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- People of Milandhoo protests against Nasheed at his arrival
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Maldivian economy still in trouble – IMF
In a statement that looks like the IMF’ s verdict on the ongoing national debate whether to reinstate the civil servants salary, IMF has said that the Maldivian economy continues to face serious challenges. According to a press release issued yesterday IMF is particularly concerned with the country’s very large fiscal deficit, which is of paramount importance to secure a stable economy, equitable growth, and lasting poverty reduction.
“To this end, the Government of Maldives has put together and is implementing a set of essential fiscal adjustment measures, supported by a financial assistance program that the IMF’s Executive Board approved in December 2009” it noted.
It also said that one of the primary drivers of the large fiscal deficit has been government spending on public wages, which has more than doubled between 2007 and 2009, and is now one of the highest in the world relative to the size of the economy. Thus, bringing the wage bill back to sustainability is an essential part of the fiscal adjustment effort, which also involves other expenditure cuts, revenue-enhancing measures, and reforms aimed at improving social spending and poverty alleviation.
It also hinted out that IMF may cancel its standby arrangement with the government if fiscal deficit could not be maintained on track noting “Measures that would substantially raise the budget deficit, such as a reversal of previously announced wage adjustments, would also put the program off track, jeopardizing prospects for multilateral and bilateral international financing”. A larger fiscal deficit would drive up interest rates, deprive the private sector of the credit it needs, and threaten growth and employment. It may also stoke inflation and erode the purchasing power of all Maldivians, including civil servants. It is to avoid such undesirable outcomes that the fiscal deficit needs to be reduced.
IMF also expressed confidence that all relevant parties will reach an agreement consistent with the fiscal framework envisaged in the IMF-supported program.