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
Tuesday, December 29, 2009
Monday, December 14, 2009
Sea level Raees
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.
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.
Wednesday, December 9, 2009
Random thoughts on 2010 government budget
I’m still not very much convinced that we’ve formed all these independent institutions with their fat salaries, at the right time. I know, we need political reforms, we need to protect human rights, we need to maintain police integrity, all this and that. But first of all, we should be able to afford all this. Looking at the 2010 budget, we are spending about Rf 12 million on human rights commission, Rf 14 million on anti-corruption commission, and a combined Rf 10 million on police integrity commission and the employment tribunal. A grand total of Rf 463 million for the budget of all the independent institutions. On the other hand, a mere Rf 14 million for teacher training faculty, Rf10 million for training nurses, Rf 5 million for faculty of tourism.
From an economic point of view, the latter expenses will definitely directly contribute to the productivity of the labor force, and GDP of the country. What we spend on teacher training, nurse training, and even training for tourism personnel are future investments with high economic returns. But, Rf 12 million for human rights commission?? I’d like someone to explain to me, or justify why we should spend that much money on that institution. And Rf 14 million on anti-corruption? I’d definitely would like to conduct a study to find out how corruption is decreasing in our country, and how much corruption money is ‘saved’ as a result of the efforts of this commission. Then it’d be easier for us to justify spending that money.
I think we need an effective system that can measure, or determine the productivity or the effectiveness of all these independent institutions. At the moment, it seems that most of these institutions are just a means of providing employment, with ‘fat’ salaries and allowances. The end result is that we end up with a wage bill of almost Rf 4 billion for 2010.
Recurrent Expenditure
Even the 2010 budget has an extremely high percentage of recurrent expenditure (70 percent), just like the past years. Tragedy is, out of the Rf 11.9 billion budget proposed for 2010, Rf 4.6 billion would be the deficit, that has to be financed mostly through loans. Which means, our children will pay for our salaries, as these debts will be repaid in the days to come. I say, if we are taking loans, or incurring debt now, such funds should be spend on capital investments that will be beneficial even for our children, especially if we are asking them to pay part of it. Our recurrent expenditures should be financed through the revenue that we earn now.
Dhiraagu shares
The shares we own in dhiraagu, I’m sure it’s a capital investment, as we earn dividends every year. And the company pays well. Last year, the company paid the government over Rf392 million as dividends, this year we expect it to be over Rf 447 million. However, according the proposed budget numbers, in 2010 we are expecting only Rf 166 million. Meaning, Rf 280 million less than this year. I’m sure that this is partly because the government has sold part of its shares recently for a sum of $40 million. By selling these shares, we’ve reduced our share of future dividends. If so, I’d like to find out, HOW DID THEY SPEND THAT $40 MILLION?? If this $40 million is also spent on recurrent expenditure, then it’s a pretty stupid thing hu? But, if we invest that $40m on something productive, its completely a different story.
Revenue estimates
It’s a good move by the government to go towards business profit taxation and having an ad valorem tax on the tourism sector. That’s the ultimate and the most sustainable form of government revenue. But the Rf 300 million revenue from business profit tax in 2010,, I don’t know how realistic it is, as there are many legal and administrative pre-requisites for it to become a reality.
The Rf 1.3 billion to be raised from privatization; I would want to know the details of how they plan to obtain it.
Final thoughts
Government needs to figure out ways to reduce its recurrent expenditure, including those of the independent institutions. And these recurrent expenditures have to be covered only through the revenue that is earned. Definitely not through selling shares of revenue earning corporations.
So many mistakes have been made in the past; like collecting advance lease payments from resorts, and they have been spent on recurrent expenditure. In order to avoid reliance on ‘once-off’ extra ordinary revenues, a good tax system needs to be put in place. Working towards introducing business profit tax, and having a GST on tourism is also a good thing.
Sunday, December 6, 2009
Government sells T-Bonds
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.
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.
Friday, August 21, 2009
Ramal'an Mubarik to all
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.
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.
Monday, August 10, 2009
The state of our economy: will we survive this crisis?
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.
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.
Friday, June 26, 2009
Reducing import tariffs: Will it bring down prices?
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.
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 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.
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