Monday, January 25, 2010

What the government and the civil servants need to understand on the issue of salaries

The government announced pay cuts for civil servants during the last quarter of 2009, and revealed plans for gradually reducing the number of civil servants. On various occasions, the president has tried to explain his strategic economic reforms, and overall macroeconomic policies adopted by the present government. He’s outlined the reasons for his drastic measures of reducing government recurrent expenditure on salaries, and increasing electricity tariffs and stop subsidizing the State Electric company.

The years following 2004 tsunami, the macroeconomic management can be best described as ‘stupid’, ‘politically-motivated’, and mostly unsustainable. Government’s current expenditure hiked to unsustainable levels, mostly through increasing salaries, and huge promotions. This was followed by formation of many independent commissions and institutions, again with huge salaries. Meanwhile, salaries of the Parliamentarians, and ministers also increased drastically. All these led to extremely high government budget deficit, that was financed through printing Rufiyaa. This led to increasing inflation, as equivalent goods and services were not produced, and the productivity in the economy did not improve.

International financial institutions like IMF, World Bank, and Asian Development Bank, all advocate reducing government deficit and stop printing Rufiyaa to finance the deficit. ( government expenditure has to be financed through revenue collected from taxation. Not by any means through printing Rufiyaa. Whenever we print Rufiyaa, we’re adding up to our problems, as it’d lead to higher inflation, and difficulties in obtaining US dollars. These financial institutions who provide assistance to us, have been advising us to reduce the redundant civil servants, stop subsidizing STELCO (by increasing the electricity prices), and reduce the government wage bill.

The rationale is: we cannot continue paying higher salaries to many staff who do not add any value. In other words, we pay salaries to government employees in order to provide some services to the public. We need to reduce the number of government employees, so that redundant, or unnecessary staff are removed, so that they can get employed elsewhere. Regarding the salaries, it is common sense that anybody, even if it’s the government, cannot continue to pay higher salaries, if it cannot raise enough revenue to pay for that. So, reducing salaries would be the best option in order to reduce government expenditure and deficit. If not, deficit will have to be financed through borrowing or printing Rufiyaa, both options being bad for the economy.

Reducing salaries of civil servants, reducing the number of civil servants, and increasing electricity prices, are all political suicides for a president or a government. However, the current government was forced to take these steps, as it was recommended by the IMF, and many other donors. Further, the assistance package provided by IMF requires government to reduce the deficit levels to certain levels or targets, and for such conformity, these steps have become necessary. So obviously, the government’s policy and decisions are for the future benefit of our country.

But, why are the civil servants, and the civil service commission still protesting, and demanding higher pay? Answer is simple; although the government’s economic plan is prudent, and is necessary for the country, the sincerity of the government is being questioned by the civil servants and the public. Why do I say that?

If there were same principles applied to all employed staff of the state, including, civil servants, political appointees, staff of independent commissions, and parliamentarians, then, it is more likely that the civil servants would have accepted a lower pay even for the whole year. However, what we see is that political posts keep on increasing, and the salaries of parliamentarians and some of the independent institutions were not reduced.

The IMF and those institutions advise to reduce the total wage bill. The total wage bill includes the salaries of all political posts, parliamentarians, and civil servants. So, if we are talking about reducing the number of civil servants by laying off redundant workers, then the same principle needs to be applied to political appointees as well. Redundant political appointees need to be laid off. Just like civil service staff are hired and employed based on their performance, need, and productivity; even political appointees should be appointed and employed based on the need, their performance, and the productivity. The salaries of political appointees and the civil servants, and even the parliamentarians are paid by the same budget; the state budget. Hence, in order to show sincerity, and commitment to reducing government expenditure and deficit, government needs to apply same principles, and treat everybody impartially. Government needs to lead by example.

Thursday, January 21, 2010

don't happy.. :-)

Recently I opened a poll to obtain an idea about how the readers of this blog feel about their life. Whether they are happy, not very happy, fairly happy, or not happy at all. An overall index closer to 4 would mean that our society is a fairly happy society. From the results of this short survey, the happinness index comes to 2.4. Ofcourse this is not a representative result of the whole society. In order to determine the happiness level of Maldivians, we would need to conduct a comprehensive survey, covering a significant sample of the population.

Talking about happiness, it could be the case that different people interpret happiness in different ways. For me, happiness means feeling good, enjoying life, and think to myself, “What a wonderful world”! Happiness has many dimensions; we feel different at different times of the day, when we are with different people, and when we are doing different things. A study done in 2003 by Kahneman et al, in which 1000 working women in Texas were asked how they felt at different times of the day. The results are reproduced here.

According to the results, Americans felt least happy while commuting, and the highest index is for sex. This could obviously vary for different societies, and I don’t know which activity makes Maldivians happier.

The same study determined, how happy they were spending time with different people, and showed that they were happiest while spending time with their friends (3.3), and least happy while with their boss (2.0).

Individual happiness levels, according to Layard of London School of Economics, depends to a large extent on how happy others are. If your neighbor earns twice your income, any income raise that you get may not make you happier, as still others’ incomes are much higher than yours. Well, incomes are only one of the factors that makes us happy.

Layard raises an interesting point, that people in the west have become much richer, work much less, have more holidays, travel more, live longer, are healthier, but, still they haven’t got happier. So what shall we do, to make us happier?

Sunday, January 17, 2010

10 things I hate about MONEY

Money may come easily for some, but there are ways it can go easily as well. So, here are some things advised by experts on being rational or sensible about money.

1. Live within your means and monitor how you spend your money
2. Save a portion of your income before spending the balance. Aim to keep six months of income for emergencies
3. Make use of credit cards wisely and settle debts promptly to minimize interest charges
4. Gather information and shop around before buying any financial product
5. Buy a financial product only that you understand. Read the terms and conditions carefully before you buy any financial product.
6. Understand what your insurance policy covers. Pay attention to exclusions and other terms and conditions of your policy contract
7. Be careful about buying any financial product on impulse. Determine your need and buy what is suitable for you
8. Do not give into persistent sales tactics and learn to say ‘No’
9. Plan early for your retirement. The government pension scheme normally covers only the basic retirement needs
10. Invest wisely by spreading the money over different types of investments. A financial product that has a higher return usually comes with higher risks as well

Source: Singapore ‘Money Sense’ program, 2004

Tuesday, January 12, 2010

Three days left to vote!!

If you have not voted yet, here's your last chance to take part in this survey. The survey will end in three days!

Saturday, January 2, 2010