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.
Friday, June 26, 2009
Friday, June 12, 2009
The deteriorating social capital
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.
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.
Thursday, June 11, 2009
Fiscal Discipline
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!
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!
Monday, June 8, 2009
Monday, June 1, 2009
Civil Servants and Politicians
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!
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!
Tuesday, April 28, 2009
The deadly outbreak of swine flu and its economic impact
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.
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.
Sunday, April 26, 2009
A million dollars per month: price of political reform
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.
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.
Tuesday, April 21, 2009
Change we need
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
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
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
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.
Sunday, April 12, 2009
Does anyone care?
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.
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.
Thursday, March 19, 2009
Lower salary vs unemployment
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.
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.
Wednesday, February 25, 2009
Decentralization? Decentralization? And more Decentralization?
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
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
Tuesday, February 24, 2009
Doctors, teachers, lecturers and state attorneys go on stike to demand pay rise - Can they buy more?
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?
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?
Monday, February 23, 2009
Economic Tsunami & The sPackage
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-
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-
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