Home 
Countries and Regions Country Partnership Strategies Document
I. Development SituationA. Recent Political and Social Developments1. The Maldives has experienced political stability for a long period. The current President has been in office since 1978 and has guided the modernization of the nation. A new constitution was promulgated in 1999, strengthening the democratic processes. A well-functioning formal and informal set of checks and balances serves to ensure public integrity and effective governance. 2. The Maldives has recorded impressive achievements in social development in terms of health care services and education (Appendix 2). Primary education has become the basic right of almost all Maldivian children, and piped water supply and sewerage are available in Malé. Increased access to social services has contributed to vastly improved health and mortality conditions. Since the mid-1980s, more than a decade has been added to life expectancy, with males and females expecting to live 72 and 73 years respectively. Several debilitating diseases, such as malaria, childhood tuberculosis, filariasis, and leprosy have either been eradicated or have negligible transmission rates. The Maldives is ranked as the highest among South Asian countries in the gender development index of the United Nations Development Programme (UNDP). Nonetheless, Maldivian women do suffer from certain forms of gender bias. B. Economic Assessment and Outlook3. The Maldives' economic performance has been very good. The economy has grown by 7.4 percent annually since 1991. In 2000 the gross domestic product (GDP) growth slowed to 4.8 percent mainly due to a slow increase in tourism revenues, a decline in resort construction, and a reduction in the level of fish catches. However, the GDP growth is forecast at about 7 percent in 2001, fueled by buoyant tourism and fisheries activity, and double-digit growth in domestic construction. Per capita GDP increased from $1,636 in 1995 to $2,059 in 2000 (Appendix 1). 4. Over time, the tourism sector, which accounts for about one third of GDP during the last decade, played a key role in the rapid economic growth of the country, and the economy has become less reliant on the fisheries sector. The share of the fisheries sector in GDP declined from 15.1 percent in 1991 to 6 percent in 2000. Instead, the secondary sector’s share increased from 12.4 percent to 14.4 percent during the period. 5. Double-digit growth in tourism revenues has propelled the economy forward in the 1990s, but the tourism industry entered into a more mature consolidation phase, in which product and source market diversification have been the key challenges. Fish production has increased due to the adoption of second- and third-generation fishing vessels, which had a significantly larger range and harvesting capacity than the traditional smaller pole-and-line vessels. But despite the upsurge in output, fisheries incomes grew at a sluggish pace due to the fall in global tuna prices to historic lows in 1999/2000 and inadequate marketing capacity. 6. A key feature of the labor market is the increasing number of expatriate workers, currently estimated at about a quarter of the total labor force. The majority of the expatriate workers occupy both the most skilled and the least skilled segments of the labor market. On the one hand, this highlights the skill shortages facing the Maldives and the constraints that a shortage of skilled labor poses to economic growth. On the other hand, it suggests that living conditions and income-earning opportunities in fisheries have progressed to a point where what unskilled Maldivians consider as the minimum wage is above that for unskilled laborers elsewhere in the region. 7. In the early 1990s, a cyclical downturn in fisheries and tourism earnings triggered a rapid expansion of the fiscal deficit in the Maldives. After the deficit reached a peak of 12.4 percent of GDP in 1993, the Government implemented an effective stabilization program characterized by various fiscal restraint measures. In 1999, the economy was again adversely affected by terms of trade shock resulting from a 50 percent decline in global tuna prices and a near-doubling in the cost of petroleum imports. The terms of trade shock, coupled with a 30 percent civil service salary increase, contributed to a widening of the fiscal deficit to around 3.3 percent of GDP in 1999 and 2000 and increasing the public debt. An important lesson from the fiscal instability in the 1990s was the vulnerability of domestic revenues to external developments due to their heavy dependence on import duties and a tourism bed tax, and the importance of a cautionary fiscal stance. While Government spending has remained relatively stable as a share of GDP in the 1990s, the proportion of public expenditures allocated to current spending has increased while that allocated to capital spending has fallen. 8. A monetary policy reform program, launched in 1995, liberalized interest rates, eased direct credit control, and introduced new financial instruments. Due to lower Government borrowing, the rate of growth in the money supply has slowed since 1995 and has been consistent with the rate of growth in economic activity. A fixed exchange rate policy, with the rufiyaa pegged to the US dollar, has been maintained since 1994. The combination of fiscal restraint, low fish prices, and a nominal exchange rate anchor has had a favorable impact on inflation. The rate of inflation was 3.0 percent in 1999 and –1.1 percent in 2000. 9. Historically, the balance of payments has been susceptible to volatility in tourist arrivals and international fish prices. Between 1996 and 1999, the trade balance deficit remained high at about 40 percent of GDP, but this was offset by a large surplus on the services account due to tourism earnings. The current account deficit has been in the range of 5-10 percent of GDP during the past five years due to an ambitious program of private capital investments for new resort developments. Official reserves have increased during the 1990s and presently cover more than three months of import requirements. C. Implication for the Country Strategy and Program10. The Maldives has achieved high economic and social development. With sound macro-economic management, the Government has been able to manage two severe macro-economic shocks in the 1990s without recourse to external finance. However, there are large regional disparities in incomes, and access to and availability of essential services. Moreover, the country remains highly vulnerable to global economic fluctuation and environmental changes. While the Government’s Sixth National Development Plan and Vision 2020 aim to address these issues, the cost and the institutional capacity building have yet to receive adequate attention. Therefore, the ADB’s activities in the Maldives need to set new priorities not found in the 1995 country operational strategy. The country strategy and program (CSP) needs to shift priority from addressing macroeconomic imbalances to promoting regional development that aims at equitable development among the atolls on one hand and promotion of economic growth for alternative centers to Malé on the other. It also needs to assist the Government to strengthen the Maldives' economic sustainability.
|
|||||||||||||||||||||||
RSS Feeds
Back
Top of page