Connect with us

Business

Is the Maldives walking in the footsteps of Greece, towards bankruptcy?

Hamdhan Shakeel

Published

on

In 2015 the European Union was taken by storm over news that one of its member nations had defaulted on a €1.6 billion payment to the International Monetary Foundation. This was the first time a member of the European Union had defaulted and faced bankruptcy. The nation in question was the home of the once mighty civilization, Greece.

The fall of the Greek economy was the culmination of inflation, poor fiscal management and fraud. Prior to joining the European Union, Greek pursued an expansionary fiscal policy including a universal healthcare system which proved itself to be a major burden for the government. While the government’s expenditure was significantly raised in the 1980’s its revenue remained much same.

A contributing factor to this was the fact that it was a norm in Greece to underreport income. This led to a serious loss in state revenue as the state was not receiving the annually projected income from taxes. This was further exacerbated due to massive tax cuts for the wealthy. This ultimately led to a rising inflation and a massive debt on the state as it desperately attempted to manage the economy.

For Greece, the European Union and its European Monetary Union (EMU) was the means to solve the government debt and inflation problem. However, joining the European Union also meant that Greece had to conform to the strict regulations by the European Union, outlined in the 1992 Maastrihct Treaty. Under this treaty member countries of the European Union would have to limit the Government deficit to 3% of the GDP and its debt to 60% of its GDP.

After spending close to a decade trying to mitigate its debts, Greece was finally granted a conditional acceptance into the European Monetary Union in 2001.

However, the truth was that Greece never managed to lower its government’s deficit and the state debt to the thresholds outlined in the Maastricht Treaty.

While the initial period following its entrance into the Euro zone was marked with a slight economic recovery, the underlying issues of weak fiscal management still persisted. The situation as further worsened by the lack of revenue for the state. Systemic tax-evasion was ingrained in the society as both the high income and low income underreported their spending leading to a drastically low social spending expenditure. In 2000, the total social spending expenditure in Greece was marked as 19.3% of the GDP where as in the same period it was marked as 26.2% in Germany.

Entry into Euro zone also allowed the Greek government to borrow massive loans cheaply form fellow member states and organizations. While the loans were meant to finance the government operations, it also proved to be an additional burden on the government as Greek’s income was still at the same levels as to when it entered the Euro zone.

The 2007 financial crisis unveiled the critical condition of the Greek economy. The recession forced the Greek government to finally address the massive deficit and debt as its tax revenues dried up. In 2010 U.S. financial regulators graded Greek bonds as “junk” forcing the Greek government to seek bailout through the International monetary Foundation and other credit agencies. The bailout was given under strict reformation conditions including higher tax revenues and budget cuts.

This led to a massive recession in Greece as unemployment reached of 25% just 2 years after the U.S. regulators deemed Greek bonds as “junk”.

The unemployment further contributed to a decrease in tax revenues, which finally cascaded into the state losing a significant chunk of its revenue. As the economy crumbled, the social conditions in Greek also worsened where crime, homelessness and drug abuse rose to unprecedented levels.

The Maldives is undeniably walking in the footsteps of Greece towards an inevitable state default and bankruptcy. The current administrations staunch refusal to adhere to the advice of the World Bank and other credit rating agency has led to a situation where the country is now standing on the threshold of bankruptcy.

The MVR 36.925 billion budget was passed by the Parliament without summoning the heads of the financial institutions in the Maldives nor without proper analysis of the budget. For financial analysts, implementing a budget with 34% of its revenue unsecured is alarming. The unprecedented MVR 9.760 billion deficit budget is reminiscent of the massive deficit-ridden budgets adopted by the Greek government prior to its downfall.

A more serious concern lies with the current administration’s reckless policy of borrowing from the central bank.  Since 2020 the Government of Maldives has against the advice of IMF and World Bank, chosen to overdraft from the PBA at the Central Bank. This was done after freezing subsection (a), (d) and (e) of the Section 32 of the Fiscal Responsibility Act.

On 17th November 2021 the Parliament chose to suspend the sections of the Fiscal Responsibility Act which prevents indiscriminate printing of money for a third time since 2020. While initially promised to repay in 1 years’ time, the Government’s debt to the Central bank in the form of overdrafts has now racked up in excess of MVR 6.5 billion.

