'take home' income if suddenly decline by 2K or 3K would of course be a problem for all of us. Further, professionals like teachers and doctors will be definitely frustrated when they feel that the government does not value their professions, when the government pays an enviable high salary to police officers, army, and many political posts.

The macroeconomic problems that we face today are the making of many years of mismanagement in the past. The evidence is seen from a very simple analysis of the fiscal expenditure and the deficit. Whats more, the deficit that has been finance domestically by printing money. The resulting inflation, and as a result, government employees demanding a higher salary. The government employs more than 15% of the population, and almost 50% of the state budget goes to the wage bill. On top of that, we are spending almost Rf89 million (USD 7.0 mil) annually to all the political appointees at present. This increases to Rf119 million (USD 9.2 mil)annually when we include the Parliamentarians' salaries. In other words, we are spending more than half a million dollars every month only on political appointees. The worst part: most of these political positions are not filled based on their qualification or capabilities. Meaning that those fat salaries that they get are not performance-based. In the end, hard-earned income by the government is spent on unproductive political personnel, with a very high opportunity cost. The saddest part: many of such political appointees are those with other means of income. In the end, people with no other means of income, with low monthly salaries suffer. period.

Then, the other part of the story. Those who are demanding higher salaries, and organizing strikes and press conferences. I keep wondering, do they really have a bargaining position here? I mean, what if they lose their job today, do they have many options in Maldives, and so seek employment elsewhere? The teacher who is demanding a higher salary, if loses his or her job today, will that person be able easily get a secure job paying much higher salaries? Well, if they can, there can be a bargaining power with them. Or else, accepting a lower salary makes much sense than losing the job. I'm not arguing that we have to keep quiete, whatever we get, and however we are treated. That's the not the point here. Higher salaries for civil servants make the government grow bigger, increasing its expenditure, and making the fiscal deficit unsustainable. It also leads to higher prices in the economy when the deficit is monetized. When the world is in a recession, it makes more sense to even accept the current salary than losing the job. Why lose the job you may ask. When the government keeps on growing, and if the government revenue start shrinking, it would be forced to cut down on the wage bill, and a possible lay off of workers.

The government has some aspects to consider. When these civil servants demand higher pay, how strong are their bargaining power. The government also needs to make these civil servants understand that during times of economic recession, the government may not be able to meet all the demands for higher salaries, and that even accepting a cutback on salaries makes more sense than losing the job, and not earning any income.

If there's anything important enough to organize demonstrations, or press conferences, it is on pressuring the government to reduce the number of political appointees, reduce their pay, and make their appointments based on capability or performance. At least all of us have that barganing power over the government, as we are the people who vote in the elections.

Wednesday, February 25, 2009

Decentralization? Decentralization? And more Decentralization?

This is the new fad in the Maldivian politics and no doubt it’s a wonderful topic for a would be PhD graduate yeah? Having heard of this word a thousand times from our President and his “political graduates”, I thought of having a deeper look at it and its potential in our country.

Obviously it all sounds good. It’s the perfect recipe for a country that’s vying for political freedom. It surely is good news that finally our country is talking about the future and a fine system!

I don’t want to indulge in writing a thesis here nor give you a literature review of what decentralization is. But to give a small yet simple enough meaning, its all about trimming down the layers of a traditional hierarchy and giving the power (empowering) to people at the lower levels to make their own decisions in the best interest of their units. My question then becomes … is this possible? And if so, how can we ensure the smooth functioning of a decentralized system?

Ofcourse it is possible. It is possible for us to break down our administrative arms to small pieces and give these units the required resources and authority to make decisions. But I must admit that for such a system to function effectively (ultimately serving its main purpose), some conditions or pre-conditions needs to be looked at first.

To operate in such a system, its not only the heads of these units that must be educated and disciplined enough to function properly, but also the people at the lowest levels. Given masses of poverty, often controlled by the very rich, one thing that is inevitable is the creation of “black markets of centralization”. These would become the invisible systems that defy the very meaning of decentralization. As a result, what was once the objective will soon follow the inevitable. And the inevitable will become a costly yet a daunting task for our government.

Equal to the levels of education comes the current climax of events that are experienced by the citizens of a country. For such a massive system to be in place, we no doubt have to be prepared to introduce it in the most appropriate of times. The question is are the current events or foreseeable events consistent with the implementation or introduction of such a costly system? Well, my answer to this question becomes NO! Given our consideration must be placed in minimizing costs in a tough economic market, it is of no doubt that the introduction of decentralized arms or systems would escalate the costs that will be incurred by our governments. Firstly there are costs of actually introducing the system, then there are costs of inefficiencies that we have to bear (knowing that very costly decisions will be made from the bottom), and last but not least the opportunity costs!

I did tell you it is topic to write a book or a thesis. But my intention is to highlight a major area of concern here. Two that I have pointed out are both related to costs of actually implementing and running this system. I do understand that we have to tolerate mistakes to move forward. But what I do not understand is whether we are rich enough to absorb the costs of these mistakes. In other words, can we afford these mistakes?

At times of uncerstainities and chaos, it will always be the centralized models that will save any system from absolute failure. We all have heard a million times that our country is bankrupt and in the verge of being sold out to India. Being bankrupt obviously should mean we cannot afford to play games with the current system or a would-be system. We cannot give less than educated people the money and the power to make decisions, we cannot allow ourselves the luxury of trial and error approaches, nor can we approach such issues with speed and learn-as-you-go attitudes.

I don’t know about you, but I do welcome the idea of decentralization. I do welcome such a fine system to become the dominant system in our country. No matter who is behind such ideas, I do not believe that Maldives is ready “right now” to embrace such a model. But hey Mr. President, I believe that the time has come to start educating people of such a model change that might take place three years from now! Hey, its just my opinion!

Tuesday, February 24, 2009

Doctors, teachers, lecturers and state attorneys go on stike to demand pay rise - Can they buy more?

Local doctors are on strike today, because they are not happy with the recent pay re-structuring. According to a doctor I met last night, his take home salary has decreased by about Rf3,000 after the restructure, although the government and civil service commission claims that there is a pay rise across the board. Doctors also claim that salaries of police officers and army has increased, however, doctors’ salaries have gone down. Because of today’s strike, more than 15 doctors have not reported for duty, and as a result many patients are unable to get services.

Meanwhile, a group of 450 teachers are preparing for a second strike, and this time they are determined to continue the strike until their demands for the pay rise is met. This is despite the fact that the civil service commission has already raised the teachers’ salaries in February. Similarly, Lecturers of the Faculty of Engineering of the Maldives College of Higher Education went on strike this week, also due to their unsatisfied demand regarding the pay structure.

It doesn’t stop there. State attorneys working at the Attorney General’s Office (15 out of a total of 18) did not report to work on Sunday also due to similar reasons. Apparently, the Permanent Secretary is reported to have resigned soon after the incident.

