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.


  1. You're looking for the political machine to be more realistic than an economist? Especially when it comes to doing away with DEMOCRATIC institution in favour of reducing budgets? Yea - That'll happen... and Hell's going to be a slightly more enjoyable experience too, since it'd have been frozen over!

  2. Not to mention Rf. 2 million on disease prevention. What a joke!

  3. The democratic instituion doesnt fare well if people are hungry does it? The Human Rights Comission and Anti-Corruption commission are all very well, but when you're talking about people with a tendency to throw accusations more than actually trying to solve anything, I think anyone fails to see the point there. I think you've made a good argument here. Throwing money at these people and expecting a return from them is bull. Its as if these instituions are part of a laissez-faire, that the public has yet to understand. The economics of an ailing country can only be understood by how well people return from the recovery process. Right now we have NO solid institutions to get money back to the people. As if canning a few civil servants is enough to solve our economic woes. Don't even get me started on the stock ventures of Dhiraagu,BML, MTDC or STO. What about housing? or healthcare? I admit the present goverment is thinking seriously about improving the governance of Maldives. But whether they have the interests of the poeople in mind, is yet to be seen. You also forgot the U$92.5 million bailout plan by IMF. If indeed that money is spent to reduce our fiscal deficit, and improve social programmes, then I expect we can do better these coming years. But what we pay back in return would be much more if we don't make plans to spend that wisely - starting now. And the 'democratic' institution, doesnt seem poised to do that now. If it is they certainly don't make it clear about how answerable they would be if they don't.

  4. thanks aindhy and shauky for the comments and views expressed.