Maldive Economist

Best wishes for a new year

2012-01-12T21:21:00.003+05:00

First of all, let me wish you all, the best wishes for the year 2012. I hope this year will bring further prosperity to our country.

As we welcome the year, one thing we need to understand is that in many other countries, people are trying different ways to bridge their racial, religious and language differences to bring forward their national interests and prosper as a nation. And what are we doing? We need to put forward our national interests too. We are one.

If we want 2003’s taxes, we have to accept 2003’s spending

2011-07-27T14:17:00.000+05:00

Back in 2003, our fiscal deficit was 2.5% of our GDP. We did not have the GST from the tourism sector, we did not have the income tax, or the corporate tax (except from banks). Our total expenditure for 2003 was Rf3.4 billion, which is more than what we spend only on wages. In 2011 we are spending more than Rf4 billion only on wages. In 2004, our deficit was only 1.2% of GDP.

In 2010, our expenditure was Rf9.7 billion, while the revenue collected was Rf6.6 billion, giving us a fiscal deficit of 12% of GDP.

So, we can still get away without more taxes, provided we accept to keep our spending at 2003 level. That way, we will be able to build our fiscal reserves. But now, with a cumulative debt of about Rf17 billion since 2003 (due to the cumulative deficits every year), we are spending about a billion even on debt repayments and interest payments. We still have the opportunity to remain a tax-free haven. But for that, we all have to accept our previous spending levels.

The Seychelles story....

2011-06-23T23:20:00.003+05:00

Seychelles is a small country like Maldives, geographically very similar to us; with a group of small islands. Even their primary source of income is tourism, and fisheries. Their population is less than 90,000.

Back in 2008, while we were busy with the political reforms, and the first multi-party presidential election, Seychelles was going through an economic crisis. They had a huge imbalance in the balance of payments, and hence a huge imbalance in the foreign exchange market. They also had pegged exchange rate regime, where their Rupee was fixed to the US dollar at the rate of 8 Rupee per dollar. They had a huge external debt, much higher than ours in nominal terms. Due to years of government deficit financing through printing Rupees, there was a black market for dollars, and a shortage of dollars in the commercial banks. The black market rate was at Rp 12 per dollar.

Then, in November 2008, they floated the Rupee, together with many other economic reforms, and changes to the laws and regulations on foreign exchange. For five months, the exchange rate kept going up, reaching almost 17 per dollar. After that, it started coming down, to as low as Rp10.3 per dollar.

Economic liberalization; focusing on removing all sorts of market distortions, and moving towards market forces is the key message we get. Further, living within our means, sincerity and a commitment by everybody as a team, are all essential for the success.

Now, there is easy availability of dollars in the banks, there is no black market, and the exchange rate has stabilized.

Cause and effect

2011-05-25T09:49:00.000+05:00

These are days, people say almost anything publicly, and try to convince people their point of view. These are days, people try to establish links or correlations between two or three things, and come up with their own set of theories. These are days some of us try to explain to the public, the reasons for the recent economic instability and the dollar crisis. These are days, people to try to talk about the causes of the increased crimes in our country. These are days people are very confused on the future direction of our country.

It is a dangerous thing, to talk about causes and effect of something, if we do not have the proper information or facts about the subject. For example; what could be the reason for the increase in crimes? We are hearing of killings, stabbings, theft, gang fights, and recently increased infanticide? Is it related to increased illegal drugs? Is it something to do with our education system? Is it because of the housing problems in Male’? Is it because of lack of proper entertainment? It is because of lack of religious faith? There could be all sorts of explanations. But, a proper study would be required before we come up with conclusions on the real cause of these issues. Without such studies and facts, it would be improper for anybody to explain about the problems in order to promote somebody’s agenda.

Performance audits

2011-05-21T22:21:00.002+05:00

Since the start of reforms in the political structure of our county, we have been increasing and increasing the total costs of our state. First we established a human rights commission, and appointed five members, and approved huge salaries to them. Then we established an anti-corruption commission, again with five members. Then, a Supreme Court. This time with
Judges with salaries exceeding Rf50,000 per month. Along came a judicial service commission, a police integrity commission, a civil service commission, an elections commission, a media council, and a broadcasting commission. To make things worse, recently we have formed atoll councils and island councils.

Having all these independent institutions is one thing, but having five members with salaries exceeding Rf40,000? And then, the Constitution allows for appointment of political appointees, again with huge salaries. With decentralisation, islands managed by one island chief, has suddenly become an island with at least 5 councellors, earning at least Rf15,000. We also have atoll councellors (again more than 5 in each atoll), earning about Rf25,000.

We spent more than Rf15 million on the human rights commission last year, a Rf17 million on the anti-corruption commission, a Rf11 million on the judicial service commission, and a Rf95 million on the parliament. Has anybody asked about the performance and the output of all these institutions? If we are spending so much from the state budget on all these institutions, and by doing so sacrificing a lot of other services to people, like education and health, then at least we should conduct a performance audit of all these state institutions. Then only we can justify allocation of huge budgets, and paying huge salaries to all the members of these commissions.

Likewise, performance audits of individual ministries and departments are also needed, so that ministers and other political staffs' performance can also be assessed. Unless we can justify all these spending (especially since we are spending at a deficit), there is no point in continuing such spending. If such a performance audit reveals lack of output from the institutions and people, it would be enough reason for us to amend the laws in such a way to reduce the number of 'unwanted' members and staff in all such institutions. It would be a reason for us to review the existing salaries, and harmonize the salaries nation-wide.

Soaring Food Prices Again Threaten to Push Millions of Asians into Poverty -ADB

2011-04-29T13:24:00.003+05:00

MANILA, PHILIPPINES - Resurgent global food prices, which posted record increases in the first two months of 2011, are again threatening to push millions of people in developing Asia into extreme poverty, says a new report from the Asian Development Bank (ADB) titled 'Global Food Price Inflation and Developing Asia'.

Food prices had been expected to continue a gradual ascent in the wake of the sharp spike in 2008. The report says that fast and persistent increases in the cost of many Asian food staples since the middle of last year, coupled with crude oil reaching a 31-month high in March, are a serious setback for the region which has rebounded rapidly and strongly from the global economic crisis.

Domestic food inflation in many regional economies in Asia has averaged 10% in early 2011. The ADB study finds that a 10% rise in domestic food prices in developing Asia, home to 3.3 billion people, could push an additional 64 million people into extreme poverty based on the $1.25 a day poverty line.

"For poor families in developing Asia, who already spend more than 60% of their income on food, higher food prices further reduce their ability to pay for medical care and their children's education," said ADB Chief Economist Changyong Rhee. "Left unchecked, the food crisis will badly undermine recent gains in poverty reduction made in Asia."

The report adds that if the global food and oil price hikes seen in early 2011 persist for the remainder of the year, economic growth in the region could be reduced by up to 1.5 percentage points.

In the short term, the pattern of higher and more volatile food prices is likely to continue the report says, noting that grain stocks have fallen. Adding to this are structural and cyclical factors that were at play during the 2007 to 2008 crisis including rising demand for food from more populous and wealthier developing countries, competing uses for food grains, shrinking available agricultural land, and stagnant or declining crop yields.

The report notes that production shortfalls caused by bad weather along with the weak US dollar, high oil prices and subsequent export bans by several key food producing countries have caused much of the upward global price pressure since last June, with double digit increases seen in the price of wheat, corn, sugar, edible oils, dairy products and meat. Rice prices are likely to continue their uptrend as the effects of La Niña persist, prompting consumers to seek less costly and less nutritious substitutes.

"To avert this looming crisis it is important for countries to refrain from imposing export bans on food items, while strengthening social safety nets," said Dr. Rhee. "Efforts to stabilize food production should take center stage, with greater investments in agricultural infrastructure to increase crop production and expand storage facilities, to better ensure grain produce is not wasted."

Asian governments have already taken many short term measures to cushion the harsh impacts of food price inflation, including measures to stabilize prices. However rising demand for food from developing Asia and low food productivity mean policymakers must also focus on long term solutions to avert a future crisis, the report says.

The report says there is also a need to calm speculative activities in food markets. It recommends enhanced market integration, and the elimination of policy distortions that create hurdles in transferring food from surplus to deficit regions.

It also notes that cooperation between Asian nations can help better secure food supply for the region's people. The ASEAN Integrated Food Security Framework, under which the 10 member ASEAN group of countries has agreed to establish an emergency regional rice reserve system, is a positive step in that direction.

Is Maldives heading towards a failed state? Can we get out of the vicious cycle?

2011-04-07T13:18:00.000+05:00

The recent events of unrest in Egypt, Libya, and Bahrain remind us of so many things; which are frightening and exciting too. It seems that some form of democracy is preferred in all countries. Hence, to change an existing autocratic regime, most times require social turmoil, involving deaths and destructions to property. It’s not necessary that change occur after some form of turmoil. The main reason why political instability and elicit widespread action for change is triggered is that people become too ‘unhappy’. This unhappiness most of the time comes through tough, hardship life circumstances, in other words, through high unemployment, higher prices, high inequality, and overt corruption. Widespread distrust and feelings of hopelessness by large segments of the population, leads to uprisings. Seem familiar?

When Maldives embraced many political and governance reforms during 2007-2008, and a significant proportion of the population wanted a regime change, people, or at least I had high hopes for the country. We’d hoped that our judiciary and other institutions will be freed from corruption, and break away from the vicious cycle that we were in for the last 30 years. The reason we were trapped in a vicious cycle was that there was uneven distribution of economic power. The natural resources were unfairly controlled by very few families in the country. In such a situation, in order to protect their property and wealth, they obtained the political power to even influence the judicial system in the country. Hence, an environment that enables constraining the powerful emerges only when a significant share of the population has economic power through their property holdings or their human capital. When there are many (instead of a few), with properties and wealth, there can be a collective power to advocate for an effective police force and an impartial judicial system. We can have a failed state, and stay failed if we do not have an even distribution of economic power.

Why do you think we are all faced with increased in crimes in the form of killings, rapes, stabbing, overt corruption, and many more in our country? It is because we have a judiciary without the appropriate distribution of power backing them. In simple words, majority of the population are not able (or do not have the power) to pressure the judiciary to become impartial, majority of the people do not have the political power to pressure the government to enforce the court sentences. In the case of protecting properties; and ordinary citizen does not have the power to do so, while a powerful businessman has his own private ‘gangs’ to protect his property. They don’t need an effective fair court or a helpful policeman. However, if there are numerous ‘businessmen’ with the enough resources and wealth, when they come well-organized, collectively they can have the political and economical might to make sure the institutions work.

What I’m trying to say is that, having the control of our country’s resources in the hands of only a few people, is inimical to the broader protection of property, because either way, the large powerful owners can protect their interests even without a fair and objective judicial system, hence they have no interest developing the system. In fact, for them it would be better if the judicial system does not develop, so that their privileged violations can be continued.

Just like ownership of property or resources, increasing the widespread distribution of improved human capital also plays an important role in bringing about the balance of power. Hence, broadening access to education, and skill acquisition offers another route to spreading economic power in a country.

So, we will be heading towards a failed state, if our country’s wealth continues to be controlled by the strongest businessmen, who effectively also runs (or influence) the government. In the end, we will be in the same situation as the last 30 years, as we were under a dictatorship.

The economics of politics in Maldives

2011-02-28T15:07:00.002+05:00

Back in 2008, the majority of Maldivians voted against the incumbent autocratic ruler, who had ruled Maldives for 30 years. Even at that time there were about 40% of the voters who supported that President, Maumoon, making the 2008 election very competitive; and increasing the polarization in the country. What was evident during that time, as an observer, is that there were some businessmen who wanted to protect the Maumoon regime, as it ensured the protection of their own business interests. Likewise, there were a huge percentage of ordinary citizens who wanted to protect the Maumoon regime, for reasons they would better understand.

Anyhow, then there was the MDP, who was the opposition at that time. There were many loyalists of this reform movement, people who joined the party simply because they had a genuine belief that the state of the country has to change. There were many people who sincerely supported MDP because they cared for the country, they wanted the drugs problem to be solved. They wanted the housing problems in Male' to be solved. They wanted prices to come down, and they wanted more social protection, and economic well-being. The PR campaigns and the pledges of MDP were also very smart; addressing those issues that grass-root ordinary citizens felt for. Maumoon, the judiciary, police, and the parliament was portrayed as 'wicked', 'corrupt', and exploiters of the country's wealth. Maumoon was blamed for almost anything and everything bad that ever happened in the country during those last few years.

Maumoon was smart, and removed his 'old guards', and replaced them with young blood, like Hasan Saeed, Nasheed, Shaheed, Aisha, Jameel, Shaugy, and others. There was a young, energetic cabinet, who publicly showed sincerity in bringing reforms to the country. However, just when it was about time for the presidential election, Hasan Saeed together with Jameel, and later Shaheed got out of the government, and blamed Maumoon for many short-comings in the reform process. Later, Hasan contested in the presidential election, and came third. Qasim also resigned from the post of Finance Minister, just in time for the election, contested, and lost in the first round. In the second round, Hasan and Qasim backed the current President, Nasheed who came up second in the first round. As Nasheed defeated Maumoon in the second round, and became the first democratically elected President in the country, there were many who had high hopes, and high expectations for the future of this country.

So, two years after the change in the government, are the people happier, now that their hopes and expectations are being met? With the fall of the dictatorship, is the country better off? Well these are difficult questions to answer using the appropriate statistics. For one thing, it might not be appropriate to compare the two Presidents or the two governments, as the new President has a new Constitution to abide; the current government has to face new independent institutions, and an independent judiciary, and a highly-powerful parliament. That brings me to the main 'gist' of my story.

The political economy of our country is still the same; as there are few 'very rich' families who control almost all the affairs of the country. It has been the case even 5 - 10 years back in this country. It is so even now. The Parliament has bunch of 'millionaire' businessmen, who would do anything to protect their own business interests, and to make sure that new and young people do not emerge in their area of business, so that they wont have enough competition. Most of these businessmen want to keep the poor under their control, by providing them with small favors; like donating a ticket to India for medicals, or few dollars as charity. These businessmen have in their control families who are directly employed in their businesses, and they would fight for their last breath to protect their businesses. It will be very difficult to pass legislation that would raise import tariffs, business profit taxes, tourism lease rents, and other forms of taxes. At the same time, these Parliamentarians will do everything they can to increase the government expenditure so that they could get re-elected, as their constituents would support any additional spending on them.

Those huge businessmen who supported and spent on campaigns of Maumoon is today supporting the campaigns of Nasheed, and in turn, the current government is expected to make sure that the interests of these businessmen are well-protected. It doesn't seem that there is anybody in the country who is protecting the interests of the poor, the ordinary citizens of the country. It doesn't seem that anybody is sincerely trying to protect the interests of the nation.

Winning hearts and minds

2011-02-10T19:05:00.001+05:00

One thing is for sure. These local councils; the island councils and the atoll councils will definitely increase the state expenditure, as more than 1,000 councillors will suddenly start receiving huge salaries. Salaries that do not match their abilities, capabilities, and qualifications. I’m also not sure whether this change in administration will take us forward in development, or take us backwards. We’ve yet to see.

What I really want to talk about today is, about the lessons that MDP could learn from the results of the recent local elections. As we all know now, according to preliminary results, a lot of atoll councils and island councils have been won by the opposition party, DRP. Not that DRP spent millions, and had the best campaign strategy. Not that DRP had a strong leadership, and good plans for the future. In fact, nobody knew who the REAL leader of DRP is, when people were voting. Still, DRP got so many votes, and almost 500 seats in the elections. Why?

I’d say, MDP has to learn new tactics in winning the hearts and minds of the people in the atolls. If they are really serious about the next presidential elections, they gotta learn well and start winning the hearts and minds. The only reason why DRP has obtained success may simply be because of huge political mistakes made by the government.

Mistake number one: trying to legalize sale of alcohol in Male’. We all know that the people who oppose this clearly understand the invalidity of their argument. A safari boat anchored near Male’, and can sell alcohol, and there’s no problem with it, but, if alcohol is sold in a hotel in Male’, it’s a big problem. That was their argument, those who opposed it. We all know that. Even the government knew it. And so, by trying to allow the sale of alcohol in Male’, what was the government trying to achieve? Trying to explain logic to the people? It doesn’t work that way. In politics, when it comes to sensitive issues like religion or culture, common sense or logic doesn’t matter. The truth or reality doesn’t matter. Say what the ‘majority’ want to hear. Do what the majority want you to do.

Mistake number two: The president saying words like ‘.... nulafaa kan dhakkaalaanan’ (I will show my evilness). We, Maldivians do not expect such words from our President. We want our President to be role model for the young, old and the children. To choose his words, so that his words could appear in slogans, magazines and newspapers. Our president may be very kind-hearted, and a very forgiving. But hearing him say that, makes people start hating him and his government.

Mistake number three: Decision to build a flat on the Arabiyya School land, and having Arabiyya School built in Chandanee Magu. The civil engineers, architects, and the Education Minister may appear on TV, and justify that the new land is in no way smaller than the previous one, and that the location doesn’t matter. But will it repair the damage? The damage done by the opposition, using the media, saying that this government is anti-Islam in so many ways? Why give the opposition such opportunity. Do we need more flats in Male’? Why can’t we build flats in Hulhumale’ instead? As I said earlier, issues relating to religion are very sensitive. Don’t go for logic and common sense. Try winning hearts and minds instead.

I think I’ll stop here, without talking more about the mistakes. Maybe another time, I may continue with number four. I’m not trying to say that I’m an expert in political analysis, and political planning. But, the people who are advising the President and the government, are they any better?

Business Profit Tax - Does it make us better off?

2011-02-02T13:18:00.006+05:00

Recently the Majlis has passed the Business Profit Tax Act, and it has come into effect on 18th January 2011. According to the Article 41 of this Act, the law has to be implemented within six months, (by July 18th 2011). This means, businesses in Maldives have to pay tax on business activities carried out after that date. I wonder how many firms or businesses actually are aware of this., and I wonder whether the relevant authorities are doing enough to make the public aware of this. Anyway, that is not the issue that I intend to cover here. I guess what's more interesting would be; how much does this Act reduce the gap between the rich and the poor (ie, make the distribution of income and wealth more even); and by how much does this Act raise the government's tax revenue. There are many other issues relating to taxation that we need to talk about, and I may talk about such issues in a later post. Issues like the efficiency of a tax; compared to the amount of tax revenue raised, the cost of raising such revenue must be minimized in order to make it more efficient.

First of all, let me raise the question; why do we need taxes? Yes, to raise government revenue. Last year (2010), an estimated Rf3.0 billion was raised through taxation by the Government; mainly consisting of import tax, tourism bed tax, and bank profit tax. Through tax revenue, government is able to provide public goods, and provide benefits to the poor, hence, help in reducing the gap between the rich and the poor.

The existing tax system, however has done little in terms of addressing the issue of income distribution in the country. As import tax is paid on all goods imported and consumed, both the rich and the poor pay the same amount of tax. Making this a very regressive form of tax, as considering the income of the rich, the tax burden on them will be very small, compared to the poor. Even the bed tax from tourism industry is very regressive, as the same amount, $8 is paid by all resorts/hotels, irrespective of the room charge. In order to narrow the gap between the rich and the poor, taxes need to be more progressive in nature; meaning to collect a higher percentage of the rich people's income, and a smaller percentage from the poor.

Another objective of taxation is to discourage consumption of certain goods or services. For instance, import tax of certain goods like cigarettes can be increased, in order to discourage consumption.