It's most likely that the government will in the end, again raise the salaries of the teachers, lecturers and the state attorneys. This is in addition to the pay rise to all civil servants in February 2009. On top of about Rf200 million monthly deficit faced by the government. On top of the declining tourist arrivals due to deep recession in Europe. On top of the increasing inflation due to increase in spending power with the circulation of Rufiyaa.

I don’t know whether these civil servants realize that the global economy is in a very bad shape. Our economy is also heading towards a major crisis period, due to the rising government deficit, increasing external debt, liquidity problems in the foreign exchange market, and as a result of all these, a possible shortage of basic needs in the market, and the possibility of further increase in prices of goods and services. They may all get a rise in salary and with it increase the amount of money they get each month. However, with prices increasing rapidly, they would soon feel that still they are not able to buy more with that money. The real value of their income would not have increased. What then? Organize another strike and demand another pay raise?

Monday, February 23, 2009

Economic Tsunami & The sPackage

When it comes to stimulating an economy, commonsense would suggest that we need to put more money in the hands of our public. By doing this, the public would start spending or is more likely to keep spending so that we have strong demand in the economy for the general goods and services. More demand or strong demand would mean that shops and service centres around the nation would have products that gets sold in a reasonable timeframe and hence, these same places would have a reason to keep current employment levels or perhaps create new vacancies. However, with all these cash injections it is no guarantee for any government that their plans would bear fruit. Key questions become, what if the nation start saving? What if the nation start paying its debt rather than create any new demand for goods and services? Last but not least, what if from every dollar they inject to the economy, a significant majority leaves the economy in the benefit of some foreign country?

Maldives once again couldn’t resist the temptation that all westerners, yeap you heard me right, all westerners that had the likes of iPhones and ePassports have finally started talking about the sPackage! So why not we right?

My opinions might largely differ from yours and I obviously respect that fact. But I do hope that someone out there would start realizing that these are times in which our country needs real experts to mastermind a rescue package to our nation. The likes of Movie Stars, ex Football Players, Activists, Businessmen (by default), or perhaps men with loud voices might not have the capability nor the economic awareness to think outside the box and create a meaningful package that a country like ours would be able to swallow!

Maldives is a country that would never be talked about in the international arena if not for its natural beauty. I think we have a large tendency to overly rely on our fame and mistake our true identity when it comes to devising sustainable strategies. I say this because we have this massive “copy cat” attitude and never once would think for its own on creating a set of ideology that’s truly maldivian in nature. Be it fashion, politics and now economics, we always do start following the big guns! Ofcourse sometimes we will look good (when it comes to fashion), sometimes its nice to read statements in the media with the words “political freedom” (when it comes to politics), but mind you, there could be times when it becomes rather outloud “ridiculous” and “silly” to follow such nations in devising economic rescue packages to counter the economic tsunami the world is in.

On a positive note, it is rather comforting news that our parliamentarians have “finally” begun talking about our rather unique and fragile economy (Minivan News, 19.02.09, Majilis Considers Stimulus Package). However positive it may sound, I just could not help but wonder why we even have the slightest of desires to sit down and talk about creating an sPackage just like how the US, or UK or AUS have done. Why on earth would we even spend precious minutes discussing this? Are we still “assuming” consciously or unconsciously that Maldives is a strong economy? Do we have the necessary economic fundamentals to create the much needed hype in re-igniting local demand? Oh yes, those economies that we so love to mimic have got their basics and perhaps more so strongly their attitudes right! They don’t have citizens that would think about flying away for medicals, higher education or even perhaps leisure. Stimulus packages are designed with the belief that those very injections would be utilized to penetrate the demand “within” an economy. One could always tolerate a slight leakage (money moving away from the economy), but what a country cannot tolerate nor afford is significant holes in its economy that would not just leak money bit by bit, or drop by drop, but overflow in gallons!

Of course I agree with the state minister of finance Ahmed Assad in saying “we need some way to stimulate the economy”. Also do note honourable state minister, what we cannot do is plan a stimulus package with the wrong ingredients!

I am no expert in Maldivian economics, but I do follow our economy and contrast it to what’s taking place globally. Me being a critique on this subject matter does not also mean that I am overly pessimistic about the whole set of ideas or intended strategies. I know given the right mindset, the right ingredients, we can devise a strategy that can see us through this tsunami.

One crucial element or shall we call ingredient in any such strategy must be building demand and ensuring that whatever money we have, gets rolled within our economy. Greater thought to this area makes me strongly believe that there is no better way to start than lending a hand to the backbone of our economy – the tourism sector. Question is how?

Look at the facts. World in recession. Governments promoting spending “within” an economy and consumers spending money while their handbrakes are on. These are just a few facts that must create panic in the minds of every resort operator in the Maldives. All these resorts would have significant levels of fixed costs, and their main intentions would be to minimize their variable costs. Probably less demand for resort supplies (once again this could lead to panic in the supply business platform), an eye on redundancies (which will lead to families getting hurt) and perhaps a desire to lower its rates in the hope of penetrating just someone out there (thus translating into lost revenues). Given these and much more, I say our government partner with these resort operators and try building local traffic to these resorts. I know even right now it is possible for us locals to visit these resorts, but guys, I am talking about systematic manners or perhaps large scale! Opening doors to locals can have damaging impacts (guess from the eyes of the operators). But what’s important is any amounts of money that could help reduce their fixed expenditures. If governments gets involved, it could help create new industries such as local tour operators, more choice for that individual who so loves in going to Sri Lanka. Well fingers crossed, hope we Maldivians still be disciplined enough.

Above is just an idea. Creating economic activities within a given economy would be the most important thing any government should do if they were to stimulate the economy. Borrowing more money could do this, but it sure might not be the best of options. What our country needs is a shift in mindset. People who could think outside the box and I guess the bottomline is, leave that economic shit to the ones with real know-how! Then again, I trust there will be plenty out there who would have creative solutions! -AE-

Sunday, February 22, 2009

The Maldivian Way or The High Way

Ever wondered what is meant by the Maldivian Way of doing things? Let me try highlight a few pointers on some of the things that have stood the test of time!

I did experience an era in which most of us lived in some sort of poverty. An era where you get a fully rationed biskoadhu and a cup of tea for breakfast. An era where you had only one uniform to wear for school. But before long, even I as a kid started experiencing the fair share of luxury from Gold Cup boots (to be worn at school) to riding the best of Motor Cycles. Lets have a look at some of the things that are significant enough to form the very basis of my initial question.

First there was Giffili which we obviously have had the negative experiences. When the so called faahaana came to the picture, every house invested on more than what was required. Every room needed an attached toilet!

I remember the times when I used to go to the house next door to make fone calls when Dhiraagu for the first time introduced the fone service. Once again before long, every individual ended up with a number of their own.