While the Government continues to indiscriminately borrow form both the central bank and foreign sources, the state debt is set to increase by an unpreceded MVR 11 billion this year, rising the total state debt to MVR 100 billion or the equivalent of 105% of the national GDP. The current administrations poor fiscal management is evident in the fact that from the MVR 100 billion debt, over MVR 50 billion was incurred over just the past 3 years.

While many of the international credit rating agencies have repeatedly lowered its rating on the Maldives, due to the government’s veil of secrecy surrounding its financial standings, it is unclear whether the Government is on the verge of bankruptcy or it is already bankrupt. One undeniable fact that remains is that the Government of Maldives is walking in the footsteps of Greece, towards a massive default and bankruptcy.

Business

China sees net purchase of RMB bonds by overseas institutional investors in July

Avatar

Published

on

By

China saw net purchase of its RMB bonds by overseas institutional investors in July after registering net sales for four months in a row.

Foreign institutional investors made a total of 1.0311 trillion yuan (about 152.24 billion U.S. dollars) of spot transactions of RMB bonds, including buying 518.8 billion yuan of bonds and selling 512.3 billion yuan of bonds, registering a net purchase of 6.6 billion yuan, data from the China Foreign Exchange Trade System showed.

Last month also saw an increase of eight new overseas institutional investors engaging in trade in China’s bond market. By the end of July, the Chinese bond market had 1,051 overseas institutional investors in total.

Analysts attributed the growing interest in RMB bonds to the country’s continuous economic recovery and a generally stable foreign exchange rate.

Official data released on Monday showed that China’s major economic indicators including the index of services production and fixed-asset investment posted year-on-year growths in July.

Continue Reading

Business

Gov’t discusses improving digital transformation with Qatar

Avatar

Published

on

By

Minister of Environment, Climate Change and Technology Aminath Shauna has discussed strengthening the bilateral relations with Qatar and supporting national efforts to improve digital transformation. She held the discussions alongside a ministerial delegation from the Maldives in a meeting with key Qatari institutions at the Ooredoo Group Headquarters in Doha, Qatar.

At the invitation of Chairperson of Ooredoo Maldives Fatima Al Kuwari, who facilitated meetings with key Qatari ministries and institutions in Doha, Minister Shauna travelled to Qatar with Minister of Education Dr. Aishath Ali and Minister of Arts, Culture and Heritage Yumna Maumoon. The ministerial delegation also held meetings with the senior management of the Ooredoo Group while accompanied by the Managing Director of Ooredoo Maldives Khalid Al Hamadi and the Chief Commercial Officer (CCO) of Ooredoo Maldives Hussain Niyaz.

Furthermore, Ooredoo facilitated visits to key relevant institutions including the Qatar Foundation that featured a tour of the Qatar National Library to discuss ways to collaborate and upgrade the Maldives National Library. The delegation also visited the Qatar National Museum and Katara Cultural Village which included tours of art galleries, workshops, exhibition areas, performance arenas, and other cultural museums. Ooredoo stated that its aim with these meetings was to exchange ideas and establish partnerships to further enhance the lives of the people of both Qatar and the Maldives.

 

Source: psmnews

Continue Reading

Business

Customs revenue grows by 31% in July

Avatar

Published

on

By

Maldives Customs Service has revealed that the import-export revenue for July has increased compared to the same period last year, resulting in a 31% increase in revenue.

The Maldives recorded an import-export revenue of USD21 million in July this year, which is an increase compared to USD15 million in revenue recorded in July 2021, as per the statistics published by Customs. The statistics also revealed that USD280 million in goods were imported in July, which is an increase of 56% compared to USD176 million in July 2021.

Meanwhile, Oman, India, China, the United Arab Emirates (UAE), and Singapore were the biggest contributors to imports. As such, USD52 million in goods were imported from Oman, while USD45 million in goods were imported from India, USD36 million were imported from the UAE, USD32 million were imported from China, and USD22 million were imported from Singapore.

Furthermore, goods worth USD11 million were exported from the Maldives in June 2021 while the figure stood at USD5 million in July this year, which is a decrease of 52%. The Maldives exported the highest number of goods to Germany, the United Kingdom (UK), Mauritius, Bangladesh, and India. Around 27% of the goods were exported to Germany while 23% were exported to the UK. Among the most exported items include various frozen fish products.

The statistics also revealed that 93 vessels had arrived with goods in the Maldives and 99 vessels had departed in July.

 

Source: psmnews

Continue Reading

Trending