Minimum wage: An estimated MVR 3.8 billion expenditure spike

Economic Minister Fayyaz Ismail, on Wednesday, said that setting a national minimum wage was projected to increase State expenditure by MVR 3.8 billion.

Fayyaz made the remark during the public forum on minimum wage held at the Parliament on Wednesday night.

In response to an opinion expressed by a participant, Fayyaz said that the government had conducted research to gauge the potential economic impact of setting a minimum wage.

The biggest impact on the State budget will be to an immediate additional MVR 1.5 billion which will be required to increase the salary of civil servants, and the figure will only increase with other minimum wage related expenditure, he said.

Fayyaz said Maldives could not afford to set a minimum wage without finding additional sources of income to cover the burden.

“And there will be a resultant ripple effect, up to a certain point. We project a hit of MVR 3.8 billion on the State budget. This is a huge figure. We will need [find the funding] by submitting to the Parliament to reduce the PSIP budget or increase taxes. I’m not talking about the PSIP budget being completely cut. But we do need to find the funding some way, don’t we?” said Fayyaz.

The Salaries and Wages Advisory Board, which is empowered to conduct consultations and research into setting a national minimum wage, and advising the Economic Minister regarding the subject, completed its research and presented a report of its finding to Fayyaz in February.

The Board recommended that the national minimum wage be set to MVR 6,400, and that a separate minimum wage within the range of MVR 6,400 to MVR 8,600 be set for civil servants and tourism sector employees.

It recommended that the minimum wage should be applicable to the basic salary, and that the minimum wage should apply to both foreign workers – after a moratorium period of one to two years - and local workers in order to eliminate discrimination and offer protection to workers from all industrial sectors of the Maldivian economy from within the minimum wage system.

Fayyaz said that setting a minimum wage would only have an adverse economic impact if the wage set was incompatible with the Maldivian economy, but that setting a minimum wage compatible with the Maldivian economy would not cause any adverse effects.

The Maldivian economy is strong enough to handle minimum wage, and the unavoidable minimal challenges to small businesses is not a problem for as long as the businesses are able to survive, he said.

“We are deliberating on what the appropriate figure [for minimum wage] is. We are seeking a compromise between employees and employers,” said Fayyaz.

Fayyaz said that minimum wage had its pros and cons, one of the cons being the potential loss of jobs.

“It will have an impact on the labor force as well. It will have a positive impact. And potentially a negative impact. For instance, if employers are unable to afford paying minimum wage, then there is a chance of loss of jobs,” he said.

Fayyaz said that the very reason for seeking public opinion regarding minimum wage was due to its potential adverse effects.

He said he wanted to seek a balance in setting a minimum wage.

“I will consider that it must not destroy businesses, especially small and medium enterprises. Small and medium enterprises are, in truth, the biggest employers of local workers,” said Fayyaz. “Some have opinioned that they shouldn’t engage in business if they can’t afford it. I don’t support this opinion. Business involves risk, and because there’s business, it creates jobs, whatever the circumstances. If this wasn’t the case, there wouldn’t be any jobs. It is therefore important to find the right balance,” said Fayyaz.

The Salaries and Wages Board’s report is currently under review of the Economic Affairs Committee of the Parliament.

Fayyaz said that he would make his decision regarding the minimum wage as soon as the Parliament informed him of its opinion regarding the subject.

One participant of Wednesday’s forum, a businessman who offers security services to public schools, said that ensuring the success of winning a contract required bidding within the range of MVR 16,000 to MVR 20,000, and offering the services of at least four security guards.

He said that he could not afford to pay minimum wage when the contract price was so low.

He asked how the government would assist small businessmen such as himself in such situations.

Fayyaz responded that the government could not provide any financial assistance.