The Minimum Wage dance

Under the Employment Act of 2008, a Salary Advisory Board was established to provide recommendations to the Minister of Economic Development on the determination of a minimum wage for the country. Article 62 of the Act states that 'the Minister may, after review of the advice of the Board, issue an order to establish, amend or terminate a minimum wage or remuneration in respect of certain types of employment.' Thirteen years since then, a minimum wage is still to be determined. 

Establishing a minimum wage is also a major election pledge of the current administration and formed a large part of the Maldivian Democratic Party's (MDP) Agenda 19 campaign for the parliament elections in 2019. On 1 May 2019, President Ibrahim Mohamed Solih constituted a Salaries and Wage Advisory Board (SWAB), to advice the Minister of Economic Development on what should be established as the minimum wage. The board had on 7 January 2021 shared a report on its findings with the President. Discussions were held at the President's Office at cabinet working session level on the report, as well as the possible impacts on various sectors from the implementation of the minimum wage. 

In December 2019, the International Labour Organization (ILO) had also submitted a report on establishing a minimum wage in the Maldives, at the request of the Maldivian government. The report recommends that effective minimum wage cover all groups of wage earners, including migrant workers, that SWAB comprise an equal number of employers' and workers' representatives, the setting up of a permanent technical board or technical secretariat on minimum wages, and notes the importance of reliable and timely date for use in the determination of minimum wages. It recommends that the "updated monthly minimum wage of the Maldives falls within the range of MVR6,008 and MVR6,544."

It also notes that 'a minimum wage policy by itself will not be able to increase the participation of national workers in the labour market' and that 'specific strategies are needed to increase employability and close the gaps between the supply and demand of labour.' This points to other structural and social issues in the labour market that cannot be resolved just through the establishment of a minimum wage, contrary to popular belief in the country.  

A copy of the report may be found here.

Current developments

The current parliament, in amendments brought to the Employment Act in September 2020, mandated the Minister of Economic Development to implement a minimum wage by the end of 2021 for Maldivians, and for foreigners one year hence. The sectors for which a minimum wage is to be announced are fisheries and agriculture, tourism, construction, transport, health, education, small and medium enterprises, information and technology, and the maritime sector. 

In the discussions in parliament committees in the lead up to passing the amendments, Minister of Finance Ibrahim Ameer advised that it was not the most opportune time to establish a minimum wage, given the impact of the COVID-19 pandemic on the economy and government revenue. He added that the economy was only expected to recover to pre-pandemic levels in 2022. The recommendations by the then-SWAB were to establish a minimum wage between MVR6,400 and MVR8,600.

The Minister said that of the 44,838 public sector employees, 22,378 received less than MVR6,400 as basic salary, and that a minimum wage will increase the state's salary and pension expenditure by approximately MVR3.7 billion. An additional MVR2.3 billion will be needed to increase the salaries of those who already received more than MVR6,400 as salaries, to keep the salary structure on par, said the Minister. He also recommended delaying the decision on a minimum wage for expatriate employees, given the expected impact on the exchange market. 

On 10 October, the Ministry of Economic Development, in a statement it issued, said it was studying recommendations on a minimum wage made by the Minimum Wage Board on 5 October. The recommendations were as follows: 

The Ministry said that the board recommendations also included one to amend the existing law to delay implementation of a minimum wage for expatriates by an additional five years. 

Benefits and implications

There are a number of areas that need to be considered in the establishment of a minimum wage, especially for the first time:

Sustainability for small businesses

In an instance where the minimum wage is set at a rate higher than can be sustainable for smaller businesses, there is the concern that many may either go out of business or there may be a scaling back in employment. Research across the world, however, has shown that the establishment of a minimum wage does not, in fact, increase unemployment. The increase in wages will result in more cash being pumped back into the economy, which may in turn result in an economic boost. 

Poverty levels, living wages

The minimum wage will also lift a considerable number of households out of poverty – the current poverty level in the Maldives is defined as MVR74 per person per day at the National Poverty Line, and MVR148 per person per day at the High Poverty Line, according to the 2016 HIES. There is, however, still considerable difference between the proposed minimum wages and a livable wage determined by the high costs of living in the country, especially in capital Malé. 

Limited data on foreign employment

The government has no idea how many expatriate workers are currently in the Maldives. Chief Statistician Aishath Hassan on 8 October said that the National Bureau of Statistics 'found it particularly challenging' to collect information on expatriate employees, especially due to language barriers. Making a decision within this void of information poses risks in that the impact on the economy and remittances cannot be properly ascertained. This has been somewhat resolved under the Act by deferring implementation of a minimum wage for foreign employees for a year. The NWB has, in its 5 October proposal, recommended that this be further deferred by another five years. 

Fiscal capacity

Another factor for consideration is the fiscal capacity of the country to take on a minimum wage burden. The government's budget deficit for 2020 is now revised to 22 percent of GDP, while for 2021 the deficit as of 2 September 2021 is estimated to have been MVR6.9 billion. The Ministry of Finance in September 2021 said that revenue collection for 2021 as of 2 September was only 57 percent of what had been budgeted. Expenditure, meanwhile, had also been 57 percent of what had been budgeted, although the Ministry noted higher than expected recurrent expenditure and slower implementation of capital projects. 

The current framework estimates the deficit to be 12.4 percent of GDP, with expenditure estimated at MVR37 billion for 2022. Keep in mind though that this does not incorporate the MVR3.7 billion and MVR2.3 billion Minister of Finance Ibrahim Ameer had quoted in parliament earlier, to be the impact of implementing a minimum wage. Although why the Ministry will not incorporate a provision mandated under the law is again a mystery. 

Structural issues

Without resolving the structural issues in the labour market, especially the high proportion of expatriate workers in the country, establishing a minimum wage excluding expatriates, may in fact lead to an increase in employing foreigners and Maldivians being left out of the job market. 

The amendments brought to the Employment Act in September 2020 mandates the Minister to announce a minimum wage within 30 days of the MWB's recommendations. As such, we can expect a decision no later than 5 November 2021. Or the Minister could very well send the recommendations back to the MWB for further review.

Going forward...

What could the government's plan be? The impact of implementing the minimum wage has not been factored into medium-term fiscal estimates. Application of the wage to expatriate employees being deferred will exacerbate the existing disparities and reinforce the current preference for cheaper foreign labour.

One is left to frustratingly wonder if the notion of a minimum wage is, as evidenced by the repeated postponement of its announcement, a carrot to placate the public and lead them around in circles while the administration prioritises their legislative agenda and passed through legislation, and regulations, that benefit the rich and powerful.