A US recession will affect Maldives

Many economists at Harvard, Morgan Stanley, Goldman Sachs and Merrill Lynch believe that the United States is headed for an official recession, usually defined as two straight quarters of declining output.

In an election year, most Americans are worried about the economy, and inflation tops their list of concerns. The Federal Reserve bank, the US central bank is moving swiftly to contain a deepening credit crisis and is acting on its role as the lender of last resort to restore confidence for Wall Street investment houses that can begin securing short-term emergency loans.

The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan.

JPMorgan Chase agreed to pay a mere $2 a share to buy all of Bear — which a little over a year ago was trading for as high as $170 a share. This shows how swiftly and dramatically events can turn around in the stock market.

US is the world's largest economy and the expected negative impact on the US economy will have adverse effect on the global economy as well. The adverse impact on global economies will affect Maldives as well.

Maldives is also going through an election year and as the our economy is heavily dependent on tourism which accounts for 30 per cent of our GDP, and we need to follow the recessionary pressures that will impact global markets.

The rising sea levels has a lasting impact on our future, but the increasing oil prices has an immediate impact on us as our economy is vulnerable to rising oil prices much more than any other in the Asia Pacific region, according to a UN report.

Current crude oil prices which have crossed $110 a barrel are nearly 10 times the levels less than a decade ago. Presently Maldives is subsidising oil to fisherman, an unsustainable trend if our economy suffers a downturn due to global events. While oil-rich nations can enjoy historic gains and opportunities, major oil importers — including China and India, home to a third of the world’s population — are faced with rising economic and social costs. Maldives heavily dependent on oil imports needs to get back on fiscal discipline and run a balanced economy.

The International Monetary Fund (IMF) has warned Maldives against money printing and dangers of a currency collapse when the country went for a record budget deficit in 2007. The Maldivian $940 million budget for 2008, equal to eighty percent of the Maldives’ expected GDP carries risks of a significant deficit based on “optimistic revenue assumptions, which may fail to materialise given any decline in global markets.

Our government needs to shift the focus from political bickering and get down to the business of managing the economy on realistic expectations in these turbulent times.