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.