So, how does the Business Profit Tax (BPT), reduce the income gap in Maldives? There are certain categories of businesses specified in the Act, and taxable incomes are specified. For example, Article 3 highlights on registered companies that are not partnerships, and Article 4 specifies businesses other than companies and partnerships. According to Article 7, all companies, partnerships and other businesses are required to pay 15% of the profits, provided that total profits exceed Rf500,000. If the profits do not reach Rf500,000, no tax has to be paid.
According the 2011 budget, an estimated Rf612 million is to be raised through BPT. This is highly unlikely, as the taxable period only starts from July of this year.

How does BPT help in narrowing the gap between the rich and the poor? Unlike the $8 bed tax, at least its not the same absolute amount that larger businesses and smaller businesses will be paying. A proportional tax rate of 15%, from all types and sizes of businesses in the Maldives may not be the ideal solution for evenly distribution of income.

Larger businesses if required to pay a higher percentage of tax, would make the tax system much progressive in nature. However, will it encourage further investments in Maldives? Will it attract more foreign investments in the country? One of the ways we can encourage businesses to innovate, and increase investments would be to reduce the direct tax on the income or proft, and move towards more indirect forms of taxation.

2011 - an year of higher inflation?

2011-01-24T20:01:00.002+05:00

We have been seeing recovery in the tourism sector with tourist arrivals reaching 750,000 towards the end of 2010. Nominal GDP is expected to grow by 12.4 percent by the end of 2011, and real GDP is also expected to have a positive growth of 4 percent.

On the consumer front, government employees got good news with the new year, that their salaries will be revived from January. It is expected that there will be further boost in domestic demand with this increase in the salaries of more than 20,000 workers. As we import almost all of our consumption goods, imports are also expected to grow. The value of exports reached $1,221 million in 2008 when we had and inflation rate exceeding 12%. After that in 2009, value of imports was $851 million, and in 2010 from January-November it was at $990 million, and this year it is expected to reach $1,148 million. Meanwhile, inflation was at 4% in 2009, and 5.6% as at end October 2010, and could be above 6% by the end of 2011.

In such case, there will be further inflation expectations, and traders may tend to adjust their prices upwards, and workers may demand higher salaries to compensate the increase in prices. The situation may get very unpredictable close to 2013, when there is the presidential elections, and huge campaigns. We need to understand that if all our incomes increase, with no increase in production, all we get is high inflation. And high inflation is not good for economic growth.

the real issues

2010-12-30T15:48:00.002+05:00

I guess we all keep forgetting about the real issues in our country. The politicians in the opposition keep fighting and spend all their energy and time on ways to remove the those in power from the government. The politicians in the government spend their energy and time on ways to defend their power, and ways to defame the opposition. In this battle, the citizens keep suffering, as the real issues are not well addressed.

The real issues like health care, education, drugs, crimes. Issues like respect for each other, caring for each other. Issues like work ethics, work productivity, and customer focus and customer satisfaction.

We have all been talking about increasing government expenditure, and the increasing expenditure on the salaries and benefits to the employees in the government. At the same time, we have been talking about the low productivity in most government offices and authorities. We all know that many lack the necessary work ethics, still fight for better salaries, and more benefits. The same thing is seen in the private sector as well. Even if you visit a restaurant or a cafe', you'd hardly see the waiters or the managers genuinely trying or putting an effort to make the customer happy and satisfied. They dont seem too much customer focused. Mostly, you'd see the same kind of poor work ethics, and lack of enthusiasm in performing their duties. I guess these are the real issues in our country. We need to increase worker productivity in the private sector. We need to improve service delivery even in the government sector. Employment needs to be made competitive, so that people realize the importance of being employed in a job, and performing the duties, and most of all, to become a responsible citizen.

These are the kind of issues that politicians need to spend time on addressing. Thinking of ways to improve them.

Why democracy may not survive in Maldives

2010-12-24T20:04:00.002+05:00

I have been continuously criticizing the Parliament, the Judiciary, and the government on various matters relating to our nation, and kept repeating that democratic reforms that we are trying to so forcefully implant is way too costly for us at this juncture. Its not only me, many have been talking about this, and expressed concern over this issue, and left us all wondering whether this so-called 'democracy' will survive in Maldives. Whether this democracy could die in a very painful death in its infant stage. I believe that there are many signs, and reasons to believe that we may be heading towards a situation where, people will in the end get 'fed up' with this democracy thing, and would prefer things to be a little bit 'un-democratic'.

Our society has become extremely polarized, and even within the opposition, there is persistent fight for power. Genuine efforts by the government top officials are not evident, to consolidate differences in opinion, and move the country towards prosperity. Enough is not done towards addressing the short-falls in the Laws and regulations, and on enforcing the existing ones. Sincerity is not apparent from the parliamentarians and most politicians.

Law and order is not maintained. Young teenagers are getting killed on the street. Gang fights have become so frequent. People have started losing faith and confidence in the Police. And recently, many have become frustrated on the way the government has been handling or managing the issues related to Islam.

Finally, what matters most if are to survive as a country. It's the economy, stupid. Our economy is facing huge fiscal imbalance due to the high government budget deficit in the last few years, and failure to address this issue. We are talking about a deficit which is over 20 percent of GDP, and the highest in the world. We have a current account deficit above $400 million in the past four years. We have an external debt of over $500 million which is borrowed by the government, and further $400 million borrowed by the banks from overseas. So in total an external debt exceeding $900 million, which is same as our GDP. With a budget deficit, and a current account deficit (twin deficit) and a huge a external debt, the economy becomes extremely vulnerable and un-attractive to international investors and aid-providers. The situation becomes worse when we do not see the required fiscal reforms, and lack of any hope for such reforms. There is every reason to believe that the current Constitution may not be able to save us from these problems. Hence, when we finally hit the 'rock-bottom', it is less likely that democracy can save us. In a time of such crisis, we may need to rely on a leader who is more autocratic, and people may feel that we need a leader who can solve our problems, and nothing else.

Are Most Parliamentarians fit to be in the Parliament?

2010-11-09T13:08:00.002+05:00

Its been more than a week since a proper work has been done in the Parliament session. The Parliamentarians continue to draw Rf62,000 per month out of the State budget, do not care about the critical economic situation of the country, do not adequately address the growing social problems and crimes, and as the Human Rights Commission has recently highlighted, the Parliamentarians have neglected the rights of all Maldivians by not being engaged in making important laws needed for the country. And yet, nobody seems to be doing anything about this. The Constitution says that the "all powers of the State of Maldives are derived from, and remain with the citizens". Hence, even the Parliament and the Parliamentarians derive their powers from the people; and does that power still remain with the people? Is it the people's will, to halt the Majlis sessions, their representatives shout at each other, and delay passage of important laws? Is it the people's will, the Parliament do nothing to mend the economic, monetary, financial, social, and judicial problems in the country?

Well, I dont think most of the citizens in the respective constituencies have the power or influence over their member. If they don't, I'm sure its time, we start exercising that power, and pressure our Parliament members to act in good faith, to show sincerity towards the country's well-being. And also, to show respect towards each other, maintain discipline in the Majlis chamber and elsewhere.

One of the flaws in the Constitution is that it assumes that the members of the Parliament will act in good faith, and make all decisions for the benefit of the society and the country. But the problem is, its a very dangerous and a wrong assumption. Some Parliamentarians understand very well, the dangers of having a huge fiscal deficit, and its impact on the macroeconomy. However, even this year, we saw a State Budget that was passed with so many amendments leading to further increases in the expenditure and the deficit. Some educated Parliamentarians understand the importance of increasing government revenue through taxation, however, not enough effort has been put to pass the necessary legislation.

And some Parliamentarians, simply do not understand at all. The consequences of their actions, their words, and their inactivity. Some of them do not fully understand their responsibilities, and their duties towards the people and the country. Some of them do not have the values and principles that are necessary and prerequisites to become a Parliamentarian. We can fix the country and the economy very easily, if we have a sincere, honest, and respectable bunch of Parliamentarians.

...And who really can??

2010-11-08T15:31:00.001+05:00

We got a new Constitution. And yea, we've got separation of powers, with an independent Judiciary, a Parliament, and an Executive. With it comes huge expenditure and lots of jobs with big salaries. With it, huge Government expenditure. By 'Government', I mean the total expenditure of all the state entities, including the Parliament, Judiciary, Civil servants, Political appointees, independent commissions, and all entities with budgets provided by the Ministry of Finance.

The Annual Budget is prepared and presented to the Parliament by the Minister of Finance. The Minister can work very hard, and try to reduce the recurrent expenditure (except salaries) of all the government ministries, like the education, health, president's office, police, army, and all of them. When it comes to the salaries of all the civil servants in these government ministries, only the Civil Service Commission has the power to decide on them. The Minister of Finance can advise the President to reduce the salaries of the political appointees, and also to reduce the number of political appointees.

When it comes to the independent commissions like the Human Rights or the Anti-Corruption Commission, they can decide on the level of salaries they will provide to its employees, except their members. The members' salaries are decided by the Parliament. So, here we have newly formed independent institutions with separate budgets, and the autonomy to hire and fire people as they wish. But ultimately, all their expenses and salaries are paid out from the Government budget, and the Minister of Finance is responsible for the macroeconomic stability of the country through its fiscal policy. For that reason, in most countries, the Finance Minister is considered as the most powerful and influential minister in the cabinet. In the case of New Zealand, the Minister of Finance may veto any parliamentary bill which would have a significant impact on the government's budget plans. In the USA, it is the Finance minister (Treasury Secretary) who even signs on the Dollar notes. In England, the Governor of the central bank (Bank of England) has to report to the Finance Minister (Chancellor of Exchequer). In many countries, this is the case.

It used to be the case even in our country. In the very beginning, the President himself was the finance minister as well as the governor of MMA. Later on, we had a cabinet minister as the Finance minister, and he was also the Governor of MMA. This way, the fiscal and monetary policies were synchronized, and things were in order for some time. In 2008, with the Constitution was adopted, new institutions and commissions established, and salaries were raised. The expenditure of the government hiked, and the deficit of the government started escalating. Meanwhile, despite MMA being independent, deficit of the government was heavily financed by MMA through printing Rufiyaa (monetization). This put pressure on the exchange rate. The process continued until the August of 2009, when deficit monetization was halted by MMA. However, the process of increasing the government expenditure did not stop, and the total wage bill kept on increasing. We had a budget deficit of 29 percent of GDP by the end of 2009, and we expect it to be around 20 percent by the end of this year.

Where are we now? Nobody is in total control of the affairs of the economy. Not even the President nor the Finance Minister or the Governor of MMA, has the power to rectify the economy, and put the house in order. We need to reduce the deficit of the government, by reducing the wage bill, and recurrent expenditure. We need to reduce the number of civil servants, develop the private sector, and increase our reserves.

So, in order to do these, the Parliament members need to understand all this, and act sincerely and in good faith. They need to pass necessary legislature that can enable somebody to reduce the wage bill and the reduce the deficit and the debt of the country.

Can the finance minister save our economy?

2010-11-06T15:49:00.000+05:00

I don’t think so. Here’s why.

The new Constitution requires us to form so many ‘independent’ commissions and institutions, and an ‘independent’ civil service. The Minister of Finance no longer has the power to control their salaries and expenses. The salaries of the Parliamentarians are decided by themselves. The salaries of Judges and the Judiciary are decided by the Parliament. The salaries of most independent commissions and institutions are decided by themselves, and the salaries of the commission members and the heads are nominated by the Parliament. Any new revenue measure has to be first approved and passed by the Parliament. The annual government budget is obviously passed by the Parliament. Most of the time, the Parliament passes the budget with many amendments that increase the expenditure further.

What is the role of the Finance Minister then? Just pay all the salaries, and budgets, and then record all the numbers? It’s pretty obvious that the Finance Minister cannot save our economy. So who can?

Everything in MALE'???? still??

2010-10-24T09:13:00.002+05:00

In case the President and the government officials are not aware of the facts:
1. Male' has a population of over 100,000 people. Official number in 2006 indicates 103,693 living in Male'.
2. Congestion in Male' is so severe, it is difficult to walk around, drive or ride in Male'.
3. Housing conditions are very poor and families live in small rooms less than 120 square feet, and it is among the cities with the highest population density in the world.

The list goes on...bottom line is, Male' is not at all suitable for anyone who wants a decent living, raise a family, and live a peaceful life. The reason, is OVER-POPULATION! How we have got here, is a very long story. Long story short, mainly due to policies that attracted people, and these policies were for political reasons.

We all had very high hopes and expectations when the present government came to power. I was happy to see a President talk about important economic reforms needed for the country. He was ready to take, and took drastic measures in 2009, in order to address the macro economic imbalances. The government made political hard decisions, for the benefit of the broader economic well-being. And that's something we need to applaud.

However, some of the recent events have made me think, that the present government doesnt want the population of Male' to be reduced. The President doesnt want the outer atolls to be developed? Recently, he has inaugurated the building of a flat for teachers in MALE'. He has repeatedly talked about construction of flats in Majeedhee Magu, MALE'. And also in another location in MALE'. A military hospital in MALE'. New Dhiraagu Building, in MALE'. All this, when we have enough barren land in Hulhumale', and if all these projects were diverted to Hulhumale', at least there will be no additional inflow to Male', and will lead to settlement and development of Hulhumale'. At least people living in those flats and buildings can have a better decent living.

The Agony of Reform

2010-10-06T20:14:00.002+05:00

Maldives embarked on ambitious political reforms, and adopted a new Constitution two years back. Under the new Constitution, we’ve been ensured separation of powers, with an ‘omnipotent’ Parliament, an independent Judiciary, and a ‘helpless’ Executive. The Constitution guarantees the citizens so many rights, so that the Courts cannot convict us so easily, as was a our current President convicted for stealing from Velaanaage.

An independent Civil Service Commission is formed, replacing the Public Service Division inside the President’s Office. There are five members with huge salaries heading this commission. Apart from this commission, there are many other commissions and institutions that were formed since then. Following is a list:

1. Human Rights Commission

2. Judicial Service Commission

3. Police Integrity Commission

4. Prosecutor General’s Office

5. Elections Commission

6. Anti-Corruption Commission

7. Employment Tribunal

8. Maldives Media Council

9. Maldives Inland Revenue Authority

10. Local Government Authority

11. The Supreme Court

Most of these commissions have at least five members, earning almost the same remuneration as a cabinet minister. The newly elected Parliament has 77 members, also earning a fortune. The Supreme Court – with 7 Judges!

We’re not done yet. Soon, there’ll be at least 5 Councilors governing every inhabited island. At least 5 Atoll Councilors in each atoll. In order to support the salaries of all these people, the civil servants, and the politicians, our country will be spending almost Rf5 billion every year, while the government revenue reaches almost only Rf7 billion! The situation gets worse with the increased number of political appointees, and the promises of the politicians to increase the salaries of the civil servants.

So, what have we achieved since the reforms began? I see, mostly ‘rent-seeking’ activities, whereby people in powerful positions and high bargaining power, trying to maximize their personal gains, and trying the control as many poor, helpless people in the society. The society has become so polarized, the objective of the people in the opposition being toppling the government at any cost, even if it means destroying the society at large.

On the macro front, the economy has become extremely vulnerable, and the country is spending about Rf 900 billion on imports of goods every month. When we take into account the outflow of dollars from Maldivians traveling abroad, and other expenditures, we are spending more than we earn, at every level of the economy. Meaning, the government expenditure is greater than its revenue. The dollar outflow is greater than the inflow. At the end of the day, the country is faced with a twin deficit – a budget deficit and a current account deficit. Meanwhile, the IMF has stated that Asia will be engine of growth in 2010 and 2011, with high economic growth in China, India, and other South East Asian economies. Our closest neighbor, Sri Lanka, expanded its economy by 8.5 percent in the three months to end June from a year earlier (Bloomberg). Its economy is expected to grow at 8 percent this year according to the Central Bank of Sri Lanka.

Bottom line is, we are paying a very high price for the reforms that we began few years ago. Hey, I’m not saying that we go back to the old days, or to amend the Constitution like the Sri Lankans did.

Our capital Male' - making the place livable

2010-09-21T10:02:00.003+05:00

Osaka, Japan is on the top 6 of the most expensive places in the world, compiled by CNBC (http://www.cnbc.com/id/37996537?slide=6). In Osaka, a luxury two bedroom costs $2,218 as rent. In Male', Maldives, it is $1,400. Likewise, comparing few other things:

	Osaka	Male'
2 room apt rent	2,218.00	1,400.78

cup of coffee	6.10	2.72

gasoline liter	1.41	0.70

fast food meal	7.21	7.00

(In US Dollars)

Male' has become such an expensive city, as cost of living has increased dramatically over the last six years, and it is still on the rise. What led to the sudden transformation of Male'; migration of many from the atolls in search of jobs, better health care and better education. As the population increase, it creates a bigger market for the businesses, and hence, more jobs are being created. This led to attraction of more people to settle in Male'. So, it is a vicious cycle of increasing urbanisation. The 2004 tsunami was a shock that intensified the situation, after which the rent prices in Male' hiked alarmingly as there was a sudden flow of migrants from the atolls, thus, boosting demand.

It makes economic sense to have a large population, and there are many commercial benefits of it. However, not at the expense of the deteriorating social fabric of the society, and the low quality of life as more than hundred thousand people live on the small island of Male'. Large families live in small rooms, husband and wife do not get their privacy, children do not have enough space to study and run around, youth do not have enough entertainment opportunities, and the list goes on.

Another drawback is the extremely high rent prices in Male', eating up a high proportion of the income of many workers. Hence, teachers, doctors and other civil servants have no choice, but demand higher salaries. These huge salaries again lead to further increasing prices of goods and services, together with rent prices.

In order to prevent further migration, and to reduce the population of Male', other atolls, or other city centers with bigger land space need to be developed. Places like Hulhumale', and other big islands like those in the South. An immediate and urgent attention has to be given to this matter, and what's most important is the political will to do so. If housing units can be developed in Hulhumale', and attractive financing packages arranged, government can easily afford to reduce the salaries of the civil servants. If the teachers and other civil servants are given cheap accommodation, they should be willing to accept even a lower salary than their present one.

It is extremely important that government policies are geared in that direction rather than developing further infrastructure in Male'. However, the government has recently announced that 1,300 housing units will be built in Male', and has identified the location/sites for these developments. This will again lead to further inflow, and deteriorating the 'livability' in the island. We can easily divert these funds to Hulhumale' or any other atoll, so that social conditions in Male' will improve.

Education and development - pathetic case of Maldives College of Higher Education

2010-09-16T08:40:00.004+05:00

Long run growth, development, and prosperity is achieved through supply side factors like education and health. Better quality education and health services provide productive workers and responsible citizens, thereby leading to higher economic growth. Various empirical studies support this, and there are many examples like Singapore, Japan, and South Korea, where huge investments were made on education and research.

In our case, we have achieved universal primary and secondary education, and our literacy rate is relatively high compared to other developing nations. However, our tertiary education system has been very much neglected for a long time. The Institute for Teacher Education was established in 1984, and laid the foundation for producing quality teachers to teach in our primary and secondary schools. A few years later, in 1987, the School of Hotel and catering services was established, and provided the opportunity to train people for the tourism industry. In 1991, the Maldives Center for Management and Administration (MCMA) was established, and started providing valuable management and accounting courses. In 1998, the government formed the Maldives College of Higher Education (MCHE), and the previously mentioned institutions were changed into faculties and brought into the umbrella of the college.