Television shared the same story. Its not only the sitting rooms that required a television, but most bed rooms had to have a television of its own. Probably the early 1990s saw the introduction of satellite channels, that black Dish that was the wholemark of every roof in male! No matter how rich or how poor you were, it soon became a basic necessity!

Late 1990s saw the coming of Mobile phones to the market. Every Maldivian, big or small, male or female, had to carry one in their pockets. And stop me if I am wrong, whether you earned a few hundred rufiyaa, you still claimed that you could afford those luxuries! A look at today reveals that, way before apple introduced its iPhone, most Maldivians had one in their pockets! Well … that’s a bit of an exaggeration, but you got the point right?

Look at the role of taxis in Male. Ofcourse it is a tiny little island but then again you couldn’t go from Henvieru to Maafannu on your foot! It has to be the taxi! What a way to live a life.

Add to this list how some of us spend weekends in Sri Lanka, buys flat screen televisions, wears a tag or another expensive watch, takes breakfast in café’s or perhaps can afford to pay Mrf40-50 for a coffee two or three times a day!

Living life in Male aint for the faint hearted for sure. Even world renowned economists wouldn’t have a clue of how the Maldivians function! They’d be amazed by what we do with what we earn!

I know that the list could go on and on and on. I am sure you’d have many more to add to the above list. Before I pen-off, lets have a look at what we have done as a nation to see whether we can depict any similarities.

I am not going to mention about the luxury yacht of the former president, nor am I going to dwelve on the expensive palace that he built to support his luxury life style. But lets take a look at two, quite extraordinary events. One which has long been history, and the other that’s not going to take too long before it finds its way into our lifestyles.

Passports! Obviously we all need a passport to travel. But what amazed me most was the fact that we were one of the first 10 countries to introduce e-passports to its citizens! Ofcourse there’s a price tag in obtaining these passports and that price would obviously be paid by our Governments!

Lastly to the more recent. But before I mention what this recent activity is, lets first paint an important picture. Just like the individual we depicted in the opening paragraphs who had to have that black satellite Dish on top of their roofs (discarding the question of affordability), we as a nation are living or perhaps moving into times that might question our affordability as a nation more than what we used to before. Just imagine this scenario; our politicians go to the world democratic market where they can buy and sell democratic products. The best ones would obviously have a price tag that’s as fat as building a gold palace or buying a luxury yacht. They check all products on sale and decides, hey hang on a minute, this Decentralization Program has it all from accountability to effective decision making. Lets buy it cos we as Maldivians would buy the best regardless of whether we could afford em’ or not!

I know … I know … not all would agree with me. But guys, I base my conclusions on facts which are clear and unambiguous. Facts which even the common man could agree or comprehend. From what I see, I tend to believe that the Maldivian Way has its flaws and when times calls for tough measures, I think our very own ways will tend to harm us more!

Monday, February 16, 2009

Oil is cheap - as long as the supply doesn't run out

As the world’s major economies are in a recession, the demand for oil has decreased, and as a result price of oil gone down significantly to record lows in recent history. When the major economies like Japan, China and USA are in an economic recession, manufacturing is expected to be down, and demand may not recover within the year. Then, we may see oil price lows of even $30 per barrel this year. According to Bloomberg, crude oil for March delivery is at $37.50 per barrel on the New York Mercantile Exchange in Singapore.

The price of oil escalated to $147 per barrel in July 2008 before it bottomed at about $37 early this year. As at today, the price of oil remains at $44.8 per barrel. Producers are said to be operating at near maximum capacity at about 89.5 million barrels per day. When the economic recessions are over, and then when the economies start their engines, the demand for oil may outrun the supply. And the price of oil is expected to hike up to even $200 and above sometime in 2010 or 2011. The main reason: as we are in the fight to the depletion of oil reserves in the world and this depletion is happening at an alarmingly faster rate.

Despite the limited supply of oil, the demand is expected to grow in the near future, as an average American uses two times the amount of oil used by a European, four times the amount used by Japanese, 12 times the amount used by a Chinese consumer, and 30 times that of an Indian consumer. This is when there are almost 3 billion people in the world living in poverty without the luxury of oil. Just imagine when these people are lifted out of poverty and start oil consumption, how the demand of oil is expected to grow. Bottom line: Unless we find a replacement to oil, the existing stock of oil is going to shrink day by day. Some estimates suggest that it may take 35 years from now for the oil to run out – that is assuming that there is no demand increase, or population increase.

Wednesday, February 11, 2009

Are we heading towards difficult times? Some inspiration by 'Maldive'

Here's a comment by my good friend 'Maldive' to one of my previous posts.

I have been following the global financial crisis very closely n have been wondering about its impact to the Maldives. As my profession and background is very much in the financial and management side, I often wonder what can our government do to minimize the impacts of this recession the world is facing. I guess without a doubt we will be highly exposed to this recession come 2009.

The points you have posed are absolutely correct and the best part is that you have shown me that atleast there are some people in Maldives that are fearing about the impact of this crisis. It is rather sad realizing that our country is a victim of a new epidemic that’s spreading viciously from island to island, community to community, family to family and inviduals to indivudals.

What I am talking about is politics. Media headlines is all about Politics and nothing makes headlines if it is not politics. This is a sad dose of reality and I wish sooner rather than later we change this and start realizing that there are better things to life than just politics. Anyways, I am not here to talk about politics, and funnily enough my new year resolution is about totally stop talking about politics!I would like to mention couple of solutions that our government could start taking to help minimize the impact of this financial/ecomic meltdown. What I am about to highlight is twofold. One is actioning through spending and the other actioning through earnings.

Both related to the dollars or foreign reserves!When it comes to spending, we have to aknowledge that Maldivians are lavish spenders. Going to Colombo, Bangkok, Dubai, or India is more like visiting a next door neighbor. What we don’t realize is that the sum total of these spendings in any given year could reach to a significant amount of foreign exchanges leaving our own reserves and damaging the economy. Every dollar that leaves our nation is an outflow of foreign exchange reserves and these are more like just wasting our wealth! I think we need to educate us (the individuals) in stopping from spending lavishly on these unwanted trips!

Individuals can make a difference, and these individuals firstly needs to be taught of the consequences of their decisions. When it comes to earnings, I am highlighting the fact that we need to show our exporters (mainly MIFCO), the right way of doing things. I believe and I know this as well, MIFCO is renowned to be run very inefficiently! This is where we could generate huge cost savings (by finding ways of running as efficiently and effectively as possible) and ultimately pass those savings in terms of more effective and competitive pricings. Promoting our local stocks is another way of moving forward especially knowing that we rely so heavily on imported goods.

