On the Brink of a Budget Crisis

Maldives national budget is on a collision course with a cash crisis, as warned by International Monetary Fund (IMF). Actually IMF need not have bothered: All the signs of an impending crisis are painfully obvious to all of us.

All major sources of government revenue are ebbing. While a global economic crisis has decimated tourist arrivals, Mother Nature has also not been kind to us in the fisheries sector. Fisheries earnings have come down 54% from $46.1 million to $18.6 million in the first quarter of this year. Tourist arrivals have come down 10% from 266,877 to 239,355.

As a consequence of this, Government revenue has gone down 34% in the first 3 months of this year compared to the corresponding period last year. However the expenditure has been uncontrollably escalating during this period. As a result, the gap between revenue (Rf 1.6 billion) and expenditure (Rf 2.28 billion) has widened to Rf 937 billion.

The crisis is largely due to a series of ill-advised and unrealistic pay hikes. In the search for a solution to this the government is stuck between a rock and hard place. One solution is an across-the-board salary cut of about 30%. The other is a devaluation of the Rufiyaa by the same percent. Politically speaking, both are equally unpalatable.

How did we land in this impasse? Here is the timeline for the genesis of the crisis:

• January 2008: Government employees' salary increased by 16 to 60%.
  
• February to April 2008: A reckless spree of double and triple promotions to senior government employees adds to the salary burden.
  
• April 2008: Majlis passes Employment Law, which introduced unaffordable overtime payments.
  
• May 2008: Salaries of magistrates and judges increased.
  
• June 2008: Majlis Members decide to hike their own salary, triggering a series of strikes by different sectors for further salary increases.
  
• September 2008: Majlis endorses a salary hike for independent commissions.
  
• February 2009: New salary structure implemented, which cost the exchequer an additional one billion rufiyaa for the year.
  
• March to May 2009: Civil Service introduces a wide range of allowances, adding to the burden of unpaid wages.