Since then it has been 12 years. The academic standard of our college has not been improving year by year, rather it has been deteriorating. The college has not been able to create an intellectual environment, with academic debates and discussions, extremely vital for the developmental policies of this country. The country needs a strong academia with research, so that evidence-based decisions are made, and policies are formulated accordingly. The college has not been able to develop its standards so that it can achieve the University status. I remember back in 2004, the Faculty of Management and Computing (FMC), did not have a enough full time lecturers for microeconomics & macroeconomics (because I had to work as a part-time lecturer at that time). Six years on, even now the faculty is in the same situation. When I compare the overall standard now and back then, it has deteriorated alarmingly now. The situation is no better in the Faculty of Education.

Why has the College not performed to our expectations? What are the reasons for not having a strong pool of lecturers/professors after all these years? I dont know the exact answers for these questions. But, for a start, the admission criteria and procedures need to be reviewed in most of the college faculties, since the quality of graduating students can be maintained only if the college adheres to such criteria. Government needs to review the situation and find out the reasons why academic staff are not retained in the college, and implement measures to improve the situation. Government also needs to review the performance of the top management of the College, the College Council, and bring about necessary changes. Most of all, the government needs to acknowledge the importance of tertiary education, a strong academia, and credible research for the development of the country.

What we see are large, nice buildings that have been built with the loan assistance of international institutions, however, the quality of education, and the quality of the courses do not match up to the architectural quality of the buildings. We always tend to give too much emphasis on the physical infrastructure (hardware), rather than the quality of service or human resource (software). As a result, we've got modern physical infrastructure, but very weak software to operate this hardware.

Privatize Bank of Maldives

2010-09-13T10:34:00.003+05:00

Bank of Maldives - as it appears in their latest Annual Report, is the Nation's Bank. The only domestic commercial bank in the country, with over 27 years of banking service with 260,000 deposit account holders. The bank has achieved many over the years, and has 25 branches and 37 ATMs, provides electronic banking, and works on the financial inclusion aspect through its branches and 'dhoni' service in the atolls.

However, last two years have not been such favourable years for the bank, and this was made worse by the negative publicity in the media about the health of the bank. Recently, with the publication of its 2009 Annual Report, we have been hearing more about the bank, especially when it was revealed that the bank's earnings and profits fell during last year.

Briefly looking at the financial statements, we see that although deposits have increased, lending of the bank has fallen by almost 17 percent. Earnings per share has fallen to Rf9.3 in 2009 from Rf50.2 in 2008 (an 82% reduction). The bank has increased its investments on government securities despite its low appetite on commercial lending. All these factors remind me of only one thing, once again; that our bank should not be owned by the government.

As at now, the government directly holds 51 percent of the bank, while the public holds only 29.3 percent. Which means, there are 8 directors nominated by the government, and 3 elected by the public shares holders, in the board of directors. The fact that the government has the control of the bank, has led to the bank doing many mistakes in the past, like engaging in 'connected-lending', where lending has been done to politically connected people. Some of these connected people have less probability of repaying their loans on time, as a result, the bank's profits will be affected. Another drawback of the government ownership is its influence on the bank regarding investments on government securities. Since, the Ministry of Finance is the owner of the bank, and the ministry is also the seller of government treasury bills, the Ministry is in a position to instruct the bank to invest on these securities, when the government is in need to finance its budget shortfalls. In this case, the bank is not acting in the best interest of its share holders and its core business, further, the private sector will be deprived of its borrowings.

For this reason, it is always advised that commercial banks are freed from government ownership; instead, they be better regulated, monitored and supervised by the state. I don't seem to understand why the government has been so keen to privatize places like Ghiyasuddin, or the Islamiyya School, when these places are public education schools, with relatively good standards of education. If the government genuinely believes that the role of a government should not be conducting businesses, privatization of Bank of Maldives should be on the top of their privatization list. With limited government ownership, and strong regulation by the MMA and CMDA, the bank can be strengthened, and be able to serve its purpose better and effectively.

Why we need a United Maldives

2010-09-09T10:50:00.002+05:00

Recently, during the Independence Day, I heard this famous song, "Minivan kamun alhuvethi kamah dhaanan hey? Nudhaanamey!", when translated it means something like: 'Will you go from independence to suppression (or colonialism), No, (I) won't go!'. The has many other such examples, mostly asking the question whether we'd choose a negative for something positive. Today, I've been asking myself and many others, similar type of questions.

From our very early childhood, we've been reading and hearing about the uniqueness of our country, Maldives. I've always been proud to say 'I'm from Maldives', whenever I get introduced to someone while abroad. We have been unique not only due to the geography or the natural beauty of our islands, lagoons and seas; but also due to the homogeneity of the population. We've been boasting about this 'one-ness' all the time, saying that we speak the same language, we are the same race, we have the same religion. And until recently, we always had the same President. So, we were 'unique', and that's the story of Maldives. That's not all, we've also been talking about the peacefulness of our islands, with no violence, no protests, and very less crimes; almost a 'Pleasant-ville' kinda place, where people have been kind, polite, obedient, and well-behaved. I can still remember those days., and I'm not that old.

But now? Do we still have that one-ness? I dont think so. Our society has been transformed in many ways, socially and economically. Every day we hear about an incident of either a gang fight, or a person being killed, or a person dead being over-dozed, or a political protest, or a mass demonstration, or tourist resort being shut-down because of a strike, or a Supreme Court being hi-jacked by the Police, or a cabinet submitting mass resignation, and the list goes on.

I agree that we've obtained many civil liberties that were non-existent earlier; we've now got freedom of expression, we've got a free media, we've got a separation of powers, and independent Judiciary, a Supreme Court, political parties, a human rights commission, a police integrity commission, and most of all, a brand new Constitution with many political and governance reforms. However, I still wonder, are we 'better-off'? Will you choose violence for peace and harmony? Will you choose polarization and political dividedness to national unity? Will you choose gang violence to the peacefulness we had in Maldives? I don't know about you, I surely dont want most of the reforms at the expense of the uniqueness and the one-ness that we had.

From an economic and developmental point of view; why do you think most of the African countries are still lagging behind on economic development? According to two famous economists Easterly and Levine, ethnic fragmentation has been a big impediment to economic growth in Africa. Many other factors like corruption, mis-trust to the institutions, the judicial system, and higher authority, are all impediments to growth and development. Today, we see similar characteristics in our society. The country is becoming fragmented and polarized. There people of different political parties, with different opinions or personal grudges. There are people following different sects of the religion, or having their own 'group' of friends with their own style of dressing. There are many expatriates, with their own set of beliefs and culture. There are 'gangs' with their rival other 'gangs'. There are many independent and autonomous institutions or commissions working 'on their own', without any regard to others. With all these, I dont see many possibilities of our country moving forward with further economic growth and development, unless somebody somewhere does something to unite us all once again.

Local Councils - can we afford these governance reforms?

2010-09-07T10:01:00.003+05:00

The Parliament has passed a Bill on Decentralization, and formation of Atoll Councils, Island Councils, and a Local Government Authority. According to this Act, there will be an Atoll Council in every atoll to replace the existing Atoll Offices, and a minimum of 6 (six) Atoll Councilors will be elected to run the Affairs of the Atoll, and a Chairperson from these Councilors will be nominated as the head of the Atoll. As we are moving towards to decentralisation and empowering the local communities, these Atoll Councils are separate legal entities, and Councilors are elected by the people. An estimated Rf4 million per month will be incurred only to the salaries of the Atoll Councilors.

We are also getting Island Councils to replace the Island Offices, and each Island Council is to be run by Island Councilors. A minimum of 5 (five) Councilors will be there in each Island, some islands having 7 (seven) depending on their population size. So we would expect a minimum total of one thousand Island Councilors to be elected in the whole country. With a salary of Rf15,000 each, it would come to Rf15 million per month in salaries for only Island Councilors.

In total we will be spending about Rf19 million per month only on the salaries of these Atoll and Island Councilors. On top of that, there will be a new institution, the Local Government Authority, with a new set of staff and other expenditure.

End result? The Island Councilors will be from different political parties, even the Atoll Councilors will be from different political parties. The Local Government Authority will have members from different parties, and in the end, just like our Parliament, there will be minimal productive work done in all these institutions. The politicians in the Councils will get monthly fat salaries, and they will argue, fight, conspire, and promote their party policies. We would have a textbook model of democracy, local government, or decentralization, however, in practical terms, I don't envisage a situation where things would run as smoothly as they are outlined in the Act. Main reason is that we dont have enough people who are sincere, competent and with the will to govern, and make things better. Most of all, I don't think our country can afford it economically.

You wanna be a Parliamentarian?

2010-09-06T11:37:00.003+05:00

Do you know that our Parliamentarians or Majlis members are required to work only eight (8) months per year! According to the Majlis Qawaid (which the members themselves have formulated of course), the first term of Majlis is from March 1st to April end - meaning they get May off. The second term is from June through August - hence September off. The third term from October through December - so January and February off again!! Can you believe this? Four months of holidays per year. That's not all, they can take leave even during those eight months, on top of the four months holiday. They get to choose how many days they gonna work. They get to choose how much salary they gonna get. They get to choose their own code of conduct.

That's not all. They get to choose the Supreme Court Judges, Civil Service Commission, Human Rights Commission, and all the other Commissions, plus the Broadcasting Corporation board directors. They can question the Ministers, well, almost anybody in this country. And they get Rf 62,000 per month as a salary with many other benefits like health insurance, sick leave. What more can you ask for?

The Parliament is considered as one of the three 'powers' according to the Constitution. The President doesn't get four months holiday, and the Judges dont get four months holiday. The Majlis is supposed to supervise, and oversee the work of the government, independent commissions, and the judiciary, yet, the Majlis is on leave most of the year?

Can you believe it? People gather at President's Residence to protest about 'Baibalaa'

2010-09-02T09:42:00.003+05:00

It seems that more than a 150 people gathered at the President's Residence, Mulee-aage' on Tuesday. These people were protesting, bringing to the attention of the President that they need to play 'Bai-balaa' during Eid I guess. It seems that the Police is cautious about the implications of the this game, as competition or rivalry between gangs has lead to violence in the past.

So, considering all the various social and economic problems facing today, I just couldn't believe that priorities could become Bai-balaa all of a sudden. Apparently the President came out and met the crowd, assured that he will look into the matter. (http://www.sunfmlive.mv/beta/?page=details&id=2161)

We are heading into another recession?

2010-08-30T09:30:00.005+05:00

Just when we thought the American economy is on the path of recovery, and hence there is hope for the world economy, we have started to see signs of a second recession - what we normally call a 'double-dip' recession.

Many economists have tried to study the impact of the stimulus spending by the US government on the actual GDP growth. And from what we know, close to $800 billion has already been spent since the second quarter of 2009. Many are now predicting a slow down in the American economy as these stimulus spending has already run out, and this is evident from the predictions shown on the chart above.

The Fed Chairman Ben Bernanke last Friday expressed some hope for the year 2011, however, he also acknowledged that the economy was weaker than hoped and promised additional measures.
However, there is serious doubt as to how much intervention Bernanke is referring to, as the politicians at the Congress are less willing to spend additional money as stimulus, despite policy recommendations by some economists like Krugman and Stigilitz, on continuing the stimulus spending.

Hence, with low investor confidence and a dearth of policy interventions, there is every reason to believe that we are headed into a double-dip recession. What's more disturbing is the fact that many have started to predict that this recession could turn into a prolonged depression, similar to that experienced by Japan recently for a decade. “There are many ways in which you can see us almost surely being in a Japan-style malaise,” said the Nobel-laureate economist Joseph Stiglitz,

Reminding ourselves about the 'Asaasee's

2010-08-22T09:10:00.002+05:00

Total Number of gang-violence within the last three weeks: 5
Number of deaths within last three weeks: 1
Total injured within last three weeks: 8
Source: Haveeru

Last thursday, a 16 year old boy was attacked by knife. Male' streets have become unsafe, and what are the authorities doing about it? We have all hired a President, and paying him Rf100,000 every month. We have hired 77 Parliamentarians, and paying them all Rf4.8 million every month, and all these people have appointed and put in charge Judges, and we are spending more than Rf700,000 every month to all of them. On top of that, we have at our service Police, and a Defense force, and I'm not sure how we are spending in total every month on them. Yet, our streets are unsafe, young children are being killed.

...And we are being told that we have a new Qanoon Asaasee, and with the new Qanoon Asaasee, we have a better governing system; we have a separate Executive, a separate Legislature, and a Separate Judiciary. With new political and governance reforms, things are ought to get better. Maybe, we need to revisit to the basics: Qanoon Asaasee also means the 'basic or primary law'. When I say returning to the basics, I am referring to the main objectives we are trying to achieve. The only reason we want political reforms or governance reforms, or democracy, is for us to achieve some basic objectives. We need to achieve some outcomes, and in order to get there, we have all agreed on to form some basic laws, and then enact other laws and regulations. Then we have all agreed to hire some people according to these laws, and allow these people to serve us; to uphold the laws and regulations, to work for us in order to achieve those objectives that all want to achieve.

So what are those objectives? I'm guessing one of them could be, a safer society with less crimes. A society where people do not have a fear that they could be attacked by another and killed on the street. A society where, even if somebody harms another, that person is properly punished, and such acts are prevented. I'm also guessing that we want to respect the human dignity. I'm also guessing we want to achieve economic prosperity, ensure that people are properly fed, appropriate clothing, and shelter is provided. Appropriate education and health services are provided. We want to have a decent job, and earn a living. So, these are some of the basic objectives we want to achieve, and everything else is just a means to achieving these objectives. So, be that the Qanoon Asaasee, or any other law or regulation. If, the Qanoon Asaasee, the Laws, the Regulations, the President, the Parliamentarians, the Judges, the Police, and whoever I've left out, cannot work together to achieve these objectives, then I'm thinking,...we have serious problems to rethink about.

Sin City

2010-08-19T10:13:00.005+05:00

Two days back, one of the suspected drug dealer, Hussein Mohamed Manik was found innocent by the Court. According to the Police, he's one of the six main dealers in the country. Early March this year, another suspected dealer among the six, Adam Naseer was also not convicted. Here, we are talking about "MAJOR" crimes. It's well-known in this country that 'if you are arrested today- you'll be released tomorrow' - no matter the type of crime you've committed. It is also public knowledge that the prisoners, or inmates at Maafushi Jail have their own demands and these demands are very easily met, or they go on strike and even destroy the premises. Bottom line: the Police, Prosecutor General, Parliament, and the Courts are unable to work together to bring about a solution to this. They are unable to restore law and order in this country. They are unable to punish, rehabilitate, or keep wrong-doers away from the rest of the society. Why?

The Courts or the Judges might say, there is not enough evidence to convict according the existing laws. The Police might say, the Courts are not doing their job, and Parliament doesn't provide appropriate laws to do their job. The Executive has been blaming the Judiciary on this matter.

In another case, within this week, two men serving their 15 year sentence were released, saying that they get a 3 year probation, and if they do not commit any crime during this period, their sentence is pardoned. And these two guys are those involved in the Sultan Park bombing. Unlike in the first case, these two guys have been already convicted, and serving their sentence. And just like that, the government decides to pardon them, those who have committed acts of terrorism, and as a result our country suffered immeasurable damage in the international forefront.

So, Maldives has become a haven for anybody with a mind and will to commit crimes, hu? There's less chance you'll be convicted, and even if did get a sentence, the government will pardon you within 2-3 years.

How is the approval rating of the present government's policies?

2010-06-17T10:14:00.002+05:00

Please take part in this survey, and express your opinion.

Strengthening the private sector

2010-06-11T08:55:00.005+05:00

With our major political transformations or reforms, many things did change in our country's institutions and governance. I've talked about them even earlier in various posts. One of the significant ones is the formation of the Civil Service Commission under the Civil Service Act. Deputy ministers and sate ministers became political posts overnight. Unfortunately (I would say), there were many in such posts who got promoted to those posts over time, and these people are educated, professionals with technical knowledge in their fields. This group also includes some cabinet ministers as well. So, with the change in government, a bunch of seasoned-educated people suddenly got unemployed. All their life, they had worked in the government sector, so it was very much of a shock for them; losing their jobs, and having to stay home. Our system was not prepared for this; as we do not have a vibrant private sector, or research instituties, or civil society organizations.

I am talking about talented people who contributed a lot to our country, and who had sacrificed a lot, and worked dedicately to the development of our society. They are still at the prime of their career, as far as the age is concerned.

Some of them chose to start thier work of coming back to power, and became politically active in political parties. Some chose to get seats in the parliament. Some have left the country with their families, simply having a peaceful time abroad. Some are still staying home, still trying to digest the reality, and wondering what else to do with their life. They were ministers, state ministers, or deputy ministers. So their next job definitely has to be still ministership or state ministership, eh?

Ok, here I come to the main point, at last. Can we only contribute to our country through a job in the government, (or to be precise, a job in the state or public sector)? Well, I guess many have this illusion, that a job is not a job if it's not in the public sector. Our country has got many talented, well-trained, intellingent group of people who are unemployed, and if they can be utilised in the private sector we would be adding up to our productivity, and at the same time saving a lot of foreign currency outflow through expatriate workers.

Looking at the current government, there are some officials in politicals posts, who can be better utilised in the private sector, who used to be in the private sector and earning a decent income. It seems that some political posts have been allocated as 'gifts' or 'recognition' in their political efforts inside the party. Which cannot be avoided in a multi-party democratic system, however much we say it is totally wrong. But, we can still urge the President to at least consider people's technical know-how before allocating them to various posts. Further, get rid of people who cannot perform.

My message to all: jobs in the private sector are also noble jobs, and we can contribute equally, or even better in the private sector.

Do we Maldivians want economic development?

2010-06-09T07:01:00.004+05:00

In an earlier post, I talked about the importance of developing the private sector in our country. We need to urgently focus our attention on this for many reasons; one, our fiscal expenditure and deficit is already extremely high, and unsustainable; two, in order to achieve economic growth we need investments in the private sector. We are already very heavily reliant on the tourism sector, and so in order to diversify our economy we need to increase investments in other sectors.

It's disheartening that our focus has shifted more on politics, rather than reforming our economy, and improving productivity in the country. There are many important issues and obstacles for economic growth in our country, and we need to talk about it, address them as soon as we can. Maybe most of the politicians do not understand fully the real consequences, and dangers of economic hardships. When the public comes out, and demonstrates on the road due to economic harships, even the military or police may not be able to stop them. My point is, it's time we all debated about improving our economy, increasing incomes, and achieving economic development. The Parliament must be now debating bills and passing legislation in order to bring about economic reforms and increasing government revenue, reducing government expenditure, and developing the private sector. The government needs to formulate a reform bill and present to the parliament, ways to reduce government expenditure, especially, a detailed plan to reduce government employees and wage bill. Such a plan should have details of compensation packages for those who get unemployed in the short run. It also needs to include plans to developing the private sector, and job creation. The point is, any austerity plan put forward by the government needs to be transparent, and so the parliament and the public endorse it.

The Parliamentarians need to believe that our fiscal deficit was above 20 percent of GDP last year, and the state wage bill is extremely high and unsustainable.

Talking about developing the private sector, there are many talented businessmen as parliamentarians. I'm sure the country would be able to get a better contribution from them, if they were concentrating full time on their private businesses.

The media needs to focus more and divert the public's attention more on the economic issues, instead of wasting resources and time on useless and unproductive battles between DRP and MDP.