If MIFCO could be run efficiently, why not all Maldivians rely on their produce? If our fishermen can catch fish, why not we buy fish instead of chicken? If Srilanka can sell eggs, why not we start doing this in large scale locally? If we can sell eggs, why not we start selling poultry? My point is, we are capable of these things! My point is generating demands for local produce can help our economy big time and we will be able to minimize this risk that’s daunting our shores! Availability of fruits and veggies, kaashi and the baraboas, can also be done. Those farmers needs a little bit of a pat on their backs, and the full governmental support! These are the times in which our economic saviours will not be wearing a suit and sitting in the parliament wondering about what next to do with the thousands of irrational incomes they would receive at the end of the month! These are times where the economic saviours will be YOU and ME, the common man, or should I say that everyday fisherman or farmer that you picture wearing a sarong, a torn apart shirt, a funny hat, and lots of reddish nuts in their mouth!I also believe we need to do something about every dollar that leaves our economy via the remittances made by the expats.

Our workforce has a huge percentage of expats and every dollar that leaves our shores is a wound that our economy suffers. Its impact can only be realized in tough times and as we move into such an era, I guess our governments needs to come up with some creative means of holding on to these dollars. Cutting back on the expats could be one approach, but I don’t believe that’s the only approach either. We could easily devise a short term plan in which the banks could play a role in holding on to those dollars (maybe by way of a special expat saving scheme – or something!)!!!Anyways, as Naseer had highlighted, we are moving into some tough times, and I guess tough times calls on to tough measures. I wish to add just one word to Naseers final statement – Spend only what you earn WISELY!

Wednesday, February 4, 2009

The President attacks the Central Bank

The President attacked the central bank of the country, MMA, in a press briefing on Monday, saying that MMA is delaying the process of granting license to three commercial banks to be established in Maldives. His exact words were like “I don’t know why it would take so long to put a stamp on a registry”. However, according to MMA only one bank has so far formally applied for a license as at today (http://www.minivannews.com/news_detail.php?id=5948). What we gather from the minivannews article is that although several banks have expressed interest and had meetings with MMA officials, there have been no applications so far other than the Russian bank. The President has with his harsh words, attacked the central bank of the country and in the process either he lied or did not have the correct information.

The President also declared that with the opening of new commercial banks, the US dollar shortage in the Maldivian market will be resolved. There was also a promise of revaluing Rufiyaa to Rf 10 per US dollar within the next five years.

The present shortage in the US dollar and the parallel (black) market is not a new phenomenon in the Maldives foreign exchange market. There has always been a mismatch between what we earn and the outflow of foreign currency in our economy, and this mismatch has grown alarmingly since 2004. However, the pressure to our exchange rate was disguised after tsunami when we had huge inflows of US dollars through international grants and loans. The existing commercial banks also borrowed from overseas and made US dollar loans to the private sector. All these factors helped in defending the current peg of 12.75.

Unfortunately in the last quarter of 2008, the overseas borrowings from the commercial banks and the injection of US dollars by these banks into the Maldives economy almost stopped. This is believed to be mainly due to the financial difficulties facing the global markets. The crisis has been in a way, a blessing in disguise, as external borrowings by the private sector and the government are all temporary solutions to the mismatch between the foreign currency that earn and spend. As long as we don’t increase the foreign currency revenue, there’ll always be pressure on our exchange rate and shortage of US dollars in the market. Hence, opening new branches of foreign commercial banks may not provide a solution to the problem.

Maldives economy is facing an economic slowdown, problems in the exchange rate, and high inflation. Many of the world economies are in a recession with low inflation. The exchange rate pressure and the high inflation is mostly a problem of our own making. It has less to do with the global economic recession.
The years of economic mismanagement and the financing of the government debt through increasing the money supply of Rufiyaa, has led to a boost in the domestic demand, and an increase in the domestic prices (inflation). While Europe and most other economies had below 5% inflation rates, our economy had 12% inflation in 2008. This inflation differential has put pressure on the real value of Rufiyaa in terms of other currencies.

It's times like these that a new President needs to work closely with the Finance Minister and the Governor of central bank in order to restore confidence. It's times like these, we need to show coordination between different economic agents in the country. But what do we see? The President attacking the central bank, as if the central bank belongs to the opposition party.

Sunday, February 1, 2009

އިންފްލޭޝަން މައިތިރިކުރުނ

ރާއްޖޭގެ އިޤްތިޞާދާއިމެދު ވާހަކަތަކުގައި ފަހަކަށްއައިސް އެންމެ ގިނައިން އިވޭ ވާހަކައަކީ މުދަލާއި ޚިދުމަތުގެ އަގުތައް (އިންފްލޭޝަން) މައްޗަށްދާވާހަކައެވެ. ނޫސްތަކުގައިވެސް އެންމެ ބޮޑަށް ފާޑުކިޔަމުންދަނީ ރާއްޖޭގައި އިންފްލޭޝަން މައްޗަށްދާކަމާއިމެދުއެވެ. އަދި އިންފްލޭޝަން މައްޗަށް ދިއުމުގެ ސަބަބުތައްވެސް ބަޔާންކުރަމުންދެއެވެ.
އިންފްލޭޝަންއަކީ ކޮބައިހެއްޔެވެ؟ އިންފްލޭޝަންއާއިމެދު އެހާބޮޑަށް ކަންބޮޑުވާންޖެހެނީ ކީއްވެގެން ހެއްޔެވެ؟ މިސުވާލުތަކުގެ ޖަވާބު އެންމެ ރަގަޅަށް އޮޅުންފިލުވައިދޭން އެގޭނީ ލެޓިން އެމެރިކާގެ ޤައުމުތަކުގެ މީހުންނަށެވެ. ބޮލީވިއާފަދަ ޤައުމުތަކުގައި އަށްޑިހައިގެ އަހަރުތަކުގައި އިންފްލޭޝަން ރޭޓް %600 އަށްވެސް އަރައިގެން ދިޔައެވެ. ދުވާލަކު ތިންހަތަރުފަހަރު ތަކެތީގެ އަގުތައް މައްޗަށް އަރައިގެންދެއެވެ. ކޮފީތައްޓެއްގެ އަގުވެސް މިލިއަނަށް އަރައިގެން ދިޔައެވެ. ފައިސާގެ އެއްވެސް އަގެއް ނެތިގެންގޮސް، ރައްޔިތުން ފަޤީރުކަމުގެ ޙާލަތަށް ވެއްޓި، އިޤްތިޞާދަށް ބޮޑުވަބާއަކަށް ވެގެންދިޔައެވެ.

