Countries and Regions

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p. 4 of 7 BACK | NEXT Executive Summary I. Development Agenda II. ADB's Development Experience III. ADB’s Strategy IV. Operational Approach V. Three-Year Assistance Program VI. Performance Monitoring and Evaluation

Country Strategy and Program Update 2002-2004: Maldives

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III. ADB’s Strategy

69. The Government’s Vision 2020 and the 6NDP are the basis for ADB’s country strategy for the Maldives. The imperatives of ADB’s long-term strategic framework²² and poverty reduction strategy are considered in refining ADB’s midterm strategy. Coordination with other development partners, in particular the World Bank’s midterm strategy, is also incorporated under poverty reduction as the underlying common thrust. ADB’s sector strategies are included in Appendix 4.²³

A. Poverty Reduction

70. ADB’s future assistance to the Maldives will reflect the result of ADB’s poverty analysis; the high-level forum on poverty reduction; and other discussions with the Government, funding agencies, the private sector, and civil society. It will also reflect the Government’s commitment and capacity and ADB’s comparative advantages. ADB’s future operational strategy for the Maldives will support poverty reduction through a combination of pro-poor growth, social development, and good governance initiatives. To foster pro-poor growth, ADB will assist in (i) fostering regional development including the provision of basic infrastructure and capacity building; (ii) creating an enabling environment for private sector development, including reform of the financial sector and the legal system; and (iii) developing an information and communication network in the atolls. To raise the level of social development, ADB will provide assistance for postsecondary education and skills development, and possibly for improving the quality of primary education. To support good governance, ADB will (i) develop improved information access and public sector connectivity, and build the capacity of key public institutions with the aim of improving public sector management efficiency; and (ii) assist the Government to enable private sector activities and to prepare for the likely exigencies posed by eventual graduation from least developed country (LDC) status.

1. Supporting Pro-Poor Economic Growth

71. Regional Development. Regional development will be at the center of ADB’s program. This will include provision of essential infrastructure and decentralized management institutions to enhance the quality of transport, electrification, and sewage available to those residing in the atolls. The challenge will be to enable private sector development to capitalize on the impressive base of social and economic infrastructure investment that has been provided. ADB will support participatory community development, and facilitation of economic activity and employment generation through micro and possibly larger scale credit in these regions. ADB will promote population consolidation by assisting the Government to improve the legal system for the security of property and land tenure of both host communities and migrating people.

72. Institutional strengthening is a key component of efforts to foster decentralized approaches to atoll development. Communities vary greatly in their ability to articulate and implement development schemes. Regional offices and atoll administrations will need to be strengthened to facilitate participation by the island populations and to exercise their support and oversight functions.

73. Although decentralization is important, the Government will continue to play an important role in the regional development process. Improved access to transport facilities in the atolls continues to be a major priority for central and local governments. ADB will support the Government’s efforts to enhance transport access by providing TA for preparing a transport master plan.

74. Ensuring adequate access to essential utilities is part of the Government’s strategy for widening opportunities to participate in the growth process. A loan project for outer islands electrification to be processed in 2001 aims to improve electricity supply in about 40 outer islands on a sustainable and affordable basis. ADB assistance will also help to broaden access to telecommunications, which through computers and the Internet can enhance opportunities for distance education and create scope for electronic commerce, software development, on-line service provision, and a range of other communications-related activities.

75. SME Development. Increased productivity, incomes, and employment in SMEs are critical to raising incomes and opportunities for the poor. Moreover, in the new regional growth centers, private sector initiative, much of it in the form of SME developments, will be needed to capitalize on the improvements in access and services afforded by public investment. To enhance the business development capability of atoll communities, ADB will review the existing policy framework and operational and legal environment for SME development, and will develop an action plan and investment strategy for fostering sustainable SME growth.

2. Inclusive Social Development

76. Empowerment of the Poor with Better Skills. The quality of education needs improvement to address a combination of disparities between the Malé region and the atolls, low-quality primary education in the atolls, limited coverage of secondary and postsecondary education, and excess demand for skilled labor. Atoll primary schools can be upgraded by establishing a regional system for teacher training, providing essential school materials, and upgrading school facilities. Secondary education is being strengthened by assistance from other agencies such as the Islamic Development Bank, Japan Bank for International Cooperation, and World Bank. Due to their programs, the number of secondary graduates is increasing at a rapid rate, fueling demand for postsecondary education.

