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!

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