Home 
Countries and Regions Country Partnership Strategies Document
|
Country Strategy and Program Update 2004-2006: Maldives
I. Current Development Trends and Issues1. The Maldives' eligibility for least developed country (LDC) status will be reviewed this year by the Economic and Social Council of the United Nations. In the current global economic climate, potential graduation will have significant impacts on the Maldives' economic and social development. Table A1.1 of Appendix 1 indicates the country's progress toward the Millennium Development Goals and Targets. A. Recent Political and Social Developments2. The country has long enjoyed political and social stability. There have been no significant developments in the political scene since the last country strategy and program (CSP) update, except for a small cabinet reshuffling in October 2002. Presidential elections are scheduled for November 2003; they have been held in an orderly and peaceful manner in the past. B. Economic Assessment and Outlook3. While experiencing the prolonged adverse effects of the 11 September 2001 events in the first half of 2002, the Maldives' tourism sector demonstrated a modest recovery in 2002. Tourist arrivals in 2002 recorded an increase of 5.1% from 2001. Consequently, sector growth rose to 2.4% in 2002, compared to zero growth in 2001. The fisheries sector also showed a significant expansion by 13.7%, led by the strong performance of tuna exports due largely to the recovery in international tuna prices. The transport and communications sector, the second largest sector in the economy, demonstrated robust growth of 6.2%. The increase in tourist arrivals spurred demand for transport and communications services for tourists. Reforms in the telecommunications sector, including the opening up of the Internet market, have contributed to lowering tariffs for telecommunications services and expanding the sector. Overall, the GDP growth rate for 2002 was 4.3%, up from 3.5% growth in 2001. 4. The Government's fiscal position for 2002 was characterized by a surge in both expenditures and financing. A major contributing factor was the Government's Hulhumalé Project, a large-scale infrastructure project to create a land mass and develop a new town on an island close to the capital city of Malé. The fiscal deficit in 2002 rose to a high of 7.4% of GDP, as compared to 4.7% of GDP in 2001. The deficit was financed by foreign borrowings. While the borrowings comprised mainly concessional loans, careful monitoring is required to ensure sustainability of the Government's fiscal deficit and debt position. The increase in the fiscal deficit was also due to a decline in grant assistance. 5. Inflation for 2002 remained low at 0.9%, reflecting low domestic fish prices and the modest economic performance. However, credit to the private sector demonstrated a 15-43% increase in every month of 2002 over the same month of 2001. This was largely a result of elimination by the Maldives Monetary Authority of bank specific credit ceiling. The expansion of credit to the private sector and of M2 may potentially indicate not only recovery in domestic demand but also inflationary pressure in the near future. 6. The performance of the external sector in 2002 was favorable. Total exports in 2002 recorded an 18.1% increase over 2001. Major contributing factors included the recovery of international fish prices and lagged effects of currency devaluation in 2001. In contrast, total imports in 2002 decreased by 2.4% compared to 2001. Therefore, the trade deficit for 2002 decreased to $208.0 million from $236.0 million in 2001. The current account deficit for 2002 was $46.9 million, a shrinkage by 18.1% from 2001, and its ratio to GDP fell to 7.5% in 2002 from 9.2% in 2001. In capital account terms, there was a significant increase in disbursement of official assistance and an expansion of private sector capital inflows. The nonmonetary capital account recorded a surplus of $73.5 million. Accordingly, the balance of payments recorded a surplus of $26.6 million in 2002, a significant improvement from a deficit of $21.4 million in 2001. The foreign exchange reserve position also demonstrated an improvement in 2002. It reached $134.5 million at end-2002, sufficient to cover about 4.1 months of imports. This compares to $94.3 million at end-2001, sufficient only for 2.9 months of imports. The Maldives' key economic indicators are given in Table A1.2 of Appendix 1. 7. The future performance of the Maldives' economy greatly depends on the development of the tourism sector. While their ramifications are unclear at this stage, the severe acute respiratory syndrome (SARS) may have a significant adverse impact on Maldives' tourism because of increased concern over travel safety. C. Implication for Country Strategy and Program8. Potential graduation from LDC status is becoming a key development issue for the country. While the final decision on when the country is to graduate has yet to be made, it is of importance for the Maldives to continue to pursue economic development and poverty reduction to prepare for the negative impacts of such graduation. Strategic support to the country in LDC graduation is the core theme of the current CSP for the Maldives. The assistance program for 2004 and onward has been developed to reflect the current development trend. In particular, the focus is on interventions aimed at economic diversification and employment creation in the atolls so as to mitigate any adverse impacts the country may face resulting from possible ending of preferential treatment in trade and other areas.
|
RSS Feeds
Back
Top of page