31 More Resorts To Help Fill Revenue Gap

By Judith Evans in Malé
June 23, 2008

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A total of 31 islands will be leased for resort development during 2008, the tourism ministry has confirmed.

The decision follows warnings by governor of the Maldives Monetary Authority Abdullah Jihad that the leases would be the “only option” to prevent a US $190 million budget deficit this year, with projected income from “mega” development projects failing to arrive.

The new leases will add to 33 resorts already under construction in the country and over 90 currently in operation.

Income

Jihad said last week he had “ordered the finance ministry to find an alternative source of income” on realising major sources of projected revenue, such as a planned trans shipment port in the north of the country, were unlikely to materialise this year.

The result could be a US $190 million deficit in the country’s US $1 billion state budget, Jihad said.

At the end of 2007, government admitted a revenue shortfall of US $449 million. But the finance ministry said government commercial land rent was expected to “increase significantly” in 2008, with US $180 million coming in from the Ivandhippolhu trans shipment port.

Port Project

A memorandum of understanding (MOU) is in place with Kuwaiti firm Kuwait and Gulf Link Transport Company for the port itself. However the trade ministry now says the planned “scope” of the Ivandhippolhu project has changed.

According to deputy trade minister Mohamed Salih, government now expects to expand the project and put other, linked developments up for tender.

It must also pass a law enabling a special economic zone through parliament before it can lease the trans shipment port land for 50 years, as planned under the MOU. The current lease limit is 25 years.

In the meantime, Salih says he does not know how much revenue will arrive this year from the port, whilst the finance ministry has not yet confirmed when it expects to receive the projected US $180 million.

New Resorts

With government frequently under fire for its dependence on land lease advances, Jihad said extra resort leases were not a “long term solution”.

Companies leasing resorts are obliged to pay 15 per cent of ten years’ “bed rent” up front, with yearly bed rent the government's chief source of resort income.

An exact timeframe has not been set for the new leases, which include 11 “reef resorts” to be built on reclaimed land near population centres, in a plan announced last month.

One of these, Kaafu atoll Kaashidhoo, has already been leased to bidder Ahmed Shafeeg, who has sub-leased to Dubai company Gulf Craft.

The other 30 will be leased by the end of the year, according to Tourism Ministry executive director Mohamed Waheed.

Of 35 islands leased for resort development in 2006, only two are now operational, despite a theoretical 18-month window for construction.

The Maldives Association of the Tourism Industry (MATI) has complained the delays result from a government emphasis on money upfront, rather than feasibility, in evaluating resort deals.

At the start of 2008, the Ministry of Finance also highlighted “the limited capacity of the construction industry, compared to the large number of both government and private projects on the market”.

Inflation

Jihad said the resort leases would be necessary to avoid a “huge drop” in foreign currency reserves, which could require devaluation of the Maldivian Rufiyaa against the US dollar – a measure last taken in 2001.

The resulting rise in import costs could worsen inflation, which has already rocketed to a yearly 9 per cent in April, compared to 3.5 per cent in the same month of the previous year.

However, leaders of the Maldives Association of the Construction Industry (MACI) have warned the ever-growing number of resorts under construction is adding to inflation in the sector.

Meanwhile in November the UN ranked the Maldives the most vulnerable country to rising oil prices in the entire Asia-Pacific region, “a result of its highly negative balance of payments and budget balance positions”.

Unless government balances income and expenditure, Jihad told Minivan News, the MMA will be unable to manipulate exchange rates or interest rates to control inflation.