މީގެ އިތުރުން 70 ގެ ކުރީކޮޅު އެމެރިކާ، އިގިރޭސިވިލާތް، ، އަދި ޖަޕާން ގައިވެސް އިންފްލޭޝަން މައްޗަށްދާންފެށިއެވެ. އަދި މިހާރު ރާއްޖޭގައި ވާހަކަދެކެވޭ ފަދައިން މީހުން މިކަމާއި ކަންބޮޑުވުން ފާޅުކުރަމުން ދިޔައެވެ. އަދި އަގުތައް މައްޗަށްދާ ސަބަބުތަކުގެ ގޮތުގައި ތަފާތު ވާހަކަތައް ދެކެވެމުން ދިޔައެވެ. އެމެރިކާ ސަރުކާރުން ބުނަމުން ދިޔައީ ކުންފުނިތަކުން މުސާރަތައް ބޮޑުކުރުމުގެ ސަބަބުން އިންފްލޭޝަން އިތުރަށް މައްޗަށް ދަނީކަމުގައެވެ. އަނެއްބަޔަކު ބުނީ އިންފްލޭޝަން މައްޗަށްދަނީ އިމްޕޯރޓްކުރެވޭ މުދަލުގެ ސަބަބުންކަމުގައެވެ. ބޭރުދުނިޔޭގައި އަގުތައް މައްޗަށް ދާތީވެ، އިންފްލޭޝަން މަތިވަނީކަމުގައެވެ. ބައެއް ޤައުމުތަކުގެ ސަރުކާރުން ގޯސްކުރަމުންދިޔައީ ޢަރަބި ތެޔޮ އުފައްދާ ޤައުމުތަކެވެ. އެއީ، ތެލުގެ އަގު ބޮޑުވުމުގެ ސަބަބުން އިންފްލޭޝަން މައްޗަށްދަނީކަމަށެވެ. އެކަކު އަނެކަކުގެ ބޮލަށްޖަހަމުން ދިޔައެވެ. އިންފްލޭޝަންގެ ވަބާއިން އެމެރިކާއާއި އިގިރޭސިވިލާތް ސަލާމަތްނުވެވިގެން އުޅެނިކޮށް ޖަޕާން އިންފްލޭޝަންއިން ސަލާމަތްވެ، އެހެނިހެން ޤައުމުތަކަށް މިސާލަކަށްވެގެންދިޔައެވެ. ޖަރުމަނަކީ ޤައުމަށްބޭނުންވާ ހުރިހާ ތެލެއް އެތެރެކުރަމުންދިޔަ ޤައުމެކެވެ. އެކަމަކު ޖަރުމަނުގައި އޭރު އިންފްލޭޝަންގެ މައްސަލަ ކުރިމައްޗެއްނުވެއެވެ. އެހެންވީމަ އިންފްލޭޝަން މައްޗަށްދަނީ ކޮންސަބަބަކާއިހުރެހެއްޔެވެ؟

ރާއްޖޭގައި އިންފްލޭޝަންގެ ސަބަބުތަކަކީ އެއްބަޔަކުބުނާގޮތުންނަމަ، އިމްޕޯރޓްކުރާ މުދަލުގެ އަގުތައް މައްޗަށްދިއުމެވެ. އަނެއްބަޔަކު ގޯސްކުރަނީހަމަ ތެލުގެ އަގުބޮޑުވުމެވެ. މާލޭގައި ގެދޮރުގެ ކުލިއަގުބޮޑުވުންވެސް އެއްބަޔަކު އިންފްލޭޝަން މައްޗަށްދިއުން މާނަކުރެއެވެ.އެންމެ ގިނައިން ދެކެވޭ ވާހަކައަކީ ސަރުކާރުގެ ބަޖެޓްބޮޑުވެގެންދިއުމެވެ.

އިކޮނޮމިކްސް ޢިލްމުގައި އިންފްލޭޝަން މާނަކުރެވެނީ މުދަލާއި ޚިދުމަތްތަކުގެ އަގުތައް ޖުމްލަގޮތެއްގައި ބޮޑުވަމުންދިއުމެވެ. މަހަކުން އެއްފަހަރު ގިނަ ޢަދަދެއްގެ މުދަލާއި ޚިދުމަތުގެ އަގުތައް ބޮޑުވާ ނިސްބަތް އިތުރުވަމުންދާނަމަ، އިންފްލޭޝަން އިތުރުވުން މެދުވެރިވެދާނެއެވެ. މީގައި ސަމާލުކަންދޭންވީ އަގުތައް ބޮޑުވާ ނިސްބަތަށެވެ. އިންޑިޔާގައި ކުއްލިއަކަށް ފިޔަލުގެ އަގުބޮޑުވެގެންދިއުމުން ރާއްޖޭގައި ފިޔަލުގެ އަގު ބޮޑުވެގެން ހިގައިދާނެއެވެ. އެކަމަކު، ފިޔަލުގެ އަގު ނުހިފެހެއްޓި މައްޗަށް އަރަމުންދާނަމަ، އެއީ އިންޑިޔާގައި ފިޔާއަގުބޮޑުވުން ސަބަބެއްކަމުގައިނުވެ ހިގައިދާނެއެވެ. ޢާންމުގޮތެއްގައި، އިންފްލޭޝަން މައްޗަށްދާނަމަ، ފައިސާގެ އަގުވެއްޓެމުންދާނެއެވެ. މަދު ޢަދަދެއްގެ މުދާގަތުމަށް، ބައިވަރު ފައިސާ ބޭނުންކުރަންޖެހިދާނެއެވެ. ކުއްލިއަކަށް، ޢާއިލާތަކުގެ ޚަރަދުތައް އިތުރުވެ، ލިބޭ އާމްދަނީއިން ދެކޮޅުނުޖެހޭ ޙާލަތަކަށް ވެއްޓިގެން ހިގައިދާނެއެވެ. މިހެންކަމުން އިންފްލޭޝަން ޙައްލުކުރާނީ ކިހިނެއް ހެއްޔެވެ؟

އިންފްލޭޝަންގެ އެންމެބޮޑު ސަބަބަކީ ސަރުކާރުގެ މާލީއިދާރާއެވެ. ނުވަތަ ސެންޓްރަލް ބޭންކެވެ. އިތުރަށް ފައިސާގެ ނޫޓް ޗާޕްކުރާވަރަކަށް (މަނީ ސަޕްލައި އިތުރުވާވަރަކަށް) އިންފްލޭޝަން ދުވަހެއްދުވަހަކަށް މައްޗަށްދާނެއެވެ. އެމެރިކާގައިވެސް އިންފްލޭޝަން އޭރު މައްޗަށްދިޔައީ މިސަބަބާއިހުރެއެވެ. ޖަރުމަނުގައި ދެވަނަ ބޮޑު ހަގުރާމައަށްފަހު އިންފްލޭޝަން އަތްނުފޯރާވަރަށް މައްޗަށްދިޔައީވެސް މިސަބަބާއިހުރެއެވެ. އެހެންކަމުން އިންފްލޭޝަން މައިތިރިކުރަންބޭނުންނަމަ، އިތުރަށް ނޫޓްޗާޕުކުރުން މަދުކުރަންވީއެވެ. ރާއްޖޭގައިނަމަ އިންފްލޭޝަން މައިތިރިކުރުމުގެ އެންމެ ބޮޑު ބާރުއޮތީ އެމް.އެމް.އޭ ގެ އަތުގައެވެ.