Some times I just wonder, do we really want economic development?

What a crisis world...

2010-06-03T20:56:00.004+05:00

The recent events in the world financial markets are worth reflecting on, as we have been seeing times of extreme riskiness. On May 6^th, the S&P500 fell from 1165 to 1065 within one day. The following day it was again back at 1135. Since then, the commodity markets, equity markets, and the currency markets are in high volatility, and investors have become very risk averse.

For the last two years (almost), we have been hearing about economic crisis, financial crisis, banking crisis, current-account crisis; it has become a crisis world. Looking at past crises, we saw the ‘Black Monday’ in 1987 when the Dow Jones plummeted almost 508 points and the S&P 500 declined by 20.4 percent within one day. In 1997, there was the East Asian financial crisis, when currencies of Thailand, Malaysia and Indonesia depreciated significantly within weeks. In 1999 we had the Argentine economic crisis. In 2007, we started hearing about the signs of a major financial crisis, the one we are still experiencing today.

When USA was almost on the verge of economic recovery, the debt problem of Greece led to a sudden panic in the markets, and Euro has fallen to 1.21 against the US Dollar.

Whenever there is an economic or a financial crisis, many people lose their jobs and income, banks fail, and companies go bankrupt, and so crises are definitely bad for societies. I wonder why we get so much of these crises, in the first place.

Well, we all know how the financial crisis started in USA; with the banks lending excessively to the Americans at low interest rates for home ownership. Most of these mortgage loans were made to the ‘sub-prime’ market, a group of people who had the lowest possibility and capability of repaying the loan. These banks and financial institutions then sold these debt to other institutions, and in this way, new financial products were innovated. Bright minds working in fund management firms came up with ideas like the ‘Credit Default Swaps’ (CDS), which are still another form of financial product, that acts as an insurance to those banks that hold mortgage debt. Trading in equity markets have become too much sophisticated, and mostly has become just numbers in computer systems.

In order to address some of the problems of this sophisticated system, on 24^th May, Germany has banned naked short-selling of certain sovereign debt instruments and shares of selected German banks. Although some investors are unhappy about this, I guess, the current crisis originated from actions of many investors trying to make gains in the very short run through short-selling of shares and other financial products.

The whole objective of a financial system is intermediation of finance from savers to investments. We buy shares in order to have ownership of a certain company, and when the firm makes a profit, we get a dividend from it. The company gets the benefit of obtaining finance for its needed investments. Whenever we deviate from this basic fundamental objective, and when financial system is dominated by just hypothetical numbers in electronic devices, we will always be prone to crises.

Talking about sovereign debt problems, the one Greece is facing right now, is again a major reason for an economic crisis. Most of the analysts may be talking about the US economic recovery, what they dont talk about is the US debt problem. As at end 2009, the US debt stood at 83 percent of GDP. Hence, in order to prevent yet another crisis, it has to address its debt problem soon in order to avoid America turning into Greece.

The Korean story

2010-05-22T22:57:00.006+05:00

Back in university when I did my undergraduate studies, I used to read about the East Asian success stories; that South Korea, Taiwan, Hong Kong, and Singapore as the four Asian tigers. I used to write papers on the success of these nations, how they have managed to achieve high economic growth through advancement in education, and capital accumulation. Since then, I’ve visited Singapore (one of the tigers), several times. Recently, I’ve got the opportunity to visit Korea, and see for myself the development of the country. I’ve to say, most of the things I saw and experienced beat all expectations, and I couldn’t help writing about the success of this developed country. Firstly, let’s look at the facts:

The per capita GDP was about $100 in the early 1960s, and back then it was among the least developed countries in the world. However, today it’s over $20,000. Korea has become the 4^th largest economy in Asia, and is also the world’s 8^th largest exporter. It has a very high human development index, and education index. The gross capital formation in 2008 was about 30 percent (world average 22 percent) of GDP, and exports are 53 percent (world average is 29 percent) of GDP. (World Bank)

I can still remember one article written by the famous economist, Paul Krugman, saying that Asian economies’ success is mainly due to the accumulation of inputs, with less technological growth. (Paul Krugman, 1995). While it can be true for Singapore, it seems that its not exactly the case for Korea. Unlike Singapore and most other Asian countries, Korea has internationally successful brands like Samsung, LG, and Hyundai-Kia. And these firms spend huge amounts annually on R&D, thus achieving further innovation.

So, how did South Korea achieve all this? Definitely it has to do with innovation and technological growth. The country is now ranked as the most innovative country in the world in the Global Innovation Index. South Korea has been able to achieve high export-led growth through their innovation. I spent an year in America, and visited many states in the country, visited many universities and institutions. I was amazed by the level of efficiency and technology usage. Believe me, I could feel the same thing in Korea. In some aspects, it beats even America; that we can see even from the numbers. The gross capital formation in America is about 18 percent of GDP, compared to 30 percent in Korea. I'm not by any means saying that Korea is superior to America in terms of technology, but rather trying to express my amazement.

What I’ve noticed through the few days in Korea is that, unlike Singapore, there aren't many expatriate workers around. Unlike USA or UK, I don’t see many immigrants in Seoul. Ok, Korea already has a population of over 50 million, so we can’t compare it to Singapore. However, in terms of attracting international talent, America and Britain have done a great job. The growth in national total factor productivity (TFP) in those countries surely has been influenced by the influx of talented workers from all over the world. But, it’s not the case in Korea. It is one of most demographically homogenous society, with about 99 percent Korean ethnicity. I could notice this by walking around. They also have a well-developed language, and this I could see from their book stores as most of the books were in their own language. I couldn’t find too many books in English from a huge book store in Seoul.

So, back to the success story; What are the lessons that we can learn from Korea? One: Great economic progress can be achieved through effective and efficient utilization of foreign aid by investing on productive industries that can earn foreign exchange to the country. Even if we incur huge external debt, if those funds are wisely invested on productive income generating activities, the country will be getting the benefits of it.

Lesson number two: for economic progress, we need an efficient governing system, with less political conflicts. One could do a good control experiment, if we consider the neighboring North Korea, almost identical in terms of resources, ethnicity and climate; with the main difference in their governing system. One could see the huge difference between the two countries in terms of economic power.

Lesson three: emphasis should be on developing the private sector, and the private sector should be the engine of economic growth.

These are all important lessons for all other developing countries. As for Maldives, surely we don’t have 50 million people, and enough land. However, most of our economic problems facing today, are due to our low focus on developing the private sector, and the over-reliance on the government. When we come to think of it, many of highly educated youth are employed in the government and engaged in economically unproductive work. In order to achieve economic progress, we need productive investments in the private sector. We citizens need to focus more on economic activities, rather than wasting our time on unproductive political fights. If we need to pressure the government, it has to be on developing the private sectors, so that we can earn an income, rather than asking the government to give us subsidies to pay our bills. Most of all, we need a strategic macroeconomic vision, and a master plan for the future.

Greece would have been better off without euro?

2010-05-08T02:47:00.002+05:00

The crisis in Greece has done much damage to the mighty euro, which has reached 1.25 to a US dollar on May 06^th 2010, which had a rate of about 1.40 at the end of January. With the adoption of euro, the Greek economy attracted a lot of foreign financing inflows, and international investors became overly optimistic about the Greek economy. With the global economic down-turn, these inflows almost stopped, and Greece had to face the reality. A reality in which its government spending has escalated, prices and wages have increased dramatically. The government deficit as a percentage of GDP has reached to unsustainable levels.

So, why has Greece become so helpless with its high debt? The answer is simple; it is tied with the euro, and it does not have the luxury of an independent monetary policy. Had Greece had its own currency, its central bank would have had the chance to have an independent monetary policy. It would have been able to have a monetary expansion, or devalue its currency in order to obtain some degree of international competitiveness.

But now, Greece is forced to be dependent on the strong European nations to provide the needed assistance, and if they fail to do so, there is less hope that Greek economy can come out of this crisis. Hence, even now it might be best for Greece and also for the rest of euro-countries, if Greece abandon the euro, and have its own currency once again.

What have we learnt from all this? One;, in order to have a common currency we need synchronized fiscal policies and fiscal discipline. If it cannot be achieved, it will be almost impossible to have a common monetary policy. Afterall, at the end of the day, Its Mostly Fiscal (IMF). Two;, it is extremely difficult to have a common monetary policy and monetary union (with common currency), without political union or common sovereignty. As people in countries like Germany will be less willing to finance the fiscal irresponsibilities of other countries, like Greece. If the whole euro area was one single sovereign state like that of United States, it would have been politically plausible to provide federal funds or assistance to those states with difficulties.

But now, when the crisis has hit Greece, its government is not able to act with an independent monetary policy. And, its too much to expect that all the other european countries will go on providing assistance to Greece. I wonder, if it'll be better for Greece to let go of euro, and have its own currency.

Maldives economy is far from recovery

2010-05-05T20:07:00.002+05:00

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

Adverse Selection at its best in Maldives…

2010-04-28T15:11:00.004+05:00

I remember one of my professors explaining to me the difference between regulating a restaurant and a bank. He says that even if five restaurants closed down within a week, it doesn’t affect much to the macro economy; however, if even one bank was to fail each week, then it sure will impact the macro economy of the country. It is because of this reason, we need an authority (an effective one), to regulate, supervise, and monitor the activities of commercial banks and other financial institutions.

The under-developed financial sector of Maldives has six commercial banks, a leasing company, and a housing development finance corporation. The commercial banks mainly rely on their lending to the tourism sector for most of their profits. According to the published statistics from the regulating authority, MMA, 59 percent of the total lending of the banks is to the tourism sector, as at end of 2009. There is an outstanding amount of over $700 million (Rf 9 billion) lent to the tourism sector at the end of 2009. According to the website of MMA, the lending rates of the commercial banks in Rufiya ranges between 8 through 13 percent, and for US Dollars it is 5.5 through 13 percent.

The banks normally think that their profits will increase if they lend at higher interest rates; as high as 13 percent. However, what they don’t realize is that at such higher rates, there will come many borrowers who do not have the intention of repaying back. There will come many businessmen, with risky projects, having very high uncertainty of recovering the investments. The banks hence face the problem of adverse selection. This is exactly what has happened to some banks in Maldives. In order to record higher bank profits, the bank managers decided to lend huge amounts to very risky borrowers, when these risky borrowers did not have the intention of repaying back, in the first place. So, we can argue that with the increase in interest rate (lending rate), the probability of repaying back falls, and the profitability of banks fall.

Another very good example of adverse selection was seen in the tourism sector few years back, when the Ministry of Tourism opened several invitations to bid for new islands for resort development. Many parties proposed incredibly high rents, and they were awarded the island. What the government did not realize was; the probability of the investor making regular rent payments; and even the probability of the investor ever being able to develop the island and open the resort, decreases with every percentage increase in the rent proposed. In other words, by selecting the party with highest rent, the government is effectively selecting the party with the lowest probability of making the rent payments, and the party with the lowest probability of ever being able to develop the island. I think the evidence we see now supports this claim. There are still more than fifty islands unable to start their operations. And one of the main reasons they are unable to attract finance is due to the incredibly high rents that they need to pay the government.

Greek and Maldives' economy

2010-04-25T21:16:00.004+05:00

According to the data released on Thursday, the Greek budget deficit has reached to 13.6 percent of its GDP. The Greek Prime Minister, George Papandreou announced on Friday that his government was seeking to activate assistance from IMF and the European Union, totaling $60 billion as loan financing.

According to available statistics, Greece needs more than $13 billion to cover part of its debt coming due in May 2010. The total debt comes to about $400 billion, out of which $72 billion is due this year.

Because of the crisis in Greece, fellow eurozone members are worried, as a troubled Greek economy will surely pose problems to the euro economy, and the euro currency. Hence, it is in the best interest to all the member countries to salvage Greece.
We all have heard on the news that Greek authorities implemented a series of austerity measures; including tax increases, and wage cuts for government employees. This has led to demonstrations and unrest across the country. Civil servants conducted large demonstrations and strike in Athens.

All these sound familiar, right? The Maldives budget deficit was 26.1 percent of GDP in 2009, and is expected to fall to only 18.7 percent of GDP even this year. Maldives could be the country with the highest government deficit as a percentage of GDP in the whole world. We also could be the only country with the highest government wage bill as a percentage of GDP. We are spending about Rf 4 billion within a year to pay for salaries of all public employees; including civil servants, politicians, parliamentarians, and those in the independent institutions. Meaning we spend about Rf 400 million every month, only on salaries!

Our present government announced several austerity measures as well, including reduction of salaries, and reducing the number of civil servants. What followed is similar to what is happening in Greece. I say, there might come a time, when the international partners will abandon us, asking us to manage our expenses within our means. We are not Greece; there is no interest for the Europeans to save us. Our economy is insignificant to the region, and the world. Unless we manage our expenses and our economy, we will not be able to come out of this economic recession.

We need to reform IMF...?

2010-04-13T12:17:00.004+05:00

Over the past 60 yeas, the world economy has become very inter-dependant. Due to globalization, development and crises have a contagious effect within regions. Further, as highlighted by Buira in his article, improvements in technology and communication , for example greater use of Internet and information technology has led to formation of an “international capital market".

The governing structure of IMF was formed in 1944 under the Bretton Woods Conference. However, a lot have changed since then in terms of size of economies, population of countries, share of world trade, reserves, and countries’ abilities to contribute to financial resources. Hence, it is evident that there is a need for reform of this important multilateral financial institution in order to achieve more effective financial global governance.
Here, I will highlight the main issues on the IMF Reform agenda put forward few years back.

The main reforms:

1. Making surveillance more effective
According to Article I of the Articles of Agreement of the IMF, one of the main purposes of the Fund is to ‘promote international monetary cooperation through a permanent institution which provides the machinery for consultation and collaboration on international monetary problems’. In order to achieve this important mission, Article IV of the same Agreement stipulates that all member countries are required to collaborate with the Fund to assure orderly exchange arrangements and to promote a stable system of exchange rates.

However, recently the Fund has very much being criticized on its inability to influence the policies of powerful countries like USA, especially even when economies of such countries have a significant impact on the economies of developing countries.
One such criticism is that, “when the Fund consults with a poor and weak country, the country gets in line. When the Fund consults with a big and strong country, the Fund gets in line”.

As Ariel observed, ‘the world moves away from rules-based multilateral system to a power-based system’, whereby, larger powerful countries ‘go their own way based on their short term interests’ (Ariel 2005).

This was very much evident during the time when the United States Treasury responded to an IMF report, which highlighted the importance of the US current account deficit and the growing indebtedness, by stating that Treasury did not consider that a correction was necessary in its domestic policy (Ariel 2005).

In order to overcome this problem, the Managing Director’s Report 2005 recommended, ‘more incisive analysis of specific weaknesses and distortions that risk crises and contagion or hinder adjustment to gloabalization’. The Managing Director’s Report further describes various specific action plans that can be implemented to achieve the above mentioned recommendation; global surveillance, multilateral dialogue, financial market surveillance, having standards & codes, regional surveillance, country surveillance, and communications strategy.

2. Adapting to new challenges and needs in different member countries
The Managing Director’s Report outlines specific actions to be taken in terms of the Fund’s role towards the advanced, emerging and low-income countries.
With regard to advanced economies it is recommended that global implications are integrated into country specific policies.
Emerging market economies are characterized in the Report as the ones that need crisis prevention and resolution due to their high ‘risk of boom-bust cycles emanating from the volatility of capital flows’ (IMF 2005). Improving financial insurance in these countries is also on the agenda, with particular emphasis on helping member countries to ‘develop local financial markets and instruments’.
Finally, the role in low-income countries is recommended to be more focused, with more flexibility, more emphasis on the Millennium Development Goals, and having fewer procedures.

3. Helping build institutions and capacity
The Fund recognizes the need to further strengthen its ability to provide technical assistance to countries in the area of capacity building and improving institutions. The specific action recommended by the Fund is ‘to give area departments the central role in setting technical assistance priorities in the context of Article IV surveillance and Fund supported programs’. The Fund also acknowledges the need to enhance fiscal transparency and governance as they play an important role in the development of economic institutions.

Although the need for better institutions and capacity building is acknowledged and important, it is questionable how much overlapping and duplication is present in terms of providing technical assistance to member countries, between IMF and the World Bank. Hence, further reform in this area needs to consider this aspect and coordinate better with the Bank on matters relating to capacity building.

4. Prioritization and reorganization of work within a prudent medium-term budget
The Fund highlights the need ‘set priorities for the next few years based on a country-by-country analysis’.
The Fund also needs the reorganization which is necessary to implement the various components of the budget and hence recommends better organization of expert staff, departmental structure, management, executive board, and international monetary and financial committee.

5. Address the issue of fair quotas and voice
In order to achieve the mission of IMF more effectively, it needs to reallocate quotas and voting rights in order to reflect the changes that has taken place in the world economy during the past sixty years. The reallocation should be in such a way to reflect the interests and power of those countries whose share in the world economy has increased, and in general, in a way that the legitimacy of the Fund could be greater.

Concluding Remarks

The G-7 Finance Ministers and Central Bank Governors met in Tokyo on February 09th 2008 and discussed about IMF reforms, reaffirming their support on the IMF surveillance decision on exchange rate, fiscal and monetary policies. In their statement they expressed their support for the “proposal of the Managing Director to refocus the Fund’s operations on core priorities”. This is a positive message that reflects the commitment from the richest nations of the world, and is expected to have a significant impact on the reform agenda of the Fund.

The reforms outlined above are those highlighted in the Managing Director’s Report, 2005 and in addition to these, there are few other areas that need attention.
Some of them include, making the work of the Fund in the member countries more ‘demand-oriented’ taking into account the local circumstances and needs of the countries, rather than being ‘supply-oriented’ by the replicating what is being done in many other countries. In some countries, some of the new projects or policy recommendations are suggested and being ‘forced’ to be developed into loans, even though such loans are not diverted to the most efficient use or sector. In the meantime, there are many other areas that need special attention and assistance, but unable to attract the attention of the Fund or the Bank, as the officials of these institutions do not feel that they are important.

Finally, it has to be emphasized that rich and powerful countries need to be brought on-board in understanding the importance of global financial governance, and the relative effects of global integration, and thus adapting policies that can have positive impacts on the world economy.

In order to achieve ability to force corrective action on its members, the Fund needs reorganization and reallocation of its quotas and voting rights. Reallocation of quotas is also important in order to improve the legitimacy of the institution and hence, achieve the core objectives of the Fund.

Foreign Aid - Is it free?

2010-02-16T08:31:00.002+05:00

Foreign aid has attracted a bit more attention lately, but it has, since its inception in 1950, been a controversial issue. Recently a book by William Easterly (Title: The White Man’s Burden: Why the West’s efforts to aid the rest have done so much ill and so little good. Publisher: Penguin Press, 2006) has set off a new round of discussions and questions and polemics. So I thought that I would join in.

I will concentrate on Official Development Assistance (ODA), essentially aid in the form of funds given by the rich countries to the low and middle GDP countries of the world. ODA is the largest of the various aid categories. I may try to discuss other categories, especially technical aid, in a later post.

Official Development Assistance has been of significant size. In the year 2006, for example, it amounted to $120 billion in current prices. (This is the world total.) This seems to me to be a sizeable figure, but it is a small proportion of the West’s Gross National Income, and it was spread over many countries, not necessarily on the basis of need or the ability of a country to use it productively.

