The increasing Spending on SOEs

SOEs have also been used as tools to embezzle state funds, and re-allocate tax revenues to cronies, and connected corporations, in the form of contracts or sale of other state resources.

Ministry of Finance

Ministry of Finance

Maldives has established several state owned enterprises, initially with the purpose of providing essential products and services to the public that the market mechanism fail to provide. State Electric Company (STELCO), Male Water and Sewerage Corporation (MWSC), and Dhiraagu are some of such examples, where the government had to come in due to ‘market failure’ to adequately provide essential services to the people.

While the objective is not entirely profit-maximisation, however, a corporate structure means having a commercial aspect to providing the services at a price, mostly matching the average cost of production.

The motive could have been very noble in the beginning when the first state companies were established. However, recent evidence and numbers suggest that politicians have over time used the concept of state owned enterprises as a tool to achieve their political motives, at the expense of huge costs from the state budget.

SOEs have also been used as tools to embezzle state funds, and re-allocate tax revenues to cronies, and connected corporations, in the form of contracts or sale of other state resources. The SOE’s are also being used to provide employment to politically connected members, as ‘gifts’ for political activism.

A perfect example of using SOE’s of embezzlement of state funds would be the MMPRC scandal that continued through 2014-2016, where lease rights of islands and lagoons were transferred to the state PR firm, and this company then sold off these rights to investors for discretionary acquisition prices, determined by the then Minister of Tourism, along with 'under-the-table' bribes.

The acquisition fee revenue, which was supposed to go to the state coffers, were also stolen - by depositing these funds to a private company, instead of the account of MMPRC. More than USD 80 million (MVR 1.2 billion) was stolen under this scheme, and until this day not  a single dollar has been recovered. Such is the extent of embezzlement of funds using SOEs.

Solih administration has been no different in using SOEs as political tools. The administration has systematically increased spending, and the dependence of SOEs on the state budget over the past four years. This has been done through providing funds to SOEs as capital contributions, loans, and subsidies. During the first year of the administration, in 2019, total capital contribution to SOEs totaled MVR 1.5 billion (USD 98 million), loans exceeded MVR 1.3 billion (USD 86 million), and subsidies amounted to MVR 1.281 billion (USD 83 million), with a total spending on SOEs in 2019 at a staggering MVR 4.1 billion (USD 266 million).

Data Source: Ministry of Finance

Comparing this to total of MVR 2 billion (USD 133 million) in 2018, which is the last year of Yamin administration, and a total of MVR 1.5 billion (USD 97 million) in 2017.

The numbers for 2020, 2021 and 2022 are also eye-watering, with MVR 4.3 billion (USD 279 million) this year as at end of September 2022.

To have a better understanding of how the Government spends tax payers money in the name of capital contribution of SOEs, a detailed look into the 2023 budget may be of help.

A MVR 5 million for a Sports Corporation, a MVR 12 million for a Business Centre Corporation, a MVR 19.6 million for a Funds Management Corporation, and a MVR 3 million for a Ocean Connect Maldives, a MVR 80 million for a Agro National Corporation, and a MVR 250 million for SME Development Corporation, along with MVR 100 million each for STELCO and the Regional Airports company.

There are also few state enterprises generating dividends every year, and contributing to the government budget revenue. Some notable companies like Dhiraagu, and Bank of Maldives, and Maldives Ports Authority normally generate healthy profits, and contributingMVR 867 million or 4 percent of total revenue in 2018.

The estimated total dividends for 2022 is at MVR 575 million (2.2 percent of government revenue), which was forecasted at over MVR 1 billion, when the budget was formulated.

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