އެމް.އެމް.އޭ އިތުރަށް ނޫޓްޗާޕްކުރަނީ، ނުވަތަ މަނީ ސަޕްލައި އިތުރުކުރަނީ ކީއްވެގެން ހެއްޔެވެ؟ އެންމެ ބޮޑު ސަބަބަކީ ސަރުކާރުގެ ޚަރަދުތައް އިތުރުވަމުންދާތީވެ، މި ޚަރަދުތައް ފޫބެއްދުމަށްޓަކައި، ވަގުތީގޮތުން ހޯދަންޖެހޭ ފައިސާއަށްޓަކައެވެ. އެމެރިކާގައި 70 ގެ އަހަރުތަކުގައި އިންފްލޭޝަން އެންމެ ފަހުން ހުއްޓުމަކަށް ގެނައީ މަނީ ސަޕްލައި އިތުރުކުރުން މަޑުޖައްސާލައިގެންނެވެ. އެހެންކަމުން، އެމް.އެމް.އޭ އިން އެންމެ ފުރަތަމަވެސް ގޯސްކުރާނީ ފިނޭންސް މިނިސްޓްރީއެވެ. ފިނޭންސް މިނިސްޓްރީއިން ގޯސްކުރާނީ އެހެނިހެން މިނިސްޓްރީއިން ހުށަހަޅާފައިވާ ބޮޑެތި ބަޖެޓުތަކެވެ. އެހެނިހެން މިނިސްޓްރީތަކުން ގޯސްކުރާނީ ކާކުހެއްޔެވެ؟ ރައްޔިތުންނެވެ. މިނިސްޓްރީތަކުގެ ކިބައިން އެކިއެކި ކަންތައްތައް ބޭނުންވަނީ ރައްޔިތުންނެވެ. ފަޅުފުންކުރުމާއި، ބަނދަރު ހެދުމުގެ ވާހަކައާއި، ޓެކްސްޓްފޮތާއި، އެހެނިހެން ޚިދުމަތްތަކަށް ޚަރަދުކުރުމަށް އެދެނީ ރައްޔިތުންނެވެ. ރައްޔިތުންގެ ޑިމާންޑްތައް އިތުރުވާރަކަށް ސަރުކާރުގެ ޚަރަދުތައް އިތުރުވެ، ބަޖެޓް ޑެފިސިޓްވެގެންދާނެއެވެ. އަދި މިކަމުގެ ސަބަބުން އެމް.އެމް.އޭ އިން ނޫޓް ޗާޕްކުރުން އިތުރުކުރަމުންދާނެއެވެ. އިންފްލޭޝަން އިތުރުވާނެއެވެ. މިކަމުގެ ޙައްލަކީ ކޮބައިހެއްޔެވެ؟

އިލްފްލޭޝަންއާއި، އެހެނިހެން އިޤްތިޞާދީ މައްސަލަތައް ޙައްލުކުރުމުގައި އެންމެ މުހިންމު އެއްކަމަކީ ސެންޓްރަލްބޭންކް ފިނޭންސް މިނިސްޓްރީއާއި، ސަރުކާރުގެ ބާރުނުފޯރާ މުސްތަޤިއްލު ތަނަކަށްހެދުމެވެ. ލެޓިން އެމެރިކާގެ ޤައުމުތަކުންވެސް ފަހަކަށްއައިސް ހޯދާފައިވާ ކުރިއެރުމުގެ އެއް އަސްލަކީ ސެންޓްރަލް ބޭންކް އިންޑިޕެންޑެންޓްކުރުމެވެ. ދާދިފަހުން ރާއްޖޭގެ ސެންޓްރަލްބޭންކް، އެމް.އެމް.އޭވެސް ވަނީ ޤާނޫނެއްގެ ދަށުން މުސްތަޤިއްލުތަނަކަށްވެފައެވެ. އެހެންކަމަށްވާނަމަ، އެމް.އެމް.އޭ ގެ ގަވަރނަރަށް ފިނޭންސް މިނިސްޓްރީގެ ނުފޫޒު ފޯރައިގެންނުވާނެއެވެ. ގަވަރނަރަކީ، ފިނޭންސް މިނިސްޓަރު އަންގާހާ ކަމަކަށް ތަބާނުވާ، ފިނޭންސް މިނިސްޓަރަށް ޖެހިލުންނުވާ މީހަކަށްވާންޖެހެއެވެ. އެމް.އެމް.އޭ ގެ މުސްތަޤިއްލުކަން އެންމެ ފުރިހަމަ މާނައިގާ އޮތްކަމުގައިވާނަމަ، ރާއްޖޭގެ އިންފްލޭޝަން މައިތިރިކުރުމުގެ ބާރު އެމް.އެމް.އޭ އަށް ލިބިގެންވެއެވެ.

އަނެއްކަމަކީ ސަރުކާރުގެ ޚަރަދުތައް ބޮޑުވެގެން ދިއުމުގެ ވާހަކައެވެ. ރާއްޖޭގައި ފަހަކަށްއައިސް އިސްރާފުގެ ބައިވެސް ވަނީ ވަރަށް ބޮޑުތަން އިތުރުވެފައެވެ. އޮފީސްތަކުގެ ބަޖެޓުން ކޮންމެ މަހަކުވެސް އެތައް ފައިސާއެއް ތަފާތު ޙަފްލާތަކާއި، ރަމްޒީކަންކަމުގައި ބޭކާރުވެގެން އެބަދެއެވެ. ކުރެވޭ މަސައްކަތާއި އަޅާބަލާއިރު ސަރުކާރުގެ ވުޒާރާތަކުގެ މުވައްޒިފުންގެ ޢަދަދުވެސް ގިނަވެފައެވެ. ބޮޑެތި މުސާރަ ލިބޭ، ނަމަވެސް އެދެވޭ ޚިދުމަތެއްނުކުރާ މުވައްޒިފުންގެ ޢަދަދުވެސް މިވަނީ މާގިނަވެފައެވެ. އެހެންކަމުން އިންފްލޭޝަން ޙައްލުކުރުމުގައި، ފިނޭންސް މިނިސްޓްރީއާއި، އެމް.އެމް.އޭ ގެ ޒިންމާ ވަރަށް ބޮޑެވެ. އެންމެ ބޮޑު އެއް ޙައްލަކީ ސަރުކާރުގެ ސައިޒު ކުޑަކުރުމެވެ.

Tuesday, January 27, 2009

Will we increase the productivity by changing the working hours from 08:00 to 16:00?

There has been a surprising change in the structure of civil service pay structure and the timing of government offices, to be implemented in February 2009. According to the press briefings and various interviews, there will be a slight pay rise to all government employees due to this sudden change, and starting from February 01st, the working hours of all government offices will be 08:00 to 16:00, with a lunch break of one hour from 12:00 to 13:00. The total working hours remains at 07, which was the same even with 07:30 to 14:30 as the official working hours. So, what is the objective of changing the work hours? What are we trying to achieve? Normally, one would expect an increase in pay rise to be associated with an increase in working hours in order to increase the aggregate output of the country. If the change does not increase the number of working hours, I don’t see too many economic benefits of simply starting 30 minutes late, and finishing 1.5 hours late, with one hour break in between (which becomes technically an unproductive one hour).