77. ADB’s support for education will concentrate on improving access and quality of education services offered to students from the atolls, in ways that are complementary to the Government’s initiatives and those supported by other funding agencies. ADB will aid in strengthening the postsecondary education system, including upgrading selected diploma programs to degree programs, and skills development. It will help the Maldives deliver highquality and relevant education to all Maldivians, including to those living in the atolls. Although primary education has a direct link to poverty, ADB will continue to permit other active funding agencies in this sector to maintain its effective coordination with them.²⁴

78. Health Services and Nutrition. The improved accessibility to health services and mitigation of malnutrition are needed to prevent perpetuating poverty. International Development Association (IDA) and UN agencies including UN International Children’s Fund (UNICEF), UNDP, and World Health Organization (WHO) are contributing to making health services affordable for the poor. The World Bank is also indirectly involved in the health sector. ADB will mainstream the health issues in assisting the Government to improve nutrition, in particular to reduce child malnutrition, through specific project components that will be assessed for possible funding by the Japan Fund for Poverty Reduction mechanism during project formulation. Promoting regional development and information and communications technology will facilitate access to health services and information, among other benefits.

3. Capacity Building for Good Governance

79. Public Accounting Procedures. Accounting procedures vary widely across the Government, hindering fiscal consolidation and control, and limiting the scope for improving accountability of public expenditures. A lack of proper financial controls contributes to significant unspent balances in a number of Government accounts. New unified public accounting, auditing, and budget systems have been designed through ADB TA. The implementation project will aim at improving the financial reporting system, enhancing management of public funds, and strengthening the related legal framework.

80. Internet Connectivity to Public Services. ADB is planning to support a network of Government and parastatal offices in Malé, all 20 atolls, and selected islands. The common Government data net will provide a platform for adopting common accounting standards, exchanging information, and rationalizing service delivery. The net will also provide tremendous opportunities to deliver higher quality public services, particularly in health and education, to the atoll population. ADB will provide continued support for efforts to design suitable applications for the common Government data net in health, education, and public sector management. Internet kiosks will be established in the atolls to enhance access to public information and government services by the public at large. A national computer center will be established to set information and communication technology policies and to foster future development of Internet-related services. Telecommunications reform incorporated in the project will complement this process. Follow-up investments, involving an expansion of the network and the promulgation of applications that empower the poor through improved access to information and social services, are envisioned.

81. Public Utility Regulation. Regulation and supervision of utilities is of particular concern, particularly as the scope of utility services spreads beyond Malé to the less accessible outer islands. The central Government utilities continue to have weak internal management systems and limited ability to set tariffs appropriately. In telecommunications, an independent regulatory body will be established to monitor technical standards, license carriers, regulate tariffs, establish interconnection terms, and consider user complaints. New opportunities will be created for private investment in telecommunications services. Competition and administrative reform are expected to result in lower tariffs. In the power sector, ADB will work with MEB to develop human resources, establish national safety and quality standards of electricity power supply systems, set up operational procedures for enforcement of safety and quality, and formulate pricing principles for setting tariffs. There is also a critical need to build the capacity of outer island power utilities for efficient management and operation of power supply systems. ADB will assist outer island governments to develop the capacities needed to operate simple, diesel-powered systems. ADB will also assist the Government to study the establishment of a single apex body, independent of the ministries responsible for developing the public utilities, that can supervise and oversee the operations of the utilities.

B. Private Sector Development

82. ADB will assist the Government to enhance private sector development. First, the Government will be encouraged to adopt a more facilitative and regulatory role and be less directly involved in the provision of commercial services. This will be advanced by encouraging public-private partnerships, build-operate-transfer, and build-operate-own-transfer infrastructure provision; restructuring and privatizing selected public enterprise activities; developing the capacity to divest state-owned enterprises; and identifying suitable alternatives to domestic monopolies and other noncompetitive practices. Since the revenue base depends in part on revenues provided from a number of public monopolies, complementary advisory support will be needed to help diversify the tax base from its dependence on state-owned enterprise revenues to a more robust array of direct and indirect taxes. Together with IMF, ADB will support institutional strengthening aimed at diversifying the domestic revenue base.

83. Second, the financial sector will be strengthened to more effectively mobilize savings and fund long-term development. So far the main objectives of financial sector reform have been to broaden private sector access to finance, particularly in the atolls; increase the responsiveness of the financial institutions to local development requirements; and strengthen bank regulation and supervision. ADB will continue its assistance to strengthen the financial sector in coordination with IMF and the World Bank. Special attention will be accorded to capacity for long-term lending and development banking, and the special financing needs of SMEs, particularly those in the atolls. Third, to improve credibility and investor confidence, ADB will continue to support improving the legal system through a reform component in assistance.

84. Fisheries, which has high potential for poverty reduction, will greatly benefit from private sector development. The sector urgently needs the removal of key policy and institutional constraints, including the state monopoly over production and export of canned tuna and frozen fish, and the rigid tuna procurement pricing policy. The World Bank is assessing the fisheries for assistance. ADB will also promote fisheries development through private sector development.

C. Regional Cooperation

85. As a small island country with limited domestic resources, regional activities could prove crucial to the future development of the Maldives. ADB is assisting the SACEP in the Maldives and other South Asian countries. Through this forum, the best practices in reef management technology are being shared. ADB will continue to foster regional collaboration in tertiary education by helping to forge partnerships between institutions of higher education in the Maldives and other parts of the region. Trade, commerce, tourism, information and communication technologies, capital markets, and civil aviation are also areas where ADB could assist the Maldives to benefit from regional cooperation.

