Kamis, 11 Oktober 2007
ADB Demands Economic Reforms For Further Funding
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By Ajay Makan October 10, 2007 The Asian Development Bank (ABB) has pledged $37 million to the Maldives over the next five years, but only if the Government shows rapid progress in reducing expenditure and debt. Burned by the government’s failure to use most of the aid pledged after the tsunami, the ABD has suspended investment for new building projects for at least two years. Instead most of the $34 million in loans and $3 million in grants will be used to, “begin the long overdue process of reforming and professionalizing the Government's [economic policies].” Chronic Flaws “Public sector financial management [in the Maldives] has a number of chronic structural flaws,” according to the ABD’s Country Partnership Strategy (CPS), which is a sustained critique of the Government’s macroeconomic policies and project management skills.  Rapid rises in public spending, culminating in Finance Minister Gasim Ibrahim’s $1billion budget for 2007, have taken the Maldives to “the brink of the sustainable level of public debt.”"The widening fiscal deficit [debt], has less to do with tsunami relief than increases in public sector wages and employment.” Twenty one state owned enterprises account for a third of the country’s GDP, “but do not contribute to the budget, [return profits to the government]” the CPS finds. “But no policy framework exists for restructuring and eventually privatising SOEs,” such as the State Trading Organisation (STO) and the Maldives Transport and Contracting Company (MTCC). State ownership makes the Maldives economy more open to corruption than its South Asian neighbours according to the ABD. The tourism industry, where “policy is formulated by officials with substantial personal ownership stakes,” is just one example of “prevalent conflicts of interests.” Unspent Money “Some two years after the tsunami less than half of the funds committed for reconstruction have been disbursed while substantial cost overruns have been registered in several areas,” the CPS notes. The speed of spending and project implementation in the Maldives are lower than in most other countries where ADB works. The development bank has threatened to scrap future loans if disbursement rates do not increase. For now the ABD has suspended loans for new building projects for at least two years. Instead loans provided in Phase I of the CPS will be used to develop the Government’s macroeconomic policy and project management capabilities, in the hope that the Government will be able to use investment for future projects more efficiently. Capacity Loans will support the government to enhance its capabilities in internal audit, tax administration, fiscal planning and debt management. All are areas the ADB has found the Government is failing at a policy level. The difficulty of finding and retaining skilled staff is a major cause of the Government’s financial policy failures, according to the ABD. Phase I loans will provide training to individuals in government ministries, as well as programmes aimed at developing the capacity of whole organisations. The capacity building measures in Phase I will give way to traditional loans for new projects from the start of 2009. The ADB will invest in electrification and transport projects, despite coming in for severe criticism for delays in implementation of current electrification projects on several islands. It has also earmarked investment to develop small businesses, and encourage private sector growth in the government dominated economy. Over-ambitious Previous ADB attempts to improve Government economic policy have failed. “Planned improvements to the public accounting systems did not materialise, and a planned loan in this area had to be cancelled due to non-compliance with the conditions of effectiveness,” the ADB notes in its evaluation of past assistance to the Maldives. The Government has now itself identified capacity building as an area for improvement. But the ADB argues reforms outlined in the Government’s Seventh National Development Plan are unrealistic. “The country simply does not have the institutional capacity to effectively implement so many initiatives all at once.” Donor Anxiety The ADB has echoed World Bank and IMF criticisms of the Maldives’ macroeconomic policy. The CPS reflects a consensus among the Maldives’ international donors that the Government is spending more money than it has, and risking the country’s long term financial stability. But Finance Minister Gasim Ibrahim has called on Maldivians to ignore international warnings and trust him. He has shown no sign of reigning in fiscal expansionism, bullishly taking a $30 million loan from HSBC at commercial rates only last month. Donors will now look to Gasim’s 2008 budget, due to be announced in December, for a sign that he is heeding warnings to cut spending. Another mega budget will test the ADB’s resolve to withdraw support if there is no change of direction in fiscal policy. | ||||||||||
This post was written by: Franklin Manuel
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