Due to this change, the civil service employees dependent on part-time employment are mostly to suffer. As many may not be able to continue their part-time jobs, and as a result lose a significant amount of their previous income. If the pay rise does not compensate such loss, then there will be a net loss in the economic welfare. The economy also loses as many leave their part-time employment. Normally, these part-time employments are placed in the private sector, and people are hired selectively based on productivity. This recent reform may in the end lower the productivity in the economy.

Brining our work hours in line with international practice is one of the reasons that were often heard as justification for the change in government working hours. In almost all other countries, people are required to commute hours to work every morning, thus justifies late starting time. But in Maldives, we could get to work within a maximum 15 minutes even in the largest islands in the Southern atolls. Starting our work even at 7:00 will not be a problem for us (Staff at schools start at this time even now). If our objective is to increase productivity, starting at 07:00 and finishing at 14:00 would be a much better option.

Sunday, January 18, 2009

New resort developments: the lost revenue

Maldives government has decided to grant an extension to all the new resort developers, so that they get an additional 12 months before they start paying rent to the government.
The lease agreement between the investor and the government requires the investor to start operations and start paying the lease rent within 24 months of the signing the agreement.
The decision by the government to grant an extension would result in a decline in the expected government revenue within the next 12 months, on top of the escalating government expenditures.
The delay in opening the new resorts for operation also means the lost revenue to the government through bed tax.

So, the delay and extension costs a lot to the government, and these factors make us wonder, why the delay in opening those resorts?

The leasing of islands for tourism development is carried out by the Ministry of Tourism and follows a model in which uninhabited islands are auctioned off in a bidding process with government publishing the criteria in advance.

The Ministry of Tourism embarked on an ambitious expansion of the tourism industry with 37 new islands opened for bidding in the period 2004-2006. The first round of developments was announced in 2004, with 11 islands being opened for bidding.

In 2006, with the new set of islands, government tried to be more transparent and objective and opened islands for bidding under the ‘open-rent’ and ‘closed-rent’ categories.

If we were to construct a model for determining the probability of opening a resort for operations within 24 months of awarding the island, it would depend on the following factors: availability of investment finance; management expertise; location of the island; proposed lease rent; assuming all the other factors remain the same.

The availability of investment finance or the ability of obtaining debt finance from banks is linked to almost all the factors mentioned above. For example, the higher the proposed lease rent, the lower will be the profitability, and thus feasibility of the investment. The location of the island has significant implications on the transportation costs and the construction costs of the island, and thus affects the prospect of obtaining finance as well.

The lease rent plays a major and a significant role in making the investment worthwhile, and thus the sustainability of the venture. Hence, bidding procedures need to be de-linked to the rent component in order to make new resort developments a success. The policies adopted in 2004-2006, especially in the case of the ‘open-rent’ category of islands, has done nothing but inflated the lease rents above the true market value. As a result, new investors are struggling to obtain the necessary finance.
If these islands were awarded with industry average lease rents, the probability of getting those islands opened would have increased, and with it the government revenue through bed tax.
Sustainable tourism development is much more important than trying to squeeze short-term gains through high lease rent payments. Sustainable it can be made only through allowing true market values to be reflected in the lease rents.

Thursday, January 15, 2009

"Will increasing the incomes of all increase the happines of all?"

Few years back a group of economists conducted a study in which they compared the happiness levels of societies across the world. One of the questions they raised was “will increasing the income of all increase the happiness of all?” When we think about it, most of the time we relate people’s financial well-being with happiness. If this is true, the happiest people in the world would be the wealthy population.

Addressing this issue at a micro level, you may expect your happiness level to increase a little bit, if there is a bit increase in your monthly income. With the rise in income, probably you would be able to afford more leisure, fancy goods, or a nice home. Will any additional rise in income increase your level of happiness? According to those economists, happiness often depends on relative income as well. If your income doubles, and at the same time, incomes of your neighbor and friends triples, then it may not increase your happiness level. If your income doubles, while incomes of all the others remain the same, then will you feel happier? Depending on the answers that we give these questions, it may be true that increasing the income of all may not increase the happiness of all.

We may bring political reform with it provide us many civil liberties. We need economic reforms, with it should provide a livelihood. We also need social reforms, so that we can achieve the kind of ‘happiness’ that I’m talking about.

We may establish a society based on good democratic principles and even progress economically. However, economic progress not necessarily means improvement in living standard. With a rise in income level, there must be mental happiness, and the emotional well-being of the people in the country. Economic development if achieved at the expense of a wealthy society with high suicide rates, increased crimes, and broken families, then increasing the incomes alone may not the improve the happiness of all.

Thursday, January 8, 2009

Discussion with Economists: youth, employment & wave motorcycles

I thought of sharing the views and ideas expressed in our various discussions as it might help many others and trigger the thought process, and lead to useful recommendations for development policies.

Majority of the youth aged between 18-35 at present fall under a unique category when we compare it to many other countries in the world. In most other countries, when a young person graduates from college and enter the job market, have many aspirations like owning a house, a car, or a good pension (retirement plan). In Maldives (particularly, in Male’) : a ‘wave’ motorcycle, or probably a small 12 x 10 bedroom. There’s no motivation or a driving force for most of the youth to get a good job and work hard to earn a good living. Earn all that money for what? We can’t own a decent house and have a quality life. The most we can fulfill is to own a motorcycle and ride for 30 minutes every night. Some of the tsunami victims who live in temporary camps, when given a little money chose to own a ‘Lifan’ motorcycle, that happens to be parked outside the ‘tent’. Bank of Maldives availed Rf15,000 soft loans out of the proceeds of international aid after tsunami. Most of these loans were being used to purchase motorcycles on installment.

The bottom line is, we need to induce a motivation within the youth, so that they have at least something to work for. When there’s no important goal in life, when hard work and earned income doesn’t provide them an incentive to lead a better life, we may not be able to solve the youth employment problem. We may not be able to reduce the expatriate labor force.

Wednesday, January 7, 2009

Discussion with fellow Economists -political economy

Last night I got the privilege of having a meaningful and very fruitful, and inspiring chat with four of the most prominent and experienced Economists in Maldives. It was just a friendly coffee and happened to last for four hours. We discussed various issues in our economy; including but not limited to; the nature of the political economy in Maldives, current financial turmoil in the world, dollar liquidity in the market, and youth employment problem in the country.

