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State of the Maldivian economy: Who’s lying? President Nasheed or Maldives Monetary Authority?

The state of the Maldivian economy has declined sharply since November 2008. The Maldives Monetary Authority reported in May 2009 that the real economy has decelerated in 2009. The MMA’s April 2009 Quarterly Economic Review projects that GDP growth rate will be -0.3% in 2009, as compared to 5.8% in 2008. It projects that real output will contract by 1.3% in 2009. The MMA forecasts tourism to decline by 11% in 2009 while the construction sector is projected to decline by 24%.

This tale of economic collapse continues, as the MMA reports that consumer price inflation in March 2009 was 11.2%, much higher than the 8.2% inflation in March 2008. However, President Nasheed speaking to press on May 20th, just days after this MMA report, stated that his government had brought national inflation down from 12.06% to 10.38% since last year. Inflation is mostly contributed by the price of food, transport, health and housing. The MMA report used data up to May 5.

President Nasheed also told press on May 20th that the number of upmarket tourists had not declined much. He noted that the number of midmarket arrivals had fallen. The President’s Press Release of the day notes that President Nasheed “did not find this decline alarming”. However, just days before President Nasheed declared his lack of concern the MMA reported that tourist arrivals fell by 11% in the first quarter of 2009, as compared to the corresponding period in 2008. Similarly, bed nights also decreased by 9% during the period, and the capacity utilization of the industry dropped to 85%, as compared to 94% in Jan-Mar 2008 (MMA, May 2009).

Nasheed (left) with Finance Minister Ali Hashim

Speaking on fisheries, President Nasheed failed to mention that, although the country had relatively good catch during the first quarter of this year, fishers had to throw away their valuable catch. According to the MMA, cumulatively, during the first three months of 2009, fish catch increased by 8 percent from 25.5 thousand metric tonnes to 27.5 thousand metric tones. However, fish purchasers such as the government company Maldives Industrial Fisheries Company were ill prepared to purchase this catch. MMA reports that fish purchases by commercial buyers plunged by 45% from 15.1 thousand metric tonnes in Jan-Mar 2008 to 8.3 thousand metric tonnes in Jan-Mar 2009. This means that, where in 2008, fishermen were able to sell 59% of their catch, in 2009 only 30% of their catch was bought. This would thereby halve their income for the period, as compared to 2008.

The volume of fish exports also sharply declined by 54% compared to the corresponding period of last year. Similarly, earnings on fish exports also took a nose dive, falling by 54% from US$40.6 million in the first three months of 2008 to US$18.6 million in the same period of 2009 (MMA, May 2009). This is a $22 million reduction in export earnings to the country in just the first three months of 2009.

In his briefing on the state of the Maldivian economy, President Nasheed didn’t mention the collapse of the construction sector, a key driver of growth over the last 5 years. The MMA attributes this collapse (a 24% drop) to the government’s financing difficulties with its capital projects, and due to slow down in tourist resort development projects.

To cap it all, the overall deficit of the 2009 government budget (minus the recent supplementary budget) is projected to be Rf. 4.8 billion (28% of GDP). Total revenue is projected to decline by 9%, while total expenditure and net lending is projected to increase by Rf 1.9 billion (71% of GDP). The decline in revenue comes mainly from the decline in import duty and tourism bed tax. This is in contrast to an increase in revenue in 2008 by 5%, with a budget deficit of Rf. 2.2 billion (14% of GDP). Total expenditure and net lending in 2008 was equivalent to 63 percent of GDP. The MMA reports that the government expects to finance the 2009 budget deficit from external (70%) and domestic sources (through adoption of the proposed new revenue measures).

On top of this, in mid May, President Nasheed’s government passed through parliament a supplementary budget of Rf. 12.5 billion. Although this was 8% less than what the government initially proposed at the beginning of the year, the supplementary budget itself has a Rf. 2.23 billion deficit. This takes President Nasheed’s cumulative budget deficit for 2009 up to Rf. 7.03 billion. This brings the 2009 budgetary deficit to an alarming 41% of GDP.

