How did we get here?

“The farther backward you can look, the farther forward you are likely to see.” – Winston Churchill

This is a personal reflection on the reasons that led the ship of state towards choppy fiscal waters. An attempt to an understanding of not just how, but why we got to white water. This essay, while lengthy, shall not attempt to offer prescriptive solutions.

 A. Ill-discipline of successive governments

Maldives have, for a considerable period of time managed, dare we say, a ‘healthy budget’ deficit. It has waxed and waned depending on circumstances, often due to external circumstances, but not always so.

Even while the last piece of straw should never be indicted for breaking the camel’s back, it is evident that it is the gratuitous heavy deficit financing of the past few years, that have brought us to these troubled waters.

The Widening Fiscal Gap

This impact of external circumstances in the widening Fiscal Gap is neatly demonstrated during the 2008-2010 period when the world was recovering from the Housing Market collapse of 2008/9. Again the 2020- 2021 gap is clearly a result of the Covid pandemic and lockdowns we all sludged through.

However, widening from 2020 on (shown in red in Graph 1), after both national and multi-lateral institutions had declared that the country had recovered from the Covid pandemic, is best explained in reference to the local political context. We shall mostly focus on this the, 2020-2024 period through this analysis.

Warnings from IMF and World Bank

The IMF and the World Bank had, similar to their work in other countries, been reporting publicly on the darkening of our fiscal landscape for some period of time. In August of 22, World Bank issued their ‘Public Expenditure Review’ highlighting areas of concern. After noting that ‘Maldives have made a remarkable recovery from the historic recession induced by the Covid-19 pandemic’ (World Bank, August 22, p.12) the report than laid out major areas of concern including 2 separate chapters titled, ‘Public Spending’ and ‘Fiscal Risks from state owned enterprises’.

Instead of examining the minutiae of the succeeding World Bank reports we shall limit ourselves here, to just quoting the titles of the subsequent reports and leave it at that. The Maldives Development Update (MDU) of April 23 was titled ‘Navigating a tight line’, the MDU of Oct 2023 ‘Batten down the hatches’ and the May 24 MDU was titled ‘Scaling back and rebuilding buffers.’

Not to be outdone, the new administration from Nov 17th 2023, has, perhaps learning from recent experiences, clearly outshone the previous administration by easily lapping the effort of those who came before.

B. Abuse and Misuse of Public Funds

Several instances of abuse and misuse of public funds can be identified during this selected period, but we shall limit ourselves to briefly examining only a few.

Abuse in the dissemination of Aasandha funds

Aasandha; the national health insurance scheme, with funds allocated by the National Budget, show clear signs of having been abused during this selected period. This is blatantly obvious because the nation had, by 2022 recovered from the Covid pandemic and citing ‘long Covid’ cannot medically or rationally explain the staggering 46% increase in Aasandha funds from 2021 to 2023.

Not to be outdone, the new administration that took over on the 17th of November had announced that 87% of its allocated 2024 Aasandha budget had been spent by the end of the first half of 2024.  

Exponential Growth of Political posts and Diplomatic outposts

Papers submitted to the Parliament for Budget ratification show that there’s been a blossoming of political posts created by successive governments to the tune of a 55%, increasing from 689 proposed for 2019 to 1068 proposed for 2023. It is important to note that these are proposed figures in budget submissions and may not have any tethering to what actually transpires during the year.

The actual number of political posts submitted for 2024 is 1,500. However, the state has so far, refused to reveal any specific number appointed, with the media reporting that the actual number is beyond 2,000 with more being appointed by the day.

The number of embassies had skyrocketed from 7 in 2018 to 20 at end of 2023. Tireless effort of the increase of our diplomatic Corp, are evident in that we had secured only a meagre 487m from a 2.9b sought for 2022 as ‘grants and assistance’. 

Creation of new SOEs, capital injection and increase in staff numbers

Papers attached to the 2023 budget showed that a total of 18billion rufiyaa due from SOEs, however, new SOEs were continuously grafted and capital injection to non-performing SOEs became a familiar facet of our fiscal landscape. State had budgeted and contributed more than 4.6 billion to SOEs during the review period

The country managed to scrape by with only 14 SOEs in 2018 but managed to increase it to 20 at the end of 2023 with staff numbers increasing exponentially. Staff serving at SOEs are recorded at 18,529 in 2019 and increased by79% to 33,284 at end 1st quarter 2024. Of the 33,284 total staff, 2,545 were additional numbers created by the incoming government that took office in November 2023, even while capital projects had been severely curtailed by 3.3b in the first half of 2024.

