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Countries and Regions Country Partnership Strategies Document
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Country Strategy and Program Update 2004-2006: Maldives
II. Implementation of the Country Strategy and ProgramA. Progress under the Poverty Partnership Agreement9