We’ve been hearing news about the American economy recovering from the economic recession that was hit two years back, and at the same time, there have been some queries as to whether the economy of Maldives is coming out of recession as well.
Maldives economy entered into a state of economic ‘crisis’ in 2008, coinciding with the global economic downturn. However, the ‘sickness’ in our economy is mostly of our own making, as our government spending reached Rf8 billion in 2007, followed by Rf10 billion in 2008. The government deficit stood at 17 percent of GDP in 2008, which is an unsustainable level of deficit even in international standards. In 2009, the deficit reached an alarming 26 percent of GDP. Until August 2009, part of the deficit was financed through printing Rufiyaa, which then led to increased circulation of Rufiyaa in the economy, and hiking inflation in 2008 to 12.3 percent. Although inflation has dropped to about 4 percent in 2010, we are still not recovered from the most dangerous sickness that we’ve inflicted. The unsustainable level of government spending, the resulting fiscal deficit, which was about one third of the GDP in 2009. We’ve still not started to live within our means. The estimated deficit for this year is about Rf4 billion, and it is estimated to be about 19 percent of GDP, which is much higher than that of Greece (12 percent).
It was relieving news that Maldives entered into a stand-by arrangement with the IMF last year, and that there were some macro economic performance criteria set and agreed by the government. However, we still have a long way to go. We still have yet to introduce measures to increase government revenue, through an effective tax system. We still have yet to revive our private sector investments in order to achieve higher economic growth. We still have got the task of reducing government expenditure and deficit. We still got to reduce our foreign currency spending. We still got to start living within our means.
According to the available statistics, the growth in lending to private sector by the commercial banks is on a declining trend, in fact, there was an annual decline by 5 percent as at end of February 2010. Meanwhile, lending to the government by the banks has increased by 13 percent during the same period. This means, unless there is a way to reduce government expenditure, banks may not be lending to the private sector, and we might not see an active private sector in the near future.
Bottom line is, in order to see economic recovery, we need to put our house in order, and start living within our means.
Data Source: Maldives Monetary Authority, Monthly Statistics, April 2010, www.mma.gov.mv