There is increased speculation and in fact official announcements that some of the SOEs were going to be converted into subsidiaries, others merged, and some dissolved. Although these are welcome and hearty tidings, only time will tell if actual cost savings will be achieved. Meanwhile, the announced merger of Fenaka; – a high loss-making entity under STO plc, is something to be wary of.

Large Scale Infrastructure projects with no fiscal considerations

It’s a particular affliction, not just restricted to our part of the world, that politicians, when they are in power, ransom the future of the country to large scale infrastructure projects. The selfsame politicians, when evicted by the populace, grumble and writhe their hands as the next horde of salivating statesmen embark on similar projects, only at even a grander scale.

We shall only attempt one example; – the fiasco of the large, very large-scale reclamation projects, ostensibly to relieve a critical housing shortage, conducted close to the capital during the past 2 years. We shall struggle to be brief.   

1. In mid-2023, the then government, being made suddenly aware of the critical housing shortage in the capital announced for a housing scheme, at a scale hitherto not seen in the Maldives. Large scale reclamation projects in Gulhifalhu and Giraavalhu falhu even later extending to Uthuru thila falhu, to fully solve the housing shortage of the whole country. (See Map below)
2. After a flurry of activity, just before the conclusion of his term, on the 11th of November the then President declared that ‘the administration has issued more than 6,500…’ land titles.
3. However, 9 months later, in August 2024, the present Housing Minister informs Parliament that he is presently unable to offer a date at which those housing units can actually be handed over, because the plots were awarded “from the sea and the lagoon”. Engineers note that at least 14 plus million cubic meters remain to be reclaimed, before shore protection and utility works can start.
4. But in this particular episode of chasing the white rabbit down the proverbial hole, the current administration, on 18th Dec 2023, -just after a month of taking office, announced the reclamation of 1,113 hectares; – belittling the effort of the earlier administration.
5. The stated aim of this new massive reclamation is apparently to relieve that housing crisis around the greater Male’ area by building 65,000 housing units, at a cost of $700m. The reclamation, because it is in south Male’ atoll, is to be connected to Male’ via an underwater tunnel including a rail link.  
6. This tunnel is to span a minimum of 10kms from South Male’ atoll across to North Male’ atoll, beneath the fast-moving current of the famed Vaadhoo channel flowing into the Indian Ocean.
7. A feat, engineers caution will not only be prohibitively expensive, but technically impractical given accessible technology. 

It is important to note that the inhabitants of Male’ have not been asked about the viability or the necessity of these projects. However, at the 2023 presidential vote, the inhabitants of Male’ region voted with their feet, dislodging the very government who declared that these reclamations were the most critical need for them.

The new government, even while stating forthright that the awarded land parcels were in lagoons to be reclaimed yet, had ventured, on an even bigger project, this time across a channel and are committing funds and their political capital to a brand-new white elephant, before the previous reclamation effort is not even complete.

It is also significant to note here that, Male’ has been acting as a magnet attracting people from the islands for more than a decade now and the strength of the attraction have been supercharged because of the many housing solutions that we being provided in and around the capital.

Meanwhile, both the previous and the present administration commit to decentralization of the population to the islands by commanding headlines. The present administration have gone further by enacting Law No: 16/24 to create Urban Centers in selected areas and have amended existing laws to enable the process. At the same time limited funds and political goodwill are being committed simultaneously to build extra land and living space around the Male’ region, which will, if the past is any indication to go by, only further accelerate the de-population of the islands of the Maldives.

Conclusion

While admittedly a lengthy soliloquy, the space was necessary to attempt an understanding of what got us towards rocky shores. The abuse of the fiscal budget, the many ill-advised, non-productive infrastructure projects, the white elephant big-brother projects that line the pockets of politicians while increasing the burden of debt on the present and future generations are the most pivotal reasons that have led us here. 

While we have limited ourselves to not offer any prescriptive solutions, it behooves us to say the following.

Speaking on 20th May 2024, at the launch of the World Bank’s latest country development update, appropriately titled “Scaling back and re-building buffers’. Finance Minister, Dr. Mohamed Shafeeq, ‘stated that ambitious fiscal reforms were essential including reform of state-owned enterprises, subsidy reforms, and health expenditure reforms.’ He further added that the government has the willingness and the capability and will start implementation at the appropriate moment.

We are all, here waiting for the appropriate moment and wish it were made clear as to when the stars would align.