President Nasheed came into power with continuous criticisms of what he called the Gayoom government’s “high” budget. These criticisms were most severe in mid 2009, primarily aimed at the then Finance Minister Gasim Ibrahim. Nasheed’s crony MP Ibrahim Mohamed Solih of Nasheed’s Maldivian Democratic Party (MDP), MDP MP (Jesus) Hassan Afeef and MDP MP (Reeko) Moosa Maniku were the most vocal in calling for Gasim Ibrahim’s resignation citing mismanagement of the budget. It is to be recalled too that even then, Auditor General Maakun Naeem stepped in with his staunch support to MDP.

President Nasheed with Auditor General Maakun Naeem (left)

Maakun Naeem quickly released a hastily done audit of the 2008 budget up to the time that the MDP launched its attack in parliament. This two pronged attack largely triggered Gasim Ibrahim’s resignation as Finance Minister last year.

President Nasheed’s core election promises included slashing government spending and increasing government revenue. As can be seen above, under President Nasheed, government spending has not been slashed, but on the contrary, increased by more than 30%. Revenue generation is projected by the MMA to decrease by 9%.

Foreign investment and grant aid were promised by Nasheed as his sources of revenue. Speaking at Dhaalu Kudahuvadhoo on March 16, President Nasheed told the public that a lot of foreign investors were interested in investing in the country (President’s Office Press Release #2009-240). Speaking at Alifushi on April 19, President Nasheed also stated that “the foreign company bringing the harbor would be coming the very next day”.

However, as with the 25,000 social housing units he announced in November 2008 as donated by the Chinese Government, these foreign investors too have yet to show up. Within a few days of Nasheed becoming president, the 25,000 free public housing units metamorphed into 10,000 commercial flats. The promised donation by the Chinese Government is no longer mentioned by the Nasheed government. The promised flats are now reportedly on offer for any foreign investor wanting to invest into housing in the country.

Speaking at the parliament opening on March 2, President Nasheed said he did not believe that it is viable to provide basic utilities from the government budget. He said that this money would come from public private partnerships. “Our aim is to secure investments at least 500 million U.S. dollar to achieve these objectives”, President Nasheed stated (President’s Office Press Release #2009-195). This appears to be in addition to the US 300 million dollars in free aid promised by President Nasheed in his first budget. The promised 300 million dollars of free aid turned out to be a Rf 203 million loan taken by the Nasheed government from the MMA in November 2008. This was quickly followed by a Rf 208 million loan last December, and a Rf 176 million loan in January this year, all from the MMA.

In the same speech on March 2, President Nasheed remarked that expenditure was higher than revenue for most of previous government’s tenure, a statement that is shown to be untrue according to MMA long term statistics. Nasheed reiterated his government would execute solutions to what he saw as the country’s economic and fiscal situation (President’s Office Press Release #2009-195). As can be seen, President Nasheed’s solutions include a first budget with a deficit of Rf 7.03 billion, which is Rf. 4.83 billion more than Gayoom’s last budget deficit.

The Nasheed government will be taking the country into deficit by a further Rf. 7.03 billion although it will be earning 9% less revenue than 2008. Further, with GDP growth now projected to fall to -0.3% compared to the 5.8% growth in 2008, the Nasheed government will be taking budget deficit up to 41% of GDP. This is a dangerously high level. It is a 34% jump from Gayoom’s 2008 budget deficit of 14% of GDP. Perhaps President Nasheed’s promised revenue solutions are the currently increased fines levied on the general public, and his recent whole sale pardoning of millions in over due tax payments by the tourism sector which financed MDP’s war on Mr. Qayyoom.

Nasheed being congratulated while industry kingpin Koli Mohamed Maniku looks on.

The question to the public is whom they will believe on the state of the Maldivian economy, President Nasheed or the Maldives Monetary Authority?

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