Maldives is cutting wages and other benefits in the public sector and state enterprises for at least three months, as part of austerity measures to mitigate the impact from the novel coronavirus pandemic.

Finance minister Ibrahim Ameer told reporters Thursday that 25 per cent from wages between MVR 20,000-25,000 ($1,290-$1,613), 30 per cent from wages between MVR 25,000-60,000 ($1,613-3,871), and 35 per cent from salaries above MVR 60,000 ($3,871) in the public sector will be cut.

These cuts will not affect employees receiving wages below MVR 20,000 ($1,290), but will only apply to basic salaries of contract staff and top officials such as permanent secretaries in the civil service and officials from other state institutions and independent bodies, he said.

Caps will also apply to limit allowances and other benefits to public sector employees.

Take home pay will be capped at:

• MVR 25,000 ($1,613): for basic salaries below MVR 10,000 ($643)
• MVR 30,000 ($1,935): for basic salaries between MVR 10,000-15,000 ($643-967)
• MVR 35,000 ($2,258): for basic salaries between MVR 15,000-20,000 ($643-1,290)
• MVR 40,000 ($2,581): for basic salaries between MVR 20,000-25,000 ($1,290-1,613)
• MVR 45,000 ($2,903): for basic salaries between MVR 25,000-30,000 ($1,613-1,935)

“From our estimates, these pay cuts will allow us to save some MVR 15 million ($967,993) per month from state expenditure,” Ameer said.

The finance minister said a 32 per cent cut will be made from the basic salaries of managing directors, deputy managing directors and chief executives of state-owned companies. They will not be receiving the MVR 11,500 ($742) board allowance either, he added.

The government had earlier announced plans to shave MVR 5 billion ($324 million) off state expenditure and reduce the total state expenditure for the year to MVR 30 billion ($1.944 billion) from the approved MVR 38.7 billion ($2.5 billion).

Previous austerity measures include a 20 per cent cut on salaries and allowances of all political appointees, and 30-70 per cent cuts across travel, training, renovations and capital equipment budgets.

A 36 per cent reduction has also been made to capital grants allocated to local councils under a recent legislative amendment to give more powers and financial flexibility to the local administration in the islands.

The Public Sector Investment Programme has also been put on hold.

The Maldives is also looking to secure a freeze on loan repayments worth MVR 4 billion ($259.2 million) under a recent debt moratorium agreed by the world’s wealthiest countries in the G20 grouping.

The Maldives is looking to borrow $233.37 million from international lenders to plug the gap in balance of payments stemming from the coronavirus pandemic.

Funds already pledged by international lenders include $28.9 million from the International Monetary Fund (IMF), $20 million from the OPEC Fund for International Development, $17.3 million from the World Bank, and $3.28 million from the European Union.

In the meantime, the government will borrow MVR 4.2 billion ($272 million) under an overdraft facility at the central bank to cover state expenses and maintain public services amidst the coronavirus pandemic.

The coronavirus outbreak has hit the Maldivian economy hard, as travel restrictions and other preventive measures affect the country’s lucrative tourism industry, which contributes the bulk of the island nation’s state revenue and foreign reserves.

Before the pandemic, the government had been bullish about tourism prospects, targeting two million, high-spending holidaymakers this year after last year’s record 1.7 million.

However, tourist arrivals saw a year-over-year decline of 22.8 per cent in the first 10 days of March. Officials say the number of tourist arrivals to the Maldives could drop by half in 2020.

All international airlines have suspended scheduled operations to the Maldives, as the island nation enforced a blanket suspension of on-arrival visa in late March in a bid to combat the spread of the novel coronavirus.

Even before the visa suspension, the Maldives had closed its borders to arrivals from some of the worst-hit countries, including mainland China, Italy, Bangladesh, Iran, Spain, the United Kingdom, Malaysia and Sri Lanka. Visitors from three regions of Germany (Bavaria, North Rhine-Westphalia and Baden-Württemberg), two regions of France (Île-de-France and Grand Est) and two regions of South Korea were also banned from entering the country.

All direct flights to and from China, Italy, South Korea and Iran were also cancelled.

Cruise ships and foreign yachts were also banned from docking at any of the country’s ports.

With arrival numbers falling and the visa suspension in effect, several resorts across the Maldives had been closed.

Tourism has been the bedrock of the Maldives’ economic success. The $5 billion-dollar economy grew by 6.7 per cent in 2018 with tourism generating 60 per cent of foreign income.

However, the government is at present projecting a possible 13 per cent economic contraction this year — an estimated $778 million hit.

On March 8, Maldives reported its first cases of the novel coronavirus, as two hotel employees tested positive for Covid-19 at a luxury resort in the archipelago.

Eighteen more cases — all foreigners working or staying resorts and liveaboard vessels except five Maldivians who had returned from abroad — were later identified.

A six-case cluster of locals, detected in capital Male on April 15, confirmed community transmission of the coronavirus. Several more clusters have since been identified, bringing the total number of confirmed case in the Maldives to 618.

Two deaths have been reported and 20 have made full recoveries. Five remain in intensive care.

The Maldives announced a state of public health emergency on March 12, the first such declaration under a recent public health protection law.

The public health emergency declaration has allowed the government to introduce a series of unprecedented restrictive and social distancing measures, including stay-at-home orders in capital Male and its suburbs, a ban on inter-island transport and public gatherings across the country, and a nationwide closing of government offices, schools, colleges and universities.

Non-essential services and public places in the capital such as gyms, cinemas and parks have also been shut.

Restaurants and cafes in the capital have been asked to stop dine-in service and switch to takeaway and delivery.

A nationwide shutdown of all guesthouses, city hotels and spa facilities located on inhabited islands is also in effect.