Geographic and ecological issues, in addition to the Tsunami of 2004, have placed pressure on Maldives’ public sector. Geographically, the country faces two main challenges: the absence of a significant land mass, which has resulted in a dispersed population, and the low altitude of the existing islands. These challenges raise the cost of delivering social services and of public administration, as they limit the scope to generate economies of scale.
The Maldives is a country made up of 1,190 islands in 20 atolls which are spread over 900 km. Only 198 of the islands are inhabited, and 70 percent of those have a population of less than 1,000 people. This widely dispersed population makes delivering social services and public administration very costly for the government. To combat this, the government will develop two regional centers or hubs, one each in the far north and far south of the country. In addition to these regional hubs, the government will support the development of focus islands starting with one in each atoll. These would be become the center of services within the atolls. Eventually, they are expected to develop into atoll growth centers.
The government is reviewing measures to widen the revenue base. Currently, there are no income taxes or general sales taxes. After leaving the bed tax unchanged at US$6 per bed night since 1988, the Majlis passed an increase to US$8 per bed night, effective November 1, 2004. Revenues from this source are vulnerable to fluctuations in tourist arrivals. The government is implementing a Revenue Diversification Project.
Maldives’ legal system is based on Sharia law. In 1999, the Citizens’ Majlis enacted a number of laws that constituted an important beginning towards establishing legal base for commercial activities. An important challenge is how to implement commercial laws, framed within the tradition of internationally accepted laws/standards, within the Sharia system. Jurisdiction of the courts is duplicative. There is no system of reporting written decisions of the courts; thus, each judge decides anew what the law is without the benefit of other judges’ prior decisions and thinking. The government has started a training program for judges.
All financial information is recorded manually, based on a single entry accounting system. The chart of accounts used does not enable the accumulation of expenditure information beyond broad functional classifications. Several budget related activities, including lending to individuals and public enterprises, are not counted in public expenditures or the budget, raising questions about its comprehensiveness. The future recurrent cost implications of new projects are not closely linked to public expenditure management. These limitations challenge the government’s ability to effectively monitor public spending.
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