This foreign aid of course is meant to provide a country with resources in addition to those of its own. Aid then is a supplement to domestic saving. Government can then do things it could not have done without the aid. This is obvious of course. Suppose a government is using its own resources effectively, and then gets some aid. It can then do more–can build more elementary schools, can improve or maintain more roads, can guarantee farmers a good price for their crops, and so on–than it could in the absence of aid. Aid obviously can be of great help in the development of a country. Why are there doubts?

There are several reasons that have been mentioned by opponents of aid. It breeds corruption, it is wasted on pet projects pushed by some government officials, it enables the continuation of harmful policies, it makes exchange rate management more complicated, it dampens pressure on domestic resources to seek productivity gains, donor countries often put damaging restrictions on the use of aid funds, and so on and on. These doubts are real and there are many examples that one could cite of their impact. At the same time there are many examples of aid having a very favorable effect on a country’s development effort. Botswana and Korea are examples of aid working in an effective way.

For aid to be effective the overall economic policy of a country must be in order. The country must understand how its economy functions. As noted above the aid receiving country must be using its own resources effectively and to appreciate how it can use additional resources in an equally effective way. This is not an easy thing to do. And it is not surprising that aid is often misused, not because of corruption or selfish government officials, but because the understanding of the aid receiver’s economy is so limited. Thus foreign aid is beneficial where those who manage the economy understand how their economy in fact works. Where the donor imposes conditions for its aid that the recipient believes to be inappropiate, aid must be rejected. Do not think because it is aid it is free, and doesn’t matter. The costs may be high. There is no such thing as free aid, as there is no such thing as a free lunch.

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

2010-01-25T14:08:00.003+05:00

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. (http://www.imf.org/external/np/sec/pr/2010/pr1013.htm)The 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.

don't worry...be happy.. :-)

2010-01-21T14:38:00.003+05:00

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?

10 things I hate about MONEY

2010-01-17T13:38:00.000+05:00

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

Three days left to vote!!

2010-01-12T11:29:00.001+05:00

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

IMF Executive Board Concludes Article IV Consultation with Maldives

2010-01-05T10:03:00.000+05:00

http://www.imf.org/external/np/sec/pn/2009/pn09142.htm

Determine the happiness level of Maldivians., the survey continues..

2010-01-02T19:40:00.004+05:00

Please take part in this survey, and tell me whether you're happy with your life.

Are you happy with your life? Take part in the survey

2009-12-29T19:29:00.003+05:00

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

Sea level Raees

2009-12-14T15:53:00.000+05:00

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.

Random thoughts on 2010 government budget

2009-12-09T23:14:00.004+05:00

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.

Government sells T-Bonds

2009-12-06T10:02:00.001+05:00

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.

Ramal'an Mubarik to all

2009-08-21T17:22:00.002+05:00

I extend all my good wishes and greetings of the holy month of Ramal'an to all bloggers and all muslims across the world.
Let this month be full of good deeds, and enhancement of all our ties with our family and friends.
God bless you, and God bless Maldives.

The state of our economy: will we survive this crisis?

2009-08-10T19:53:00.000+05:00

Recently a lot has been talked about the economy in the media, discussion forums, and informal gatherings. We have been experiencing a prolonged imbalance in the foreign exchange market since September last year, and the situation has gotten worse now. The businessmen can’t get enough dollars at the official exchange rate of 12.85, while we depend on imports for almost hundred percent of our consumption. Obviously there’s a supply shortage in the market due to foreign exchange crisis, and as a result, prices are expected to increase further.

According to a recent conference, the foreign exchange reserves in the country is about 67 million dollars as at last week, and we would expect it to deplete it even further during the next month. Such depletion in the reserves would make it impossible for the central bank to defend its peg on the currency, meaning, if it was to abandon it, the price of US dollars could suddenly rise even further, making goods much more expensive in our markets.

There are several reasons for the crisis; the main root of the problem being, the incredible hike in the deficit of the government ever since Mr. Qasim assumed the post of finance minister. The deficit that has been financed domestically by printing Rufiyaa, has led to the rise in the money supply without any regard to the output growth in the economy. At the same time, the demand for dollars has been increasing with the increasing number of expatriates and their remittances, Maldivians travelling abroad, and our imports. Meanwhile, tourism receipts have declined by 10 percent, fish exports also have fallen, adding up to the current shortage.

The options available to the government; the main one, is to reduce its deficit, so that printing more Rufiyaa can be stopped. But how will it do that? According the governor or MMA, and even the president and the finance minister, the government is doing its best to reduce the expenditure. But why isn’t it going down? Major chunk of the government expenditure goes into the salaries of its employees. So, if we need to reduce expenditure, we definitely need to cut wages, or reduce the number of employees. It may not be politically such an easy thing to do, however, if we do not address this issue now, the president or the finance minister may not be able to save our economy. These economic measures may not be so ‘popular’ in the short run, politically, however, these are necessary ones, in order to keep our house in order.

Simultaneously, the government needs to collaborate with the parliament in order to make urgent and necessary adjustments to increase government’s revenue through changes to the existing tax system. For instance, increasing the bed tax, or expediting other new revenue measures proposed in the budget.
Public awareness need to be increased on the state of our economy, so that we could make people realize that postponing our travel plans abroad would be a wise thing to do at this moment. We also need to rely more on domestic produce, and focus on developing and increasing our domestic production.

Any foreign assistance that we get today would only postpone a major disaster in the short-run, if we do not address the fundamental problems in our economy. I hope that the parliamentarians and the government officials work together in the interest of the public, our economy, and our country.

Reducing import tariffs: Will it bring down prices?

2009-06-26T16:41:00.001+05:00

The government has recently sent to the Parliament a bill that proposes reductions in import tariffs on certain items like vegetables, fruits, diesel and cooking gas. Many have been asking whether this would reduce the prices of goods and services in our local economy. In fact, it is believed that the intention of sending this bill by the government is to reduce the domestic prices, and tackle the increasing inflation in Maldives. As it is one of the pledges of the current government; to bring the prices down, making it more affordable to an average household.

Will it bring the prices down? I don’t think so. The high inflationary pressure that we are experiencing in our economy has less to do with the costs of our imports; instead it has more to do with the demand. This is very obvious when we consider the last year’s statistics. The oil price peaked a $147 per barrel in July, and started its nose dive afterwards. So did many other commodities that we import to Maldives. During the last half of 2008, our import prices in fact went down. But did our inflation come down? No, it didn’t. At the end of 2008, inflation in Maldives was greater than 12%, because the domestic demand was very high.

Inflation in Maldives has more to do with the boost in the domestic demand, fuelled by the increased monetization by the central bank of Maldives. As one of the bloggers has recently outlined (http://abdullahwaheedsblog.blogspot.com/2009/06/on-brink-of-budget-crisis.html), there were series of salary increases starting from January 2008 to the civil servants, independent commissions, judges, and the parliamentarians. This has led to an unsustainable hike in the domestic demand, and as a result, the businesses have increased their price tags.

Unless, something is done to address the domestic demand, any reductions in the import tariffs will not bring down inflation, but, will only lead to an increase in the profit margins of the importers and the retailers. Hence, at the end of the day, even if the bill was passed by the Parliament, it would have simply meant a reduction in government tax revenue, without any benefit to the consumers in the form of lower prices.

What can be done to address this demand? A good start would be to cut down on government expenses, so that the deficit doesn’t need to be financed through printing more money. Government could embark on reducing the salaries or allowances of all state employees, across the board and save millions every month. The moment you stop the ‘printing machine’, it’s amazing how soon you can see the positive results of it.

The deteriorating social capital

2009-06-12T17:29:00.001+05:00

The famous production function in economics is often applied to economic growth of countries, and assumes that increasing physical capital, and productivity of human capital lead to higher growth. According to the Solow growth model, countries can achieve higher economic growth through accumulating physical capital (increasing the capital stock), and improving the quality of human capital through education and better health services.
Maldives also has achieved economic growth in the past few decades through increased investments in tourism and few other industries (accumulation of capital), and increased proportion of population with secondary education. Compared to 20 years ago, even the health standards have improved, and the life expectancy is reported to have increased too.

The concept of social capital is also important to the development of a country. According to some of the newer versions of growth theories, the social capital tends to directly influence the total production of a country. For instance, other things remaining unchanged, a country with a rich culture that promotes better work ethics, taking responsibilities, honesty, and/or self-reliance will tend to have a higher probability of achieving higher economic growth, compared to a country with no such values, and where people tend to be generally laid-back.

As we go along the path of democratic, economic, and social reforms, it is vital that we focus policies and societal thinking towards development of our social capital. It is disheartening to hear almost every day, cases of pedophiles, murder, drug abuse, and many more. The most depressing aspect of all this, is the fact that proper punishments are not being given to these dangerous criminals. There is a greater role to be played by the government, the court system, civil society, and the people in general to address these issues. We need stronger measures to deal with such people, so that they are not released back to the society without being given harsh punishments.

The legal professionals and the parliamentarians have a greater role to play on this. I wish parliamentarians better utilize their time discussing regulations and ways to strengthen the legal system so that pedophiles could get harsh punishments. Instead we see them ‘wasting’ most of the sessions in a battle of two political parties. Some want to address the issue of reducing the presidential powers, others want to make Theemuge as the presidential palace, and others want to discuss what the attorney general has said the other day. There are more important and urgent issues to be addressed in this country. If we cannot stop or reduce these serious social problems today, we may not be able to save our country.

Fiscal Discipline

2009-06-11T13:58:00.000+05:00

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!

Maldives economy in 2008

2009-06-08T11:41:00.000+05:00

http://www.mma.gov.mv/red.php

Civil Servants and Politicians

2009-06-01T21:41:00.001+05:00

I remember one of my colleagues, who used to belong to MDP, which was the main opposition party at that time, talking about the frustrations due to the government actions at that time. A few days later, he defected to the ruling party, DRP and was given a high post in one of the ministries, along with the board membership of a government owned enterprise.

This was a common story back then, when all government employees were administered through the public service division of the president’s office. We all got the ‘chit’ from the president back then. Higher posts were given at the government level to favorite people in the ruling party. Many government employees working at different levels even registered themselves as DRP members.

Then came the Civil Service Act. Deputy ministers, state ministers and ministers suddenly became political posts. An independent civil service commission was formed, and all government employees became ‘civil servants’ apart from those who worked in independent commissions. Permanent Secretaries were appointed in each ministry; he or she was declared as the head of the ministry from the civil service. When this sudden change occurred in our country, there were many among the deputy ministers or, even as ministers who belonged to the group of technocrats, or those who did not have a strong political affiliation to any party. Most of them were being promoted through the ranks of that particular ministry of office, and with a track record of service to the government. So, the change did not immediately affect the daily functioning of the ministries. And then, in November 2008, there was a new government.

With the new government, came new ministers, state ministers, deputy ministers, advisors, political secretaries, consultants, councilors, and so on. Some of the new ministers, state ministers, and deputy ministers were completely new to the public administration system, or some of them have not worked in the government for a very long time. Some of the political post holders were not having the relevant technical background, or know-how to perform the job duties. Very soon, conflicts started arising between the politicians and the civil servants. The politicians have started publicly accusing the civil servants of not performing their job duties, or declining to cooperate with the politicians. The civil servants complain that most politicians do not have the necessary qualifications of the skills for the job. There’s this on going fight between the civil servants and the politicians.

It was announced earlier that the present government wants to have a smaller government, or a few civil servants, and reduce the government expenditure as much as possible. As far as I know, the civil service commission wants to hire as few as possible, and the government also wants to have a smaller civil service.

Let’s look at the situation that we have now, and the resulting costs of it. If a minister (or a state minister) wants to achieve some targets, the civil servants wouldn’t do it. The politician hires a person as an advisor or a consultant (a political post), to achive that target after blaming the civil servants. After blaming the civil service commission for failing to provide enough and efficient staff. What is the end result? That political advisor or the consultant is paid a higher salary than the civil servant, and the irony of it, is that the advisor is also paid by state’s budget. From the same budget from which the civil servants are paid. Three civil servants could be hired for the salary given to the political advisor, however, political posts are created in order to ‘by-pass’ the civil service commission!

The deadly outbreak of swine flu and its economic impact

2009-04-28T15:21:00.000+05:00

According to BBC, 103 people have died in Mexico but 20 of them are confirmed to have died from the swine flu. There are 20 confirmed cased of swine flu in USA, 6 in Canada, 1 in Spain, and suspected cases are being tested in UK, Israel, Brazil, Australia, and New Zealand.

As a result of this deadly outbreak, the economy of Mexico has come to a halt, as schools, restaurants, and other public buildings are being closed and many people are staying indoors.

BBC further reports that already shares of airlines have fallen, and many tourists are expected to cancel their holidays or travel plans.

As we are very much dependent on the tourism receipts, any negative shock on the world travel and tourism can have a devastating impact on our economy. The annual growth in tourist bed nights has started to fall in December 2008, and in February 2009 there was a 12% decline and a 13% decline in March. Tourist arrivals forecast for this year is already in the negative, and with the swine flu outbreak, we may expect further decline in tourist arrivals, hence reduced tourism revenue, import duty revenue, and other forms of government revenue. This could also badly affect our foreign currency position, and the government deficit.

The economic impacts of this flu world wide may also be devastating. The World Bank has already given $200 million to Mexico to combat the flu domestically. Similar assistance may be required by many other countries if it continues to spread across borders.

Economists and analysts have been forecasting world economic growth to improve by the end of 2009 and at the start of 2010. However, with the swine flu in the horizon, we are talking about possible decline in world travel and other economic activities on top of the money to be spent on curative and preventative measures. This could mean that the world economies may remain in a recession through 2010.

A million dollars per month: price of political reform

2009-04-26T11:08:00.000+05:00

With the new parliament of 77 members, we will be spending for their salaries, more than Rf4.6 million every month, so Rf55.4 million annually. With the current 50 members, we are spending Rf3 million a month, hence Rf36 million per year.

For all the political posts, we are spending more than Rf 7 million a month, meaning about Rf83.5 million a year for their salaries. How do we get this figure? There are 37 state ministers earning more than Rf40,000 per month, 51 deputy ministers or in the same rank as a deputy ministers, 19 atoll councilors, and 172 island councilors. The number of political posts is expected increase even further.

Considering the newly formed independent institutions or commissions, we are spending Rf1.25 million per month, or Rf 15 million per year on the salaries of the senior posts approved by the parliament. We have an Auditor General earning Rf100,000 per month, five Supreme Court judges earning Rf50,000 per month, and a president in the Human Rights Commission, Elections Commission, Civil Service Commission, and the Judicial Service Commission. All of them earns about Rf50,000 per month.

The grand total that we are spending on the political posts, independent institutions, and the parliamentarians is about Rf11.2 million per month or Rf134.5 million per year. This means we are spending more than USD10.5 million an year on the salaries of all these people. With the new parliament, we would be spending more than a million dollars per month, hence more than 12 million dollars every year. And the number keeps on increasing with the increase in the number of political posts. The question is, is it worth it? I mean spending all this money on all those politicians? Are we getting an effective economic return from all this spending?

There will be an additional Rf19.4 million that we would be spending with the increase in the number of parliamentarians to 77 from 50. There are more than 400 candidates contesting for these 77 seats. I say, if the salary is about 30,000 instead of 60,000 will there be so much candidates wanting to become a parliamentarian? I don’t think so. Probably we should reduce the salary to 30,000 so that we would be able to save at least Rf27 million every year.

Change we need

2009-04-21T11:06:00.000+05:00

Aiman, a 30 year old civil servant, obtained his tertiary education through a government scholarship. After finishing his bachelors degree, he was offered a highly paid job in Australia. However, Aiman chose to return back to Maldives, as he had an obligation to serve the government for almost 7 years. In order to serve this ‘bond’, he started work in the government, in a low paid job, not being able to make use of or apply the skills and knowledge obtained in his bachelors degree. Almost six and a half years have passed since then. Aiman is afraid to accept any Masters degree scholarship from the government, as it would add to the existing ‘bond’.

Haneef, a doctor by profession, also with a similar story; obtained a scholarship from the government, had to return back home soon after graduation, to serve the country. In return, the government provides a relatively low salary. Haneef says the work is not challenging enough, and not adding much value to his professional career. Many of his friends have chosen to find PG opportunity is USA, and settled down there with an attractive income package.

Musaid, 25 years old, a teacher, working in one of the atolls, as he has a ‘bond’ too. Day in and day out, goes into a classroom of 20 students, supervises sports activities, and ‘marks’ exercise books every night. He wants to achieve more, contribute more to his country.

The place I work, there are almost 50 graduates, or even more. Most of the government ministries and departments also have many graduates. Most of us are engulfed in the existing corporate culture, and end up trapped in a system that doesn’t promote our own personal or professional development.

The reason for telling all these stories is not to prove that they all are being stupid, or that the government is being stupid, or that the services of them are not valuable. We need services of people like Aiman, Haneef and Musaid. However, we need in Maldives a change in the way do things in government ministries, organizations, or departments. We need to revisit the corporate cultures, work ethics and human resource management. I say, this has to come from somewhere. And one way we can bring this change is through transfer of management know-how or transfer to know how, work ethics, and many more. We need to provide our graduates with first hand experience, by providing them the opportunity to work in another country for at least 2 years before they return back home.

If the scholarship assistance MOUs with the foreign countries can have such a condition, whereby Aiman, Haneef, Musaid and many others can obtain work experience, and learn how things are done in other countries, they could add more value to their work, and contribute to the development of the corporate culture of Maldivian organizations.

Does anyone care?

2009-04-12T03:19:00.000+05:00

Last night, a dangerous accident occurred in Chandhanee Magu. Four people were injured. Last week in Male’, a 51 year old man died after a motorcycle hitting him while he was walking on Medhu Ziyaaraiy Magu (http://www.miadhu.com.mv/div/news.php?id=17001).
It has become almost impossible to walk around the streets of Male’. The number of motorcycles in Male’ has increased disastrously in the past 2-3 years. The number of ‘private’ cars has increased alarmingly. There’s hardly any space for anyone to walk. Does anyone care?
Male’, being a highly populated city, among cities with the highest population densities in the world, requires special attention, as far as importing vehicles to this small island are concerned. Thanks to Sheesha, and many other importers, who provide easier installment terms, making a brand new motorcycle affordable to almost anybody with a fixed income. However, we do have a Transport Ministry as well, who should be worrying about the growing traffic problems, and devising policies that could address the increasing number of vehicles being imported into the island. I say, we need urgent action; imposing a strict quota on imported motorcycles and cars; and if possible increase the import duty on all these vehicles, so that the numbers can start to fall.
According to news reports, some 521 vehicles parked illegally have been penalized by the traffic police ( you can see them busy every night around the streets of Male’, towing vehicles). Again, the best solution would be to control the importing of these vehicles.
It’s not safe to be out on the streets anymore. No matter you walk, ride or drive.

Lower salary vs unemployment

2009-03-19T12:01:00.000+05:00

Recently we all have heard of too many stories of strikes, press conferences, and interviews regarding changes in the pay structure for the civil servants and other state employees. I can understand that 'take home' income if suddenly decline by 2K or 3K would of course be a problem for all of us. Further, professionals like teachers and doctors will be definitely frustrated when they feel that the government does not value their professions, when the government pays an enviable high salary to police officers, army, and many political posts.

