World Bank has urged Maldives to drop the double pension system in hopes of averting the looming economic crisis.
Speaking at this year’s Maldives Finance Forum, held by the Maldives Pension Administration Office (MPAO), under the topic of “A Sustainable Pension System”, the World Bank Senior Economist Robert Palacios said the country’s current pension system was unsustainable in the long run.
He had suggested reform measures to mitigate risks that may arise from continued double pension, and noted that 13 government offices have been identified for this practice; most notably the Maldives National Defense Force (MNDF) and Maldives Police Service – the country’s security and law enforcement services.
MNDF and police personnel, on top of receiving their basic retirement pension allowance, also receive other allowances that befit this category – thereby resulting in state spending double the amount to retired security service personnel than normal citizens.
This obstructs the longevity and sustainability of the pension system, the economist noted.
Palacios also suggested dropping the double pension system entirely and further suggested cutting pension benefits by 10 to 20% for the richest retirees.
World Bank has made multiple warnings in the past regarding the public finance trajectory of the Maldives, most notably its extensive foreign borrowing and deficit spending patterns that were leading towards an unmitigable economic disaster.
The island nation is required to spend around USD 500 million in 2024 and 2025 to service its debt and a little north of USD 1 billion in 2026; while global financial institutions are skeptical about the country’s capability in servicing them.
Meanwhile, global credit ratings agency, Fitch Ratings downgraded Maldives credit ratings to ‘junk’ category from the previous ‘B-‘ spot in light of the lingering and looming economic and fiscal plights.
The country’s Governor, Ali Hashim, recently lost parliament confidence and subsequently had his dismissal recommended to the President. Hashim faces allegations of mismanagement and poor performance – and an overall failure to utilize his authority to push crucial reforms.
President Dr. Mohamed Muizzu has nominated former Finance Minister Munnawar’s name as a replacement.
Before his dismissal vote approved by the parliament’s committee, Hashim had claimed he warned the government multiple times to take corrective measures though the Ministry of Finance said it had not received such recommendations from the Governor.
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