The political economy in Maldives, as it happens in many other developing poor countries is very much depressing. The President we had for the last 30 years had absolute power, the means and a few capable minds to shape up and ‘sequence’ the correct economic measures and bring about much needed economic reforms to our country. However, he provided the opportunity to those businessmen to pat on his back, and as a result, these businessmen were rewarded with ‘resorts’ and many other privileges with the blessing of the government, and at the expense of the rest of the Maldivians. These powerful businessmen then hindered the economic development of the whole country in many ways, and enabled them to establish and maintain a monopoly on major sectors of the economy. They try to squeeze as much of the scarce available wealth and resources in the country with the help of the government and the President. The mistake made by the President: to let the businessmen pat on his back!

What has happened since then? The same businessmen contested for the parliament and controlled seats in the parliament while under oath to serve and protect the rights of the fellow citizens. But, it is their self-interests that they are protecting. Their own businesses that they want to grow - At the expense of the rest of the people in the country.

I should write about the rest of the discussion at a later time.

Tuesday, January 6, 2009

Can our country afford these political games??

Yesterday I read an article from one of the newspapers that talked about an interview of the Press Secretary at the President's Office, and according to the article, the President has somehow obtained legal opinion from somebody and is considering declaring 'state of emergency' in order to conduct parliamentary elections. It'd be a dissapointment to those who love democracy, to see one of the three powers, 'Parliment', to be declared void, and the Executive taking charge in the absense of a parliament. I don't understand a way the President can actually call for an election when the constituencies and other laws are still not being determined.

There are a group of parlimentarians and other politicians who want the President to do such a mistake, and prove to all of us, what a great 'dictator' Nasheed can become. There are also a group of parliamentarians who deliberately wants to go against the spirit of the Constitution by supporting to take leave. There are a group of parliamentarians who think that the Constitution was made by them, so they can act as they will and interpret the constitution their own way. There are group of parlimentarias who just cant let go the high salaries and the privileges that come with the job.

My question is, can we at all afford all these politics at this time? It was only three months ago when these politicians appeared on tv and declared that Bank of Maldives is bankcrupt, that the whole economy was collapsed, and so many other things. As a result, public confidence towards banking system, economy, and the government went to an all time low. Our economy is still suffering from that low confidence, and as a result undesired speculations.
After all the dirty tactics and the political games, at last the people have decided, and a new government has been formed.

The National reserves are very low, fiscal deficit is very high, and the economic growth is slowing down. The world economies are in a recession, and there is fear of our economy going into a deep recession if we dont take prudent measures to revive the economy. At a time like this, do we still continue with playing political games,; declaring emergencies, protecting self-interests?? and what not.

It is a time to unite together. Work with the government, private sector, and the people to re-build the nation. It is time for us to put our national interests ahead, and try our best to survive the global economic down-turn. It is time to end these political games and move on.

Saturday, January 3, 2009

The Economics of Corruption

Corruption is one of the serious diseases that a society has, and detrimental to the economic development of a country. It is often corruption at higher levels that significantly harm the welfare of the society, and impact the economy unfavorably. For example; a huge loan of $30 million for a highway or road project such as the Addu Link Road Project, if at some point a senior official takes a ‘cut’ and as a result only $27 million is actually spent on the project. The society loses due to the poor standard of road construction, and additional funds need to be spent for unnecessary maintenance of the road.

Same goes to harbors, airports and other major infrastructure projects mismanaged due to corrupt officials or managers who choose to satisfy their personal gains at the expense of the society. The economy suffers from unutilized resources as a result of corruption.

Corruption in Maldives is also at an alarming level, according to the recently updated corruption index by the Transparency International. In order to combat corruption and minimize it, we need to understand the economics of corruption at a micro level.

As an individual (especially a person at an influential position), a person chooses to get ‘corrupt’ after making a simple cost-benefit analysis of the situation. The individual makes a rational decision based on this analysis. The benefit to him/her would obviously normally be the amount of money that he gets to put in his pocket from the ‘inside deal’. The costs will be the penalty he has to pay in the event that he gets caught. Hence, the probability of him getting caught, and the penalty he pays play a key role in deciding whether to get corrupt or not. If the person believes that the probability of getting caught is very low, given the loopholes in the system, then there is a higher tendency for getting corrupt. On the other hand, even if the probability of getting caught is high, however, the penalty is very low, then, it makes sense to take the risk of getting corrupt. If the penalty is very high, but the probability of getting caught is pretty low, then the person would have to make a decision considering the benefit (amount of money) he gets to keep.

Based on the above analysis, policy makers have a simple formula that can be used to combat corruption. Either increase the penalty or design the system in such a way to increase the probability of getting caught. In the case of Maldives, what we have seen in the past 10-20 years is that people get caught, or corruption cases are well known in the society, however, the penalty is sow low that corruption has grown and become very popular. Then again, I sometimes ask, how high can the penalty get? Death? If a person is caught on a corruption case exceeding one million rufiyaa, he will get death penalty! Wow. Does that sound reasonable? Will people accept executing a person for getting a little greedy and taking a few bucks from our money?
The perception of the society towards corruption also plays an important role here. If it is perceived ‘ok’ to be corrupt, and a short-cut to getting wealthy, then incidences of corruption may increase. On the other hand, if corruption is generally perceived as a bad thing, and anybody who gets caught has to face the ‘disgrace’ from the society, it could be one other factor the person would consider when choosing to get corrupt.

Friday, January 2, 2009

Hello 2009 !

Wishing everybody a happy new year, and hope that it'll be a successful year for all of us. As we enter 2009, the world is facing its worst economic recession since the Great Depression of 1930s. The American economy is facing deflation as the price of oil has declined to a record low of 37 dollars after hitting a high of 146 dollars in July 2008. It is predicted that price of oil may fall to even 20 dollars within this year, meaning deflationary fears throughout the year. Prices of major commodities are also falling, and major commodity traders like New Zealand, Australia, and Canada all fear economic slowdown within this year.

At a time like this, what's happening in our economy? We sure are not facing deflation. Government expenditure (especially current expenditure) is accelerating each month, with it the government fiscal deficit. Last three years of fiscal mismanagement has led to unsustainable levels of government deficit. It is estimated that the total fiscal deficit in 2008 exceed Rf5 billion. As part of this deficit was financed through the central bank, inflation is on the rise.

The european and the world economy has entered a deep recession, and tourism revenue is expected to decline in 2008. However, the newly elected government seems determined to fulfill all its campaign promises, and the people have all their expectations at the highest level. Current expenditure is expected to inflate further with the ever increasing political posts being announced almost every week. Newly formed independent institions and commissions also demand higher expenditure for their salaries and running costs. All these expenditures - mostly unproductive, and politically motivated, aren;t doing much good to the economy and the productivity of the country. When the economy is not growing, the living standard of people will not increase.
For all these reasons, and many more, it is critical that the President and the officials in the President's Office involved in formulating policies understand the economic reality of the situation our country is at present. They need to understand the implications of their policies to the economy. More specifically, the fiscal deficit and the resulting government debt of the country.