By P.K.Balachandran
Colombo, October 24: The Maldivian President Mohamed Muizzu on Wednesday announced that he will take a 50% cut in his salary as part of a plan to cut salaries of top government and public sector officials.
The monthly salary of a sitting Maldivian President is MVR 100,000. However, President Muizzu will now receive only MVR 50,000 each month. Other top public officials will have to take a 10% cut.
The salary cuts envisaged are: A 10% cut in the case of all politically appointed individuals and all staff of state-owned enterprises, excluding banks. The take-home salaries of heads of these enterprises will be capped at MVR 90,000.
The cuts will be in effect for a two-year period, the President’s office said.
The President has proposed that the salaries of heads of independent institutions and those of heads of the Judiciary and Parliament be reduced by 10%.
However, persons earning less than MVR 12,000 will be exempt from these cuts.
These measures are in line with the economic reform agenda proposed as part of the 2025 national budget.
Finance Minister Moosa Zameer said that spending on political appointees’ wages constitutes less than 4% of the government’s overall salary and allowances framework, and just 1% of the total state expenditure.
The annual cost incurred in paying political appointees will be approximately MVR 120 million, averaging MVR 10 million per month, Zameer added.
Information received by Mihaaru News through the Right to Information Act, the number of political employees is currently more than 1,200.
Finance Minister Zameer stated that the government is implementing measures to strengthen the management of state owned companies, reduce their dependence on the government, restructure their operations, and identify those companies that may need to be liquidated.
“The Public Sector Investment Projects (PSIP) pipeline has been restructured to align with the state’s financial capacity, and steps have also been taken to decrease the government’s operating costs. We are also undertaking strategies to curtail expenditures on areas such as transportation and ceremonial events,” Zameer said.
Maldives has been bracing for painful spending cuts and tax hikes to avert a looming debt crisis for some months now, The Diplomat reported recently.
On Jun 27, President Muizzu said that a raft of austerity measures will be imposed to rein in unaffordable government expenditure.
“This includes reducing the number of political posts and reducing expenses on functions held for various occasions or not holding official events,” he wrote on X, formerly Twitter, announcing the cancellation of the customary Independence Day celebrations on July 26.
The cabinet had approved a cost-cutting policy that entailed reforms of free healthcare, possible privatization of inefficient state-owned enterprises (SOEs), and the phasing out of indirect subsidies for food, electricity and fuel in favour of targeted assistance to low-income households.
The cabinet also endorsed a revenue strategy that proposed “reviewing” airport service fees, sales taxes, import duties and resort rent.
Fitch’s Grim Rating
Fitch had downgraded the Maldives to “junk” status, casting doubt on the country’s ability to meet “substantial upcoming external debt-servicing obligations.”
To avoid defaulting on creditors, the Maldives needed more than US$ 500 million annually to pay down debt in both 2024 and 2025. It would rise to a staggering US$ 1.07 billion in 2026.
Fitch flagged usable foreign reserves of US$ 73 million as barely enough to cover a month of imports, a worrying situation for a small island nation reliant on medicine, oil and staple foods from overseas.
The ratings downgrade echoed warnings from the World Bank and International Monetary Fund (IMF) over a “high risk of debt distress” after years of unsustainable borrowing to plug budget deficits.
World Bank’s Estimates
According to the World Bank in April 2024, public debt reached US$ 8 billion or 122.9% of GDP in 2023, ballooning after debt-fuelled economic stimulus to tackle the COVID-19 crisis.
The pandemic followed an infrastructure boom with Chinese and Indian loans over the past decade.
“The economic vulnerabilities that the Maldives faces now is a combination of debt stock accumulation in the last 10 years, as well as continuously high fiscal and current account deficits over the same period,” explained Erdem Atas, the World Bank’s country economist for the Maldives.
Other signs of economic woes were evident. The national bank slashed its US dollar transaction limit for hundreds of Maldivian students overseas.
Amid a perennial dollar shortage, the black the market rate soared to over 18 Maldivian Rufiyaa (MVR) per dollar, well above the official exchange rate of MVR 15.42.
Unpaid bills from local contractors and small businesses piled up at the finance ministry. Fishermen staged sit-in protests demanding payments owed for fish catch purchased by the debt-ridden state-owned fish exporter, which operates at a loss to buy at a fixed rate above market prices.
Most SOEs are too inefficient to “even perform core functions” without government funding. The government could dissolve some companies and publicly list or seek public-private partnerships for others.
Austerity is expected to herald higher prices, bigger utility charges and layoffs from bloated state companies. The World Bank backed the introduction of a targeting mechanism “to ensure that vulnerable populations are not disproportionately affected.” Effective targeting could mitigate any widening of either income inequality or the gap between rural islands and the urban capital, it advised.
“Ignoring the deafening call for financial discipline brought us to these rocky shores,” said Athif Shukoor, a commentator on economic policy. “We all preferred to believe that lunch was free.”
According to the World Bank, the Maldivian economy is projected to grow by 4.7% over the medium-term, supported by tourism, a decrease from the pre-pandemic average of 7.4%.
This growth is based on expected fiscal adjustments, including subsidy reforms and reduced public expenditure and investments. This slowdown also means slower poverty reduction in 2024, the Bank said.
The proposed fiscal reform package is expected to help, but a more sustainable fiscal path requires a larger adjustment, particularly through cuts in non-essential capital and untargeted recurrent spending.
Inflation is expected to rise due to the removal of blanket subsidies, potentially driving poverty by 2.5 percentage points. The current account deficit is expected to remain high due to commodity price pressures and capital imports for infrastructure projects.
Rising external financing needs, including debt servicing, are expected to sustain pressure on foreign exchange reserves.
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