The macroeconomic problems that we face today are the making of many years of mismanagement in the past. The evidence is seen from a very simple analysis of the fiscal expenditure and the deficit. Whats more, the deficit that has been finance domestically by printing money. The resulting inflation, and as a result, government employees demanding a higher salary. The government employs more than 15% of the population, and almost 50% of the state budget goes to the wage bill. On top of that, we are spending almost Rf89 million (USD 7.0 mil) annually to all the political appointees at present. This increases to Rf119 million (USD 9.2 mil)annually when we include the Parliamentarians' salaries. In other words, we are spending more than half a million dollars every month only on political appointees. The worst part: most of these political positions are not filled based on their qualification or capabilities. Meaning that those fat salaries that they get are not performance-based. In the end, hard-earned income by the government is spent on unproductive political personnel, with a very high opportunity cost. The saddest part: many of such political appointees are those with other means of income. In the end, people with no other means of income, with low monthly salaries suffer. period.

Then, the other part of the story. Those who are demanding higher salaries, and organizing strikes and press conferences. I keep wondering, do they really have a bargaining position here? I mean, what if they lose their job today, do they have many options in Maldives, and so seek employment elsewhere? The teacher who is demanding a higher salary, if loses his or her job today, will that person be able easily get a secure job paying much higher salaries? Well, if they can, there can be a bargaining power with them. Or else, accepting a lower salary makes much sense than losing the job. I'm not arguing that we have to keep quiete, whatever we get, and however we are treated. That's the not the point here. Higher salaries for civil servants make the government grow bigger, increasing its expenditure, and making the fiscal deficit unsustainable. It also leads to higher prices in the economy when the deficit is monetized. When the world is in a recession, it makes more sense to even accept the current salary than losing the job. Why lose the job you may ask. When the government keeps on growing, and if the government revenue start shrinking, it would be forced to cut down on the wage bill, and a possible lay off of workers.

The government has some aspects to consider. When these civil servants demand higher pay, how strong are their bargaining power. The government also needs to make these civil servants understand that during times of economic recession, the government may not be able to meet all the demands for higher salaries, and that even accepting a cutback on salaries makes more sense than losing the job, and not earning any income.

If there's anything important enough to organize demonstrations, or press conferences, it is on pressuring the government to reduce the number of political appointees, reduce their pay, and make their appointments based on capability or performance. At least all of us have that barganing power over the government, as we are the people who vote in the elections.

Decentralization? Decentralization? And more Decentralization?

2009-02-25T09:23:00.000+05:00

This is the new fad in the Maldivian politics and no doubt it’s a wonderful topic for a would be PhD graduate yeah? Having heard of this word a thousand times from our President and his “political graduates”, I thought of having a deeper look at it and its potential in our country.

Obviously it all sounds good. It’s the perfect recipe for a country that’s vying for political freedom. It surely is good news that finally our country is talking about the future and a fine system!

I don’t want to indulge in writing a thesis here nor give you a literature review of what decentralization is. But to give a small yet simple enough meaning, its all about trimming down the layers of a traditional hierarchy and giving the power (empowering) to people at the lower levels to make their own decisions in the best interest of their units. My question then becomes … is this possible? And if so, how can we ensure the smooth functioning of a decentralized system?

Ofcourse it is possible. It is possible for us to break down our administrative arms to small pieces and give these units the required resources and authority to make decisions. But I must admit that for such a system to function effectively (ultimately serving its main purpose), some conditions or pre-conditions needs to be looked at first.

To operate in such a system, its not only the heads of these units that must be educated and disciplined enough to function properly, but also the people at the lowest levels. Given masses of poverty, often controlled by the very rich, one thing that is inevitable is the creation of “black markets of centralization”. These would become the invisible systems that defy the very meaning of decentralization. As a result, what was once the objective will soon follow the inevitable. And the inevitable will become a costly yet a daunting task for our government.

Equal to the levels of education comes the current climax of events that are experienced by the citizens of a country. For such a massive system to be in place, we no doubt have to be prepared to introduce it in the most appropriate of times. The question is are the current events or foreseeable events consistent with the implementation or introduction of such a costly system? Well, my answer to this question becomes NO! Given our consideration must be placed in minimizing costs in a tough economic market, it is of no doubt that the introduction of decentralized arms or systems would escalate the costs that will be incurred by our governments. Firstly there are costs of actually introducing the system, then there are costs of inefficiencies that we have to bear (knowing that very costly decisions will be made from the bottom), and last but not least the opportunity costs!

I did tell you it is topic to write a book or a thesis. But my intention is to highlight a major area of concern here. Two that I have pointed out are both related to costs of actually implementing and running this system. I do understand that we have to tolerate mistakes to move forward. But what I do not understand is whether we are rich enough to absorb the costs of these mistakes. In other words, can we afford these mistakes?

At times of uncerstainities and chaos, it will always be the centralized models that will save any system from absolute failure. We all have heard a million times that our country is bankrupt and in the verge of being sold out to India. Being bankrupt obviously should mean we cannot afford to play games with the current system or a would-be system. We cannot give less than educated people the money and the power to make decisions, we cannot allow ourselves the luxury of trial and error approaches, nor can we approach such issues with speed and learn-as-you-go attitudes.

I don’t know about you, but I do welcome the idea of decentralization. I do welcome such a fine system to become the dominant system in our country. No matter who is behind such ideas, I do not believe that Maldives is ready “right now” to embrace such a model. But hey Mr. President, I believe that the time has come to start educating people of such a model change that might take place three years from now! Hey, its just my opinion!
AE

Doctors, teachers, lecturers and state attorneys go on stike to demand pay rise - Can they buy more?

2009-02-24T14:31:00.000+05:00

Local doctors are on strike today, because they are not happy with the recent pay re-structuring. According to a doctor I met last night, his take home salary has decreased by about Rf3,000 after the restructure, although the government and civil service commission claims that there is a pay rise across the board. Doctors also claim that salaries of police officers and army has increased, however, doctors’ salaries have gone down. Because of today’s strike, more than 15 doctors have not reported for duty, and as a result many patients are unable to get services.

Meanwhile, a group of 450 teachers are preparing for a second strike, and this time they are determined to continue the strike until their demands for the pay rise is met. This is despite the fact that the civil service commission has already raised the teachers’ salaries in February. Similarly, Lecturers of the Faculty of Engineering of the Maldives College of Higher Education went on strike this week, also due to their unsatisfied demand regarding the pay structure.

It doesn’t stop there. State attorneys working at the Attorney General’s Office (15 out of a total of 18) did not report to work on Sunday also due to similar reasons. Apparently, the Permanent Secretary is reported to have resigned soon after the incident.

It's most likely that the government will in the end, again raise the salaries of the teachers, lecturers and the state attorneys. This is in addition to the pay rise to all civil servants in February 2009. On top of about Rf200 million monthly deficit faced by the government. On top of the declining tourist arrivals due to deep recession in Europe. On top of the increasing inflation due to increase in spending power with the circulation of Rufiyaa.

I don’t know whether these civil servants realize that the global economy is in a very bad shape. Our economy is also heading towards a major crisis period, due to the rising government deficit, increasing external debt, liquidity problems in the foreign exchange market, and as a result of all these, a possible shortage of basic needs in the market, and the possibility of further increase in prices of goods and services. They may all get a rise in salary and with it increase the amount of money they get each month. However, with prices increasing rapidly, they would soon feel that still they are not able to buy more with that money. The real value of their income would not have increased. What then? Organize another strike and demand another pay raise?

Economic Tsunami & The sPackage

2009-02-23T08:47:00.000+05:00

When it comes to stimulating an economy, commonsense would suggest that we need to put more money in the hands of our public. By doing this, the public would start spending or is more likely to keep spending so that we have strong demand in the economy for the general goods and services. More demand or strong demand would mean that shops and service centres around the nation would have products that gets sold in a reasonable timeframe and hence, these same places would have a reason to keep current employment levels or perhaps create new vacancies. However, with all these cash injections it is no guarantee for any government that their plans would bear fruit. Key questions become, what if the nation start saving? What if the nation start paying its debt rather than create any new demand for goods and services? Last but not least, what if from every dollar they inject to the economy, a significant majority leaves the economy in the benefit of some foreign country?

Maldives once again couldn’t resist the temptation that all westerners, yeap you heard me right, all westerners that had the likes of iPhones and ePassports have finally started talking about the sPackage! So why not we right?

My opinions might largely differ from yours and I obviously respect that fact. But I do hope that someone out there would start realizing that these are times in which our country needs real experts to mastermind a rescue package to our nation. The likes of Movie Stars, ex Football Players, Activists, Businessmen (by default), or perhaps men with loud voices might not have the capability nor the economic awareness to think outside the box and create a meaningful package that a country like ours would be able to swallow!

Maldives is a country that would never be talked about in the international arena if not for its natural beauty. I think we have a large tendency to overly rely on our fame and mistake our true identity when it comes to devising sustainable strategies. I say this because we have this massive “copy cat” attitude and never once would think for its own on creating a set of ideology that’s truly maldivian in nature. Be it fashion, politics and now economics, we always do start following the big guns! Ofcourse sometimes we will look good (when it comes to fashion), sometimes its nice to read statements in the media with the words “political freedom” (when it comes to politics), but mind you, there could be times when it becomes rather outloud “ridiculous” and “silly” to follow such nations in devising economic rescue packages to counter the economic tsunami the world is in.

On a positive note, it is rather comforting news that our parliamentarians have “finally” begun talking about our rather unique and fragile economy (Minivan News, 19.02.09, Majilis Considers Stimulus Package). However positive it may sound, I just could not help but wonder why we even have the slightest of desires to sit down and talk about creating an sPackage just like how the US, or UK or AUS have done. Why on earth would we even spend precious minutes discussing this? Are we still “assuming” consciously or unconsciously that Maldives is a strong economy? Do we have the necessary economic fundamentals to create the much needed hype in re-igniting local demand? Oh yes, those economies that we so love to mimic have got their basics and perhaps more so strongly their attitudes right! They don’t have citizens that would think about flying away for medicals, higher education or even perhaps leisure. Stimulus packages are designed with the belief that those very injections would be utilized to penetrate the demand “within” an economy. One could always tolerate a slight leakage (money moving away from the economy), but what a country cannot tolerate nor afford is significant holes in its economy that would not just leak money bit by bit, or drop by drop, but overflow in gallons!

Of course I agree with the state minister of finance Ahmed Assad in saying “we need some way to stimulate the economy”. Also do note honourable state minister, what we cannot do is plan a stimulus package with the wrong ingredients!

I am no expert in Maldivian economics, but I do follow our economy and contrast it to what’s taking place globally. Me being a critique on this subject matter does not also mean that I am overly pessimistic about the whole set of ideas or intended strategies. I know given the right mindset, the right ingredients, we can devise a strategy that can see us through this tsunami.

One crucial element or shall we call ingredient in any such strategy must be building demand and ensuring that whatever money we have, gets rolled within our economy. Greater thought to this area makes me strongly believe that there is no better way to start than lending a hand to the backbone of our economy – the tourism sector. Question is how?

Look at the facts. World in recession. Governments promoting spending “within” an economy and consumers spending money while their handbrakes are on. These are just a few facts that must create panic in the minds of every resort operator in the Maldives. All these resorts would have significant levels of fixed costs, and their main intentions would be to minimize their variable costs. Probably less demand for resort supplies (once again this could lead to panic in the supply business platform), an eye on redundancies (which will lead to families getting hurt) and perhaps a desire to lower its rates in the hope of penetrating just someone out there (thus translating into lost revenues). Given these and much more, I say our government partner with these resort operators and try building local traffic to these resorts. I know even right now it is possible for us locals to visit these resorts, but guys, I am talking about systematic manners or perhaps large scale! Opening doors to locals can have damaging impacts (guess from the eyes of the operators). But what’s important is any amounts of money that could help reduce their fixed expenditures. If governments gets involved, it could help create new industries such as local tour operators, more choice for that individual who so loves in going to Sri Lanka. Well fingers crossed, hope we Maldivians still be disciplined enough.

Above is just an idea. Creating economic activities within a given economy would be the most important thing any government should do if they were to stimulate the economy. Borrowing more money could do this, but it sure might not be the best of options. What our country needs is a shift in mindset. People who could think outside the box and I guess the bottomline is, leave that economic shit to the ones with real know-how! Then again, I trust there will be plenty out there who would have creative solutions! -AE-

The Maldivian Way or The High Way

2009-02-22T08:49:00.000+05:00

Ever wondered what is meant by the Maldivian Way of doing things? Let me try highlight a few pointers on some of the things that have stood the test of time!

I did experience an era in which most of us lived in some sort of poverty. An era where you get a fully rationed biskoadhu and a cup of tea for breakfast. An era where you had only one uniform to wear for school. But before long, even I as a kid started experiencing the fair share of luxury from Gold Cup boots (to be worn at school) to riding the best of Motor Cycles. Lets have a look at some of the things that are significant enough to form the very basis of my initial question.

First there was Giffili which we obviously have had the negative experiences. When the so called faahaana came to the picture, every house invested on more than what was required. Every room needed an attached toilet!

I remember the times when I used to go to the house next door to make fone calls when Dhiraagu for the first time introduced the fone service. Once again before long, every individual ended up with a number of their own.

Television shared the same story. Its not only the sitting rooms that required a television, but most bed rooms had to have a television of its own. Probably the early 1990s saw the introduction of satellite channels, that black Dish that was the wholemark of every roof in male! No matter how rich or how poor you were, it soon became a basic necessity!

Late 1990s saw the coming of Mobile phones to the market. Every Maldivian, big or small, male or female, had to carry one in their pockets. And stop me if I am wrong, whether you earned a few hundred rufiyaa, you still claimed that you could afford those luxuries! A look at today reveals that, way before apple introduced its iPhone, most Maldivians had one in their pockets! Well … that’s a bit of an exaggeration, but you got the point right?

Look at the role of taxis in Male. Ofcourse it is a tiny little island but then again you couldn’t go from Henvieru to Maafannu on your foot! It has to be the taxi! What a way to live a life.

Add to this list how some of us spend weekends in Sri Lanka, buys flat screen televisions, wears a tag or another expensive watch, takes breakfast in café’s or perhaps can afford to pay Mrf40-50 for a coffee two or three times a day!

Living life in Male aint for the faint hearted for sure. Even world renowned economists wouldn’t have a clue of how the Maldivians function! They’d be amazed by what we do with what we earn!

I know that the list could go on and on and on. I am sure you’d have many more to add to the above list. Before I pen-off, lets have a look at what we have done as a nation to see whether we can depict any similarities.

I am not going to mention about the luxury yacht of the former president, nor am I going to dwelve on the expensive palace that he built to support his luxury life style. But lets take a look at two, quite extraordinary events. One which has long been history, and the other that’s not going to take too long before it finds its way into our lifestyles.

Passports! Obviously we all need a passport to travel. But what amazed me most was the fact that we were one of the first 10 countries to introduce e-passports to its citizens! Ofcourse there’s a price tag in obtaining these passports and that price would obviously be paid by our Governments!

Lastly to the more recent. But before I mention what this recent activity is, lets first paint an important picture. Just like the individual we depicted in the opening paragraphs who had to have that black satellite Dish on top of their roofs (discarding the question of affordability), we as a nation are living or perhaps moving into times that might question our affordability as a nation more than what we used to before. Just imagine this scenario; our politicians go to the world democratic market where they can buy and sell democratic products. The best ones would obviously have a price tag that’s as fat as building a gold palace or buying a luxury yacht. They check all products on sale and decides, hey hang on a minute, this Decentralization Program has it all from accountability to effective decision making. Lets buy it cos we as Maldivians would buy the best regardless of whether we could afford em’ or not!

I know … I know … not all would agree with me. But guys, I base my conclusions on facts which are clear and unambiguous. Facts which even the common man could agree or comprehend. From what I see, I tend to believe that the Maldivian Way has its flaws and when times calls for tough measures, I think our very own ways will tend to harm us more!
-AE-

Oil is cheap - as long as the supply doesn't run out

2009-02-16T11:49:00.000+05:00

As the world’s major economies are in a recession, the demand for oil has decreased, and as a result price of oil gone down significantly to record lows in recent history. When the major economies like Japan, China and USA are in an economic recession, manufacturing is expected to be down, and demand may not recover within the year. Then, we may see oil price lows of even $30 per barrel this year. According to Bloomberg, crude oil for March delivery is at $37.50 per barrel on the New York Mercantile Exchange in Singapore.

The price of oil escalated to $147 per barrel in July 2008 before it bottomed at about $37 early this year. As at today, the price of oil remains at $44.8 per barrel. Producers are said to be operating at near maximum capacity at about 89.5 million barrels per day. When the economic recessions are over, and then when the economies start their engines, the demand for oil may outrun the supply. And the price of oil is expected to hike up to even $200 and above sometime in 2010 or 2011. The main reason: as we are in the fight to the depletion of oil reserves in the world and this depletion is happening at an alarmingly faster rate.

Despite the limited supply of oil, the demand is expected to grow in the near future, as an average American uses two times the amount of oil used by a European, four times the amount used by Japanese, 12 times the amount used by a Chinese consumer, and 30 times that of an Indian consumer. This is when there are almost 3 billion people in the world living in poverty without the luxury of oil. Just imagine when these people are lifted out of poverty and start oil consumption, how the demand of oil is expected to grow. Bottom line: Unless we find a replacement to oil, the existing stock of oil is going to shrink day by day. Some estimates suggest that it may take 35 years from now for the oil to run out – that is assuming that there is no demand increase, or population increase.

Are we heading towards difficult times? Some inspiration by 'Maldive'

2009-02-11T16:34:00.000+05:00

Here's a comment by my good friend 'Maldive' to one of my previous posts.

I have been following the global financial crisis very closely n have been wondering about its impact to the Maldives. As my profession and background is very much in the financial and management side, I often wonder what can our government do to minimize the impacts of this recession the world is facing. I guess without a doubt we will be highly exposed to this recession come 2009.

The points you have posed are absolutely correct and the best part is that you have shown me that atleast there are some people in Maldives that are fearing about the impact of this crisis. It is rather sad realizing that our country is a victim of a new epidemic that’s spreading viciously from island to island, community to community, family to family and inviduals to indivudals.

What I am talking about is politics. Media headlines is all about Politics and nothing makes headlines if it is not politics. This is a sad dose of reality and I wish sooner rather than later we change this and start realizing that there are better things to life than just politics. Anyways, I am not here to talk about politics, and funnily enough my new year resolution is about totally stop talking about politics!I would like to mention couple of solutions that our government could start taking to help minimize the impact of this financial/ecomic meltdown. What I am about to highlight is twofold. One is actioning through spending and the other actioning through earnings.

Both related to the dollars or foreign reserves!When it comes to spending, we have to aknowledge that Maldivians are lavish spenders. Going to Colombo, Bangkok, Dubai, or India is more like visiting a next door neighbor. What we don’t realize is that the sum total of these spendings in any given year could reach to a significant amount of foreign exchanges leaving our own reserves and damaging the economy. Every dollar that leaves our nation is an outflow of foreign exchange reserves and these are more like just wasting our wealth! I think we need to educate us (the individuals) in stopping from spending lavishly on these unwanted trips!

Individuals can make a difference, and these individuals firstly needs to be taught of the consequences of their decisions. When it comes to earnings, I am highlighting the fact that we need to show our exporters (mainly MIFCO), the right way of doing things. I believe and I know this as well, MIFCO is renowned to be run very inefficiently! This is where we could generate huge cost savings (by finding ways of running as efficiently and effectively as possible) and ultimately pass those savings in terms of more effective and competitive pricings. Promoting our local stocks is another way of moving forward especially knowing that we rely so heavily on imported goods.

