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

Hamdhan Shakeel



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.


Diesel and Petrol prices hike again.





Oil prices has once again hiked as State Trading Organization, the primary government owned SOE which imports oil raises prices for diesel and petrol.

According to the State Trading Organization (STO), oil prices has raised to its highest within the past 7 years. This comes just moths after they raised oil prices with Diesel and Petrol prices pegged at MVR11.84 and MVR 11.16 a liter respectively.

According to the newly amended prices, Diesel and Petrol would be sold at MVR 12.44 and MVR 12.06 a liter. However, this is considerably lower as the price of Diesel in the majority of the nations are above MVR 14.41 a liter.

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UK inflation hits almost three-decade high as living costs soar





The cost of living in Britain is forecast to increase even higher in April owing to a tax hike and further planned increases to domestic energy bills, analysts say.

The annual rate of inflation in Britain has risen to a near 30-year high in December, stoking fears about a cost-of-living squeeze as wages fail to keep pace.

Inflation accelerated to 5.4 percent in the 12 months through December, up from November’s 5.1 percent, the Office for National Statistics said on Wednesday.

Last month’s annual figure is the highest since March 1992, when inflation stood at 7.1 percent.

“Food prices again grew strongly while increases in furniture and clothing also pushed up annual inflation,” said ONS chief economist Grant Fitzner.

The Bank of England (BoE), whose chief task is to keep inflation close to 2.0 percent, is now expected to raise rates again at its next meeting in February amid easing concerns over economic fallout from the Omicron coronavirus variant.

On Wednesday, the pound hit a near two-year peak versus the euro on increased expectations of another rate rise, while the European Central Bank has yet to follow the BoE in tightening monetary conditions.

READ MORE: Explained: Europe caught in highest inflation in nearly 30 years

Surging costs

Economies worldwide are battling decades-high inflation that is forcing central banks to lift interest rates, including the BoE which last month raised its key borrowing cost — to 0.25 percent from a record-low level of 0.1 percent — for the first time in more than three years .

The cost of living in Britain is forecast to soar even higher in April owing to a tax hike and further planned increases to domestic energy bills, according to analysts.

National insurance, paid by workers and employers, is being increased to help fund social care for the elderly. Analysts expect more painful tax increases to foot the vast bill for Covid.

In addition, electricity and gas prices are set to rocket higher when the UK government shortly lifts a cap on energy bills amid record-breaking wholesale costs.

“With consumer prices rising at their fastest rate for three decades and wage growth slowing, Britons are being squeezed ever harder by the cost of living,” said Jay Mawji, head of trading provider IX Prime.

Consumers and businesses are struggling with surging costs, ongoing pandemic turmoil and supply chain problems.

At the same time, real wages in November fell on the year for the first time since mid-2020, official data showed on Tuesday.

“More pain lies ahead in the form of tax rises in April and a likely 50-percent jump in energy bills,” said IX Prime’s Mawji.

READ MORE: US consumer prices hit four-decade high in December

Source: TRTWorld and agencies

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Turkiye, UAE central banks sign swap deal





The agreement aims to enhance bilateral trade and to further strengthen financial cooperation between the two countries.

Central banks of the United Arab Emirates and Turkiye have inked bilateral currency swap agreement.

According to a statement by the Turkiye’s Central Bank on Wednesday, the nominal size of the deal is mutually 18 billion UAE dirham and 64 billion Turkish liras.

The agreement aims to enhance bilateral trade and to further strengthen financial cooperation between the two countries.

“It will stand for a period of three years, with the possibility of an extension through mutual agreement,” the statement noted.

This agreement demonstrates the two central banks’ commitment to deepen bilateral trade in local currencies in order to advance economic and financial relations between our countries, Sahap Kavcioglu, the Turkiye’s Central Bank governor, said after signing the deal.

READ MORE: A new dawn: Turkey and the Arab world choose cooperation over conflict

Enhancing bilateral cooperation

The chief of UAE Central Bank Khaled Mohamed Balama also said: “Signing this agreement with the Central Bank of the Republic of Turkiye reflects each nation’s desire to enhance bilateral cooperation in financial matters, particularly in the fields of trade and investments between the two countries.”

With this latest agreement, the Turkiye’s Central Bank’s total swap figure with foreign central banks reached $28 billion.

Turkiye and the UAE signed a total of 10 agreements on energy, environment, finance, and trade during a visit by Abu Dhabi’s Crown Prince Sheikh Mohammed bin Zayed Al Nahyan to Ankara last November.

The UAE has also allocated a $10 billion fund for direct investment in Turkiye, the Abu Dhabi Developmental Holding Company also announced.

As of November, the bilateral trade volume stood at $7.1 billion. Turkiye’s imports from the UAE totaled $2.2 billion, while its exports to the country stood at $4.9 billion.

READ MORE: Erdogan vows to fight inflation, higher interest rates

Source: TRT

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