D. Thematic Priorities

1. Graduation from Least Developed Country Status

86. The Maldives is currently eligible for IDA and Asian Development Fund (ADF) resources in 2002. Although per capita income of the Maldives exceeds the operational gross national product cutoff ($885), its high poverty level and vulnerability have been considered important factors in classifying the county status. The UN Committee on Development Policy recently discussed graduating Maldives from the LDC category. The graduation process is expected to take place in a phased manner, starting in 2003 or 2004. This change in status will lead to a hardening of assistance terms and a loss of preferential market access status with selected trading partners (Box 4). The latter may impact the poor directly due to a loss of preferential fish marketing opportunities. The graduation will reclassify the Maldives from a county eligible for ADF to a country eligible for ADF with limited ordinary capital resources.

87. Public Debt Management. Graduation from LDC to developing country status may result in a hardening of aid terms and a loss of preferential trading rights. The Government has to be prepared to manage its public debt in a manner consistent with fiscal sustainability. As assistance terms harden, the Government will need to further improve the management of public borrowing to ensure fiscal sustainability. At present, responsibility for bilateral (grantbased) and multilateral assistance is split between the Department of External Resources and the Ministry of Finance and Treasury. Domestic borrowing from the banking system is monitored by the Maldives Monetary Authority. As financing costs rise, the management of the public debt must be further consolidated to improve the timing and accuracy of the debt reporting system, and an accurate public debt forecasting capacity must be developed. ADB will provide TA to improve the public debt management system.

88. Leadership Development and Civil Service Management. The challenges of leading a mature, middle-income society are very different from those posed at a lower level of income and development. Managing decentralization, separating the policy and implementation responsibilities of the Government, improving capacity for performance monitoring, and defining performance in terms of results are some of the institutional innovations that the President envisions as challenges facing the civil service in the decade to come. ADB will provide TA to bolster leadership training, both in-country and by exposing national leaders to the best practices in public sector leadership in other countries. Assistance to the President’s office will be also sought to facilitate the introduction of a performance-based monitoring and evaluation system across the Government.

89. Anticorruption. One of the strengths of public sector management in the Maldives is the relative absence of corruption. But as the private sector takes a greater role in the provision of utilities and the delivery of services, the risk of corruption will increase. The Government has taken an important preemptive effort toward combating corruption by establishing an anticorruption board. ADB will support the Government’s efforts to combat corruption by providing TA aimed at enhancing the board’s capacity to review financial accounts and to detect and deter financial crimes.

90. Information for Public Sector Economic Management. Better access to timely and accurate development information becomes more important as the role of the Government shifts from a provider of economic and support services to a regulator and facilitator of private initiative. In a volatile global setting, accurate economic statistics will be needed to assess the impact of macroeconomic and structural policy reforms and to guide economic management efforts. Building on its past support for national planning exercises and the national accounts methodology development, ADB will provide technical advisory support for establishing a bureau of statistics.

2. Environment

91. Given limited human resources and institutional capacity, integrating and mainstreaming environmental management concerns into all sector development initiatives is urgently needed. In this context, ADB will focus on assisting the Government to ensure that environmental management concerns are properly mainstreamed and integrated into proposed ADB loans and TAs. Rather than undertaking specific environmental projects, ADB will support sustainable environmental practices in each investment such as promoting environmentally sustainable renewable energy technology and removing barriers that hinder adoption of renewable energy sources.

3. Gender and Development

92. The Government policy for promoting gender equity is to mainstream gender considerations into every public sector office and activity. ADB will support this thrust by actively mainstreaming gender considerations into its loan and TA program. By increasing access to quality education, women’s social awareness will improve and opportunities for productive employment will increase. ADB will ensure that future investments in human resource development assist the Government to promote gender equality, particularly through an increase in opportunities for higher education and technical training. Expanding access to financing for SMEs in the atolls will also contribute to gender equality (Appendix 4).

E. Risks

93. Four main risks could hinder effective implementation of the proposed assistance effort. First, external shocks could destabilize public finance, triggering widening fiscal deficits and a shortage of funds to meet counterpart obligations for development projects. Second, a shortage of skilled technicians and administrators in the outlying atolls may hamper efforts to build capacity and spread economic activity outside of the Malé region. Third, the UN and other bodies may well graduate the Maldives from LDC status sooner than expected. This would raise public sector financing costs and reduce export earnings. And fourth, as the financial and private sector development agenda shift to include divestiture and opening of the utilities markets, the issue of political will and commitment may become a concern. These risks can be mitigated by factoring economic shocks and the need for suitable technicians into loan plans, by assisting the Government to prepare for the consequences of graduation from LDC status, and by concentrating policy dialogue efforts on the likely gains and best practices involved in divestiture and private sector development.

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