If MIFCO could be run efficiently, why not all Maldivians rely on their produce? If our fishermen can catch fish, why not we buy fish instead of chicken? If Srilanka can sell eggs, why not we start doing this in large scale locally? If we can sell eggs, why not we start selling poultry? My point is, we are capable of these things! My point is generating demands for local produce can help our economy big time and we will be able to minimize this risk that’s daunting our shores! Availability of fruits and veggies, kaashi and the baraboas, can also be done. Those farmers needs a little bit of a pat on their backs, and the full governmental support! These are the times in which our economic saviours will not be wearing a suit and sitting in the parliament wondering about what next to do with the thousands of irrational incomes they would receive at the end of the month! These are times where the economic saviours will be YOU and ME, the common man, or should I say that everyday fisherman or farmer that you picture wearing a sarong, a torn apart shirt, a funny hat, and lots of reddish nuts in their mouth!I also believe we need to do something about every dollar that leaves our economy via the remittances made by the expats.

Our workforce has a huge percentage of expats and every dollar that leaves our shores is a wound that our economy suffers. Its impact can only be realized in tough times and as we move into such an era, I guess our governments needs to come up with some creative means of holding on to these dollars. Cutting back on the expats could be one approach, but I don’t believe that’s the only approach either. We could easily devise a short term plan in which the banks could play a role in holding on to those dollars (maybe by way of a special expat saving scheme – or something!)!!!Anyways, as Naseer had highlighted, we are moving into some tough times, and I guess tough times calls on to tough measures. I wish to add just one word to Naseers final statement – Spend only what you earn WISELY!

The President attacks the Central Bank

2009-02-04T15:25:00.000+05:00

The President attacked the central bank of the country, MMA, in a press briefing on Monday, saying that MMA is delaying the process of granting license to three commercial banks to be established in Maldives. His exact words were like “I don’t know why it would take so long to put a stamp on a registry”. However, according to MMA only one bank has so far formally applied for a license as at today (http://www.minivannews.com/news_detail.php?id=5948). What we gather from the minivannews article is that although several banks have expressed interest and had meetings with MMA officials, there have been no applications so far other than the Russian bank. The President has with his harsh words, attacked the central bank of the country and in the process either he lied or did not have the correct information.

The President also declared that with the opening of new commercial banks, the US dollar shortage in the Maldivian market will be resolved. There was also a promise of revaluing Rufiyaa to Rf 10 per US dollar within the next five years.

The present shortage in the US dollar and the parallel (black) market is not a new phenomenon in the Maldives foreign exchange market. There has always been a mismatch between what we earn and the outflow of foreign currency in our economy, and this mismatch has grown alarmingly since 2004. However, the pressure to our exchange rate was disguised after tsunami when we had huge inflows of US dollars through international grants and loans. The existing commercial banks also borrowed from overseas and made US dollar loans to the private sector. All these factors helped in defending the current peg of 12.75.

Unfortunately in the last quarter of 2008, the overseas borrowings from the commercial banks and the injection of US dollars by these banks into the Maldives economy almost stopped. This is believed to be mainly due to the financial difficulties facing the global markets. The crisis has been in a way, a blessing in disguise, as external borrowings by the private sector and the government are all temporary solutions to the mismatch between the foreign currency that earn and spend. As long as we don’t increase the foreign currency revenue, there’ll always be pressure on our exchange rate and shortage of US dollars in the market. Hence, opening new branches of foreign commercial banks may not provide a solution to the problem.

Maldives economy is facing an economic slowdown, problems in the exchange rate, and high inflation. Many of the world economies are in a recession with low inflation. The exchange rate pressure and the high inflation is mostly a problem of our own making. It has less to do with the global economic recession.
The years of economic mismanagement and the financing of the government debt through increasing the money supply of Rufiyaa, has led to a boost in the domestic demand, and an increase in the domestic prices (inflation). While Europe and most other economies had below 5% inflation rates, our economy had 12% inflation in 2008. This inflation differential has put pressure on the real value of Rufiyaa in terms of other currencies.

It's times like these that a new President needs to work closely with the Finance Minister and the Governor of central bank in order to restore confidence. It's times like these, we need to show coordination between different economic agents in the country. But what do we see? The President attacking the central bank, as if the central bank belongs to the opposition party.

އިންފްލޭޝަން މައިތިރިކުރުނ

2009-02-01T15:29:00.000+05:00

ރާއްޖޭގެ އިޤްތިޞާދާއިމެދު ވާހަކަތަކުގައި ފަހަކަށްއައިސް އެންމެ ގިނައިން އިވޭ ވާހަކައަކީ މުދަލާއި ޚިދުމަތުގެ އަގުތައް (އިންފްލޭޝަން) މައްޗަށްދާވާހަކައެވެ. ނޫސްތަކުގައިވެސް އެންމެ ބޮޑަށް ފާޑުކިޔަމުންދަނީ ރާއްޖޭގައި އިންފްލޭޝަން މައްޗަށްދާކަމާއިމެދުއެވެ. އަދި އިންފްލޭޝަން މައްޗަށް ދިއުމުގެ ސަބަބުތައްވެސް ބަޔާންކުރަމުންދެއެވެ.
އިންފްލޭޝަންއަކީ ކޮބައިހެއްޔެވެ؟ އިންފްލޭޝަންއާއިމެދު އެހާބޮޑަށް ކަންބޮޑުވާންޖެހެނީ ކީއްވެގެން ހެއްޔެވެ؟ މިސުވާލުތަކުގެ ޖަވާބު އެންމެ ރަގަޅަށް އޮޅުންފިލުވައިދޭން އެގޭނީ ލެޓިން އެމެރިކާގެ ޤައުމުތަކުގެ މީހުންނަށެވެ. ބޮލީވިއާފަދަ ޤައުމުތަކުގައި އަށްޑިހައިގެ އަހަރުތަކުގައި އިންފްލޭޝަން ރޭޓް %600 އަށްވެސް އަރައިގެން ދިޔައެވެ. ދުވާލަކު ތިންހަތަރުފަހަރު ތަކެތީގެ އަގުތައް މައްޗަށް އަރައިގެންދެއެވެ. ކޮފީތައްޓެއްގެ އަގުވެސް މިލިއަނަށް އަރައިގެން ދިޔައެވެ. ފައިސާގެ އެއްވެސް އަގެއް ނެތިގެންގޮސް، ރައްޔިތުން ފަޤީރުކަމުގެ ޙާލަތަށް ވެއްޓި، އިޤްތިޞާދަށް ބޮޑުވަބާއަކަށް ވެގެންދިޔައެވެ.

މީގެ އިތުރުން 70 ގެ ކުރީކޮޅު އެމެރިކާ، އިގިރޭސިވިލާތް، ، އަދި ޖަޕާން ގައިވެސް އިންފްލޭޝަން މައްޗަށްދާންފެށިއެވެ. އަދި މިހާރު ރާއްޖޭގައި ވާހަކަދެކެވޭ ފަދައިން މީހުން މިކަމާއި ކަންބޮޑުވުން ފާޅުކުރަމުން ދިޔައެވެ. އަދި އަގުތައް މައްޗަށްދާ ސަބަބުތަކުގެ ގޮތުގައި ތަފާތު ވާހަކަތައް ދެކެވެމުން ދިޔައެވެ. އެމެރިކާ ސަރުކާރުން ބުނަމުން ދިޔައީ ކުންފުނިތަކުން މުސާރަތައް ބޮޑުކުރުމުގެ ސަބަބުން އިންފްލޭޝަން އިތުރަށް މައްޗަށް ދަނީކަމުގައެވެ. އަނެއްބަޔަކު ބުނީ އިންފްލޭޝަން މައްޗަށްދަނީ އިމްޕޯރޓްކުރެވޭ މުދަލުގެ ސަބަބުންކަމުގައެވެ. ބޭރުދުނިޔޭގައި އަގުތައް މައްޗަށް ދާތީވެ، އިންފްލޭޝަން މަތިވަނީކަމުގައެވެ. ބައެއް ޤައުމުތަކުގެ ސަރުކާރުން ގޯސްކުރަމުންދިޔައީ ޢަރަބި ތެޔޮ އުފައްދާ ޤައުމުތަކެވެ. އެއީ، ތެލުގެ އަގު ބޮޑުވުމުގެ ސަބަބުން އިންފްލޭޝަން މައްޗަށްދަނީކަމަށެވެ. އެކަކު އަނެކަކުގެ ބޮލަށްޖަހަމުން ދިޔައެވެ. އިންފްލޭޝަންގެ ވަބާއިން އެމެރިކާއާއި އިގިރޭސިވިލާތް ސަލާމަތްނުވެވިގެން އުޅެނިކޮށް ޖަޕާން އިންފްލޭޝަންއިން ސަލާމަތްވެ، އެހެނިހެން ޤައުމުތަކަށް މިސާލަކަށްވެގެންދިޔައެވެ. ޖަރުމަނަކީ ޤައުމަށްބޭނުންވާ ހުރިހާ ތެލެއް އެތެރެކުރަމުންދިޔަ ޤައުމެކެވެ. އެކަމަކު ޖަރުމަނުގައި އޭރު އިންފްލޭޝަންގެ މައްސަލަ ކުރިމައްޗެއްނުވެއެވެ. އެހެންވީމަ އިންފްލޭޝަން މައްޗަށްދަނީ ކޮންސަބަބަކާއިހުރެހެއްޔެވެ؟

ރާއްޖޭގައި އިންފްލޭޝަންގެ ސަބަބުތަކަކީ އެއްބަޔަކުބުނާގޮތުންނަމަ، އިމްޕޯރޓްކުރާ މުދަލުގެ އަގުތައް މައްޗަށްދިއުމެވެ. އަނެއްބަޔަކު ގޯސްކުރަނީހަމަ ތެލުގެ އަގުބޮޑުވުމެވެ. މާލޭގައި ގެދޮރުގެ ކުލިއަގުބޮޑުވުންވެސް އެއްބަޔަކު އިންފްލޭޝަން މައްޗަށްދިއުން މާނަކުރެއެވެ.އެންމެ ގިނައިން ދެކެވޭ ވާހަކައަކީ ސަރުކާރުގެ ބަޖެޓްބޮޑުވެގެންދިއުމެވެ.

އިކޮނޮމިކްސް ޢިލްމުގައި އިންފްލޭޝަން މާނަކުރެވެނީ މުދަލާއި ޚިދުމަތްތަކުގެ އަގުތައް ޖުމްލަގޮތެއްގައި ބޮޑުވަމުންދިއުމެވެ. މަހަކުން އެއްފަހަރު ގިނަ ޢަދަދެއްގެ މުދަލާއި ޚިދުމަތުގެ އަގުތައް ބޮޑުވާ ނިސްބަތް އިތުރުވަމުންދާނަމަ، އިންފްލޭޝަން އިތުރުވުން މެދުވެރިވެދާނެއެވެ. މީގައި ސަމާލުކަންދޭންވީ އަގުތައް ބޮޑުވާ ނިސްބަތަށެވެ. އިންޑިޔާގައި ކުއްލިއަކަށް ފިޔަލުގެ އަގުބޮޑުވެގެންދިއުމުން ރާއްޖޭގައި ފިޔަލުގެ އަގު ބޮޑުވެގެން ހިގައިދާނެއެވެ. އެކަމަކު، ފިޔަލުގެ އަގު ނުހިފެހެއްޓި މައްޗަށް އަރަމުންދާނަމަ، އެއީ އިންޑިޔާގައި ފިޔާއަގުބޮޑުވުން ސަބަބެއްކަމުގައިނުވެ ހިގައިދާނެއެވެ. ޢާންމުގޮތެއްގައި، އިންފްލޭޝަން މައްޗަށްދާނަމަ، ފައިސާގެ އަގުވެއްޓެމުންދާނެއެވެ. މަދު ޢަދަދެއްގެ މުދާގަތުމަށް، ބައިވަރު ފައިސާ ބޭނުންކުރަންޖެހިދާނެއެވެ. ކުއްލިއަކަށް، ޢާއިލާތަކުގެ ޚަރަދުތައް އިތުރުވެ، ލިބޭ އާމްދަނީއިން ދެކޮޅުނުޖެހޭ ޙާލަތަކަށް ވެއްޓިގެން ހިގައިދާނެއެވެ. މިހެންކަމުން އިންފްލޭޝަން ޙައްލުކުރާނީ ކިހިނެއް ހެއްޔެވެ؟

އިންފްލޭޝަންގެ އެންމެބޮޑު ސަބަބަކީ ސަރުކާރުގެ މާލީއިދާރާއެވެ. ނުވަތަ ސެންޓްރަލް ބޭންކެވެ. އިތުރަށް ފައިސާގެ ނޫޓް ޗާޕްކުރާވަރަކަށް (މަނީ ސަޕްލައި އިތުރުވާވަރަކަށް) އިންފްލޭޝަން ދުވަހެއްދުވަހަކަށް މައްޗަށްދާނެއެވެ. އެމެރިކާގައިވެސް އިންފްލޭޝަން އޭރު މައްޗަށްދިޔައީ މިސަބަބާއިހުރެއެވެ. ޖަރުމަނުގައި ދެވަނަ ބޮޑު ހަގުރާމައަށްފަހު އިންފްލޭޝަން އަތްނުފޯރާވަރަށް މައްޗަށްދިޔައީވެސް މިސަބަބާއިހުރެއެވެ. އެހެންކަމުން އިންފްލޭޝަން މައިތިރިކުރަންބޭނުންނަމަ، އިތުރަށް ނޫޓްޗާޕުކުރުން މަދުކުރަންވީއެވެ. ރާއްޖޭގައިނަމަ އިންފްލޭޝަން މައިތިރިކުރުމުގެ އެންމެ ބޮޑު ބާރުއޮތީ އެމް.އެމް.އޭ ގެ އަތުގައެވެ.

އެމް.އެމް.އޭ އިތުރަށް ނޫޓްޗާޕްކުރަނީ، ނުވަތަ މަނީ ސަޕްލައި އިތުރުކުރަނީ ކީއްވެގެން ހެއްޔެވެ؟ އެންމެ ބޮޑު ސަބަބަކީ ސަރުކާރުގެ ޚަރަދުތައް އިތުރުވަމުންދާތީވެ، މި ޚަރަދުތައް ފޫބެއްދުމަށްޓަކައި، ވަގުތީގޮތުން ހޯދަންޖެހޭ ފައިސާއަށްޓަކައެވެ. އެމެރިކާގައި 70 ގެ އަހަރުތަކުގައި އިންފްލޭޝަން އެންމެ ފަހުން ހުއްޓުމަކަށް ގެނައީ މަނީ ސަޕްލައި އިތުރުކުރުން މަޑުޖައްސާލައިގެންނެވެ. އެހެންކަމުން، އެމް.އެމް.އޭ އިން އެންމެ ފުރަތަމަވެސް ގޯސްކުރާނީ ފިނޭންސް މިނިސްޓްރީއެވެ. ފިނޭންސް މިނިސްޓްރީއިން ގޯސްކުރާނީ އެހެނިހެން މިނިސްޓްރީއިން ހުށަހަޅާފައިވާ ބޮޑެތި ބަޖެޓުތަކެވެ. އެހެނިހެން މިނިސްޓްރީތަކުން ގޯސްކުރާނީ ކާކުހެއްޔެވެ؟ ރައްޔިތުންނެވެ. މިނިސްޓްރީތަކުގެ ކިބައިން އެކިއެކި ކަންތައްތައް ބޭނުންވަނީ ރައްޔިތުންނެވެ. ފަޅުފުންކުރުމާއި، ބަނދަރު ހެދުމުގެ ވާހަކައާއި، ޓެކްސްޓްފޮތާއި، އެހެނިހެން ޚިދުމަތްތަކަށް ޚަރަދުކުރުމަށް އެދެނީ ރައްޔިތުންނެވެ. ރައްޔިތުންގެ ޑިމާންޑްތައް އިތުރުވާރަކަށް ސަރުކާރުގެ ޚަރަދުތައް އިތުރުވެ، ބަޖެޓް ޑެފިސިޓްވެގެންދާނެއެވެ. އަދި މިކަމުގެ ސަބަބުން އެމް.އެމް.އޭ އިން ނޫޓް ޗާޕްކުރުން އިތުރުކުރަމުންދާނެއެވެ. އިންފްލޭޝަން އިތުރުވާނެއެވެ. މިކަމުގެ ޙައްލަކީ ކޮބައިހެއްޔެވެ؟

އިލްފްލޭޝަންއާއި، އެހެނިހެން އިޤްތިޞާދީ މައްސަލަތައް ޙައްލުކުރުމުގައި އެންމެ މުހިންމު އެއްކަމަކީ ސެންޓްރަލްބޭންކް ފިނޭންސް މިނިސްޓްރީއާއި، ސަރުކާރުގެ ބާރުނުފޯރާ މުސްތަޤިއްލު ތަނަކަށްހެދުމެވެ. ލެޓިން އެމެރިކާގެ ޤައުމުތަކުންވެސް ފަހަކަށްއައިސް ހޯދާފައިވާ ކުރިއެރުމުގެ އެއް އަސްލަކީ ސެންޓްރަލް ބޭންކް އިންޑިޕެންޑެންޓްކުރުމެވެ. ދާދިފަހުން ރާއްޖޭގެ ސެންޓްރަލްބޭންކް، އެމް.އެމް.އޭވެސް ވަނީ ޤާނޫނެއްގެ ދަށުން މުސްތަޤިއްލުތަނަކަށްވެފައެވެ. އެހެންކަމަށްވާނަމަ، އެމް.އެމް.އޭ ގެ ގަވަރނަރަށް ފިނޭންސް މިނިސްޓްރީގެ ނުފޫޒު ފޯރައިގެންނުވާނެއެވެ. ގަވަރނަރަކީ، ފިނޭންސް މިނިސްޓަރު އަންގާހާ ކަމަކަށް ތަބާނުވާ، ފިނޭންސް މިނިސްޓަރަށް ޖެހިލުންނުވާ މީހަކަށްވާންޖެހެއެވެ. އެމް.އެމް.އޭ ގެ މުސްތަޤިއްލުކަން އެންމެ ފުރިހަމަ މާނައިގާ އޮތްކަމުގައިވާނަމަ، ރާއްޖޭގެ އިންފްލޭޝަން މައިތިރިކުރުމުގެ ބާރު އެމް.އެމް.އޭ އަށް ލިބިގެންވެއެވެ.

އަނެއްކަމަކީ ސަރުކާރުގެ ޚަރަދުތައް ބޮޑުވެގެން ދިއުމުގެ ވާހަކައެވެ. ރާއްޖޭގައި ފަހަކަށްއައިސް އިސްރާފުގެ ބައިވެސް ވަނީ ވަރަށް ބޮޑުތަން އިތުރުވެފައެވެ. އޮފީސްތަކުގެ ބަޖެޓުން ކޮންމެ މަހަކުވެސް އެތައް ފައިސާއެއް ތަފާތު ޙަފްލާތަކާއި، ރަމްޒީކަންކަމުގައި ބޭކާރުވެގެން އެބަދެއެވެ. ކުރެވޭ މަސައްކަތާއި އަޅާބަލާއިރު ސަރުކާރުގެ ވުޒާރާތަކުގެ މުވައްޒިފުންގެ ޢަދަދުވެސް ގިނަވެފައެވެ. ބޮޑެތި މުސާރަ ލިބޭ، ނަމަވެސް އެދެވޭ ޚިދުމަތެއްނުކުރާ މުވައްޒިފުންގެ ޢަދަދުވެސް މިވަނީ މާގިނަވެފައެވެ. އެހެންކަމުން އިންފްލޭޝަން ޙައްލުކުރުމުގައި، ފިނޭންސް މިނިސްޓްރީއާއި، އެމް.އެމް.އޭ ގެ ޒިންމާ ވަރަށް ބޮޑެވެ. އެންމެ ބޮޑު އެއް ޙައްލަކީ ސަރުކާރުގެ ސައިޒު ކުޑަކުރުމެވެ.

Will we increase the productivity by changing the working hours from 08:00 to 16:00?

2009-01-27T10:16:00.000+05:00

There has been a surprising change in the structure of civil service pay structure and the timing of government offices, to be implemented in February 2009. According to the press briefings and various interviews, there will be a slight pay rise to all government employees due to this sudden change, and starting from February 01st, the working hours of all government offices will be 08:00 to 16:00, with a lunch break of one hour from 12:00 to 13:00. The total working hours remains at 07, which was the same even with 07:30 to 14:30 as the official working hours. So, what is the objective of changing the work hours? What are we trying to achieve? Normally, one would expect an increase in pay rise to be associated with an increase in working hours in order to increase the aggregate output of the country. If the change does not increase the number of working hours, I don’t see too many economic benefits of simply starting 30 minutes late, and finishing 1.5 hours late, with one hour break in between (which becomes technically an unproductive one hour).

Due to this change, the civil service employees dependent on part-time employment are mostly to suffer. As many may not be able to continue their part-time jobs, and as a result lose a significant amount of their previous income. If the pay rise does not compensate such loss, then there will be a net loss in the economic welfare. The economy also loses as many leave their part-time employment. Normally, these part-time employments are placed in the private sector, and people are hired selectively based on productivity. This recent reform may in the end lower the productivity in the economy.

Brining our work hours in line with international practice is one of the reasons that were often heard as justification for the change in government working hours. In almost all other countries, people are required to commute hours to work every morning, thus justifies late starting time. But in Maldives, we could get to work within a maximum 15 minutes even in the largest islands in the Southern atolls. Starting our work even at 7:00 will not be a problem for us (Staff at schools start at this time even now). If our objective is to increase productivity, starting at 07:00 and finishing at 14:00 would be a much better option.

New resort developments: the lost revenue

2009-01-18T13:15:00.000+05:00

Maldives government has decided to grant an extension to all the new resort developers, so that they get an additional 12 months before they start paying rent to the government.
The lease agreement between the investor and the government requires the investor to start operations and start paying the lease rent within 24 months of the signing the agreement.
The decision by the government to grant an extension would result in a decline in the expected government revenue within the next 12 months, on top of the escalating government expenditures.
The delay in opening the new resorts for operation also means the lost revenue to the government through bed tax.

So, the delay and extension costs a lot to the government, and these factors make us wonder, why the delay in opening those resorts?

The leasing of islands for tourism development is carried out by the Ministry of Tourism and follows a model in which uninhabited islands are auctioned off in a bidding process with government publishing the criteria in advance.

The Ministry of Tourism embarked on an ambitious expansion of the tourism industry with 37 new islands opened for bidding in the period 2004-2006. The first round of developments was announced in 2004, with 11 islands being opened for bidding.

In 2006, with the new set of islands, government tried to be more transparent and objective and opened islands for bidding under the ‘open-rent’ and ‘closed-rent’ categories.

If we were to construct a model for determining the probability of opening a resort for operations within 24 months of awarding the island, it would depend on the following factors: availability of investment finance; management expertise; location of the island; proposed lease rent; assuming all the other factors remain the same.

The availability of investment finance or the ability of obtaining debt finance from banks is linked to almost all the factors mentioned above. For example, the higher the proposed lease rent, the lower will be the profitability, and thus feasibility of the investment. The location of the island has significant implications on the transportation costs and the construction costs of the island, and thus affects the prospect of obtaining finance as well.

The lease rent plays a major and a significant role in making the investment worthwhile, and thus the sustainability of the venture. Hence, bidding procedures need to be de-linked to the rent component in order to make new resort developments a success. The policies adopted in 2004-2006, especially in the case of the ‘open-rent’ category of islands, has done nothing but inflated the lease rents above the true market value. As a result, new investors are struggling to obtain the necessary finance.
If these islands were awarded with industry average lease rents, the probability of getting those islands opened would have increased, and with it the government revenue through bed tax.
Sustainable tourism development is much more important than trying to squeeze short-term gains through high lease rent payments. Sustainable it can be made only through allowing true market values to be reflected in the lease rents.

"Will increasing the incomes of all increase the happines of all?"

2009-01-15T08:42:00.000+05:00

Few years back a group of economists conducted a study in which they compared the happiness levels of societies across the world. One of the questions they raised was “will increasing the income of all increase the happiness of all?” When we think about it, most of the time we relate people’s financial well-being with happiness. If this is true, the happiest people in the world would be the wealthy population.

Addressing this issue at a micro level, you may expect your happiness level to increase a little bit, if there is a bit increase in your monthly income. With the rise in income, probably you would be able to afford more leisure, fancy goods, or a nice home. Will any additional rise in income increase your level of happiness? According to those economists, happiness often depends on relative income as well. If your income doubles, and at the same time, incomes of your neighbor and friends triples, then it may not increase your happiness level. If your income doubles, while incomes of all the others remain the same, then will you feel happier? Depending on the answers that we give these questions, it may be true that increasing the income of all may not increase the happiness of all.

We may bring political reform with it provide us many civil liberties. We need economic reforms, with it should provide a livelihood. We also need social reforms, so that we can achieve the kind of ‘happiness’ that I’m talking about.

We may establish a society based on good democratic principles and even progress economically. However, economic progress not necessarily means improvement in living standard. With a rise in income level, there must be mental happiness, and the emotional well-being of the people in the country. Economic development if achieved at the expense of a wealthy society with high suicide rates, increased crimes, and broken families, then increasing the incomes alone may not the improve the happiness of all.

Discussion with Economists: youth, employment & wave motorcycles

2009-01-08T15:08:00.000+05:00

I thought of sharing the views and ideas expressed in our various discussions as it might help many others and trigger the thought process, and lead to useful recommendations for development policies.

Majority of the youth aged between 18-35 at present fall under a unique category when we compare it to many other countries in the world. In most other countries, when a young person graduates from college and enter the job market, have many aspirations like owning a house, a car, or a good pension (retirement plan). In Maldives (particularly, in Male’) : a ‘wave’ motorcycle, or probably a small 12 x 10 bedroom. There’s no motivation or a driving force for most of the youth to get a good job and work hard to earn a good living. Earn all that money for what? We can’t own a decent house and have a quality life. The most we can fulfill is to own a motorcycle and ride for 30 minutes every night. Some of the tsunami victims who live in temporary camps, when given a little money chose to own a ‘Lifan’ motorcycle, that happens to be parked outside the ‘tent’. Bank of Maldives availed Rf15,000 soft loans out of the proceeds of international aid after tsunami. Most of these loans were being used to purchase motorcycles on installment.

The bottom line is, we need to induce a motivation within the youth, so that they have at least something to work for. When there’s no important goal in life, when hard work and earned income doesn’t provide them an incentive to lead a better life, we may not be able to solve the youth employment problem. We may not be able to reduce the expatriate labor force.

Discussion with fellow Economists -political economy

2009-01-07T14:09:00.000+05:00

Last night I got the privilege of having a meaningful and very fruitful, and inspiring chat with four of the most prominent and experienced Economists in Maldives. It was just a friendly coffee and happened to last for four hours. We discussed various issues in our economy; including but not limited to; the nature of the political economy in Maldives, current financial turmoil in the world, dollar liquidity in the market, and youth employment problem in the country.

The political economy in Maldives, as it happens in many other developing poor countries is very much depressing. The President we had for the last 30 years had absolute power, the means and a few capable minds to shape up and ‘sequence’ the correct economic measures and bring about much needed economic reforms to our country. However, he provided the opportunity to those businessmen to pat on his back, and as a result, these businessmen were rewarded with ‘resorts’ and many other privileges with the blessing of the government, and at the expense of the rest of the Maldivians. These powerful businessmen then hindered the economic development of the whole country in many ways, and enabled them to establish and maintain a monopoly on major sectors of the economy. They try to squeeze as much of the scarce available wealth and resources in the country with the help of the government and the President. The mistake made by the President: to let the businessmen pat on his back!

What has happened since then? The same businessmen contested for the parliament and controlled seats in the parliament while under oath to serve and protect the rights of the fellow citizens. But, it is their self-interests that they are protecting. Their own businesses that they want to grow - At the expense of the rest of the people in the country.

I should write about the rest of the discussion at a later time.

Can our country afford these political games??

2009-01-06T09:10:00.000+05:00

Yesterday I read an article from one of the newspapers that talked about an interview of the Press Secretary at the President's Office, and according to the article, the President has somehow obtained legal opinion from somebody and is considering declaring 'state of emergency' in order to conduct parliamentary elections. It'd be a dissapointment to those who love democracy, to see one of the three powers, 'Parliment', to be declared void, and the Executive taking charge in the absense of a parliament. I don't understand a way the President can actually call for an election when the constituencies and other laws are still not being determined.

There are a group of parlimentarians and other politicians who want the President to do such a mistake, and prove to all of us, what a great 'dictator' Nasheed can become. There are also a group of parliamentarians who deliberately wants to go against the spirit of the Constitution by supporting to take leave. There are a group of parliamentarians who think that the Constitution was made by them, so they can act as they will and interpret the constitution their own way. There are group of parlimentarias who just cant let go the high salaries and the privileges that come with the job.

My question is, can we at all afford all these politics at this time? It was only three months ago when these politicians appeared on tv and declared that Bank of Maldives is bankcrupt, that the whole economy was collapsed, and so many other things. As a result, public confidence towards banking system, economy, and the government went to an all time low. Our economy is still suffering from that low confidence, and as a result undesired speculations.
After all the dirty tactics and the political games, at last the people have decided, and a new government has been formed.

The National reserves are very low, fiscal deficit is very high, and the economic growth is slowing down. The world economies are in a recession, and there is fear of our economy going into a deep recession if we dont take prudent measures to revive the economy. At a time like this, do we still continue with playing political games,; declaring emergencies, protecting self-interests?? and what not.

It is a time to unite together. Work with the government, private sector, and the people to re-build the nation. It is time for us to put our national interests ahead, and try our best to survive the global economic down-turn. It is time to end these political games and move on.

The Economics of Corruption

2009-01-03T01:15:00.000+05:00

Corruption is one of the serious diseases that a society has, and detrimental to the economic development of a country. It is often corruption at higher levels that significantly harm the welfare of the society, and impact the economy unfavorably. For example; a huge loan of $30 million for a highway or road project such as the Addu Link Road Project, if at some point a senior official takes a ‘cut’ and as a result only $27 million is actually spent on the project. The society loses due to the poor standard of road construction, and additional funds need to be spent for unnecessary maintenance of the road.

Same goes to harbors, airports and other major infrastructure projects mismanaged due to corrupt officials or managers who choose to satisfy their personal gains at the expense of the society. The economy suffers from unutilized resources as a result of corruption.

Corruption in Maldives is also at an alarming level, according to the recently updated corruption index by the Transparency International. In order to combat corruption and minimize it, we need to understand the economics of corruption at a micro level.

As an individual (especially a person at an influential position), a person chooses to get ‘corrupt’ after making a simple cost-benefit analysis of the situation. The individual makes a rational decision based on this analysis. The benefit to him/her would obviously normally be the amount of money that he gets to put in his pocket from the ‘inside deal’. The costs will be the penalty he has to pay in the event that he gets caught. Hence, the probability of him getting caught, and the penalty he pays play a key role in deciding whether to get corrupt or not. If the person believes that the probability of getting caught is very low, given the loopholes in the system, then there is a higher tendency for getting corrupt. On the other hand, even if the probability of getting caught is high, however, the penalty is very low, then, it makes sense to take the risk of getting corrupt. If the penalty is very high, but the probability of getting caught is pretty low, then the person would have to make a decision considering the benefit (amount of money) he gets to keep.

Based on the above analysis, policy makers have a simple formula that can be used to combat corruption. Either increase the penalty or design the system in such a way to increase the probability of getting caught. In the case of Maldives, what we have seen in the past 10-20 years is that people get caught, or corruption cases are well known in the society, however, the penalty is sow low that corruption has grown and become very popular. Then again, I sometimes ask, how high can the penalty get? Death? If a person is caught on a corruption case exceeding one million rufiyaa, he will get death penalty! Wow. Does that sound reasonable? Will people accept executing a person for getting a little greedy and taking a few bucks from our money?
The perception of the society towards corruption also plays an important role here. If it is perceived ‘ok’ to be corrupt, and a short-cut to getting wealthy, then incidences of corruption may increase. On the other hand, if corruption is generally perceived as a bad thing, and anybody who gets caught has to face the ‘disgrace’ from the society, it could be one other factor the person would consider when choosing to get corrupt.

Hello 2009 !

2009-01-02T11:40:00.000+05:00

Wishing everybody a happy new year, and hope that it'll be a successful year for all of us. As we enter 2009, the world is facing its worst economic recession since the Great Depression of 1930s. The American economy is facing deflation as the price of oil has declined to a record low of 37 dollars after hitting a high of 146 dollars in July 2008. It is predicted that price of oil may fall to even 20 dollars within this year, meaning deflationary fears throughout the year. Prices of major commodities are also falling, and major commodity traders like New Zealand, Australia, and Canada all fear economic slowdown within this year.

At a time like this, what's happening in our economy? We sure are not facing deflation. Government expenditure (especially current expenditure) is accelerating each month, with it the government fiscal deficit. Last three years of fiscal mismanagement has led to unsustainable levels of government deficit. It is estimated that the total fiscal deficit in 2008 exceed Rf5 billion. As part of this deficit was financed through the central bank, inflation is on the rise.

The european and the world economy has entered a deep recession, and tourism revenue is expected to decline in 2008. However, the newly elected government seems determined to fulfill all its campaign promises, and the people have all their expectations at the highest level. Current expenditure is expected to inflate further with the ever increasing political posts being announced almost every week. Newly formed independent institions and commissions also demand higher expenditure for their salaries and running costs. All these expenditures - mostly unproductive, and politically motivated, aren;t doing much good to the economy and the productivity of the country. When the economy is not growing, the living standard of people will not increase.
For all these reasons, and many more, it is critical that the President and the officials in the President's Office involved in formulating policies understand the economic reality of the situation our country is at present. They need to understand the implications of their policies to the economy. More specifically, the fiscal deficit and the resulting government debt of the country.

US Dollar please...

2008-12-31T10:19:00.001+05:00

Maldives had a free floating exchange rate between 1987 and 1994, and the exchange rate of US dollars in terms of rufiyaa ranged between 8.50 and 11.50. In 1994 Maldives moved to the pegged exchange rate regime that we have at present, where the value of rufiyaa is pegged to the US dollar, and exchange rate of rufiyaa in terms of other currencies are determined depending on the cross rates between dollar and those currencies. Many other emerging economies adopted a similar exchange rate regime, their currencies pegged to the US dollar, since the formation of the Bretton Woods institutions, as the dollar became a safe reserve currency.

On July 25, 2001 the rufiyaa was devalued by about 9% and a result nobody is allowed to sell US dollars at a higher rate than 12.85 and not allowed to buy at a lower rate than 12.75 rufiyaa. Recently we have been facing with a shortage of US dollars and as a result there are reports of a parallel market where US dollars are bought and sold at rates as higher as 14 rufiyaa. Some have questioned the effectiveness of the current exchange rate regime, asked about the possibility of moving towards a free float of rufiyaa.

Economists make use of the term real exchange rate (rer) and nominal exchange rate (ner) when trying to determine the equilibrium exchange rate. The 12.75 rate we see advertised is the nominal exchange rate of US dollar in terms of rufiyaa. So what is the real exchange rate of rufiyaa? It has to be calculated using the price level (inflation) of Maldives and the price level of our trading partners. The rer can be calculated using the following formula:

rer = ner x P/P*

where P* is the price level of foreign countries, and P being the price level of Maldives. In this case, if suddenly the price level doubles in Maldives (high inflation), then the real exchange rate will be twice the nominal exchange rate. If the nominal exchange rate is 12.75, then the real exchange rate would be 25.5.
It means there will be a mismatch or a pressure of the rufiyaa to depreciate towards 25.5 if it was left to the free market to decide, because one dollar is actually worth 25.5 rufiyaa.

On the demand and supply side, the exchange rate is influenced by the demand for and supply of US dollars in Maldives.

We earn US dollars through:
tourism revenue,
export of fish products, and
export of little amount of jet fuel

Plus
Grants and loans from abroad

We spend these dollars on:
import of goods,
expatriate workers’ remittances
pay back our overseas loans, and
holidays (trips) abroad

Plus
Repatriation of profits by foreign companies

In order to avoid a liquidity mismatch in the foreign exchange market, the total demand for US dollars must not exceed the supply of it. In other words, the amounts we spend on imports and other uses mentioned must not exceed the inflows.

According to the available statistics, Maldives had a deficit in the current account exceeding $100 million since 2004. We are spending more than we earn from tourism receipts for our imports and travel abroad. This means, at any given time, our demand for US dollars exceed the supply of it from tourism and exports.
However, we have not felt a shortage of US dollars in the last few years because foreign agencies have always been very generous and been giving us grants and loans, so that there is an inflow of US dollars.
Private companies have also been borrowing heavily from overseas banks, so that there have been US dollar liquidity in the economy. The branches of foreign commercial banks in Male’ (like SBI, BOC) have been supplying the local businesses with US dollar loans through borrowings from their head offices overseas. The reality: the mismatch between US dollar demand and its supply has been met through temporary solutions; that being; grants and huge loans by government and private entities, for the last 5-6 years.
This cannot continue for very long. When the government and private debt reach to unsustainable levels, we cannot continue borrowing. We would have to spend from what we earn, once again.

When the central bank announces an exchange rate for the rufiyaa as 12.75 and 12.85 for its selling and buying rate respectively, then it has an obligation to buy any amount of US dollars presented to them at the announced rate, and to supply any amount of dollars at the buying rate. In this process, the central bank may be actually depleting its reserves, given that the announced exchange rate is nowhere near the equilibrium exchange rate in the free market, which depends on the actual demand and supply of US dollars.

The equilibrium exchange rate as I have said depends on the relative price levels between Maldives and our trading partners, and the demand and supply of US dollars in the market.

What is the best exchange rate regime for us? I think we need to determine the market rate of rufiyaa in terms of US dollars if it was to freely float in the market. Without knowing the market rate, our true economic fundamentals will not be tested. This can be done by a temporary float of rufiyaa for a few months.

There have also been the idea of pegging rufiyaa to euro instead of the dollar. The basic argument is that we earn foreign exchange through tourists from europe. In that case, tourists can be required to pay euros when they make holidays in our resorts. However, almost all importers have to pay US dollars to their suppliers as the invoice prices are quoted in dollars.

Another option could be full dollarization of the economy, whereby we abandon the rufiyaa and make the US dollar as our currency. In that case, we wont have to worry so much about inflation, as the US economy has been famous for having lowest levels of inflation. However, this might not be a very favorable option politically, as some might put forward the argument of losing our sovereignty. Many European countries have abandoned their currencies when they adopted the euro. Maybe we can us ask them how it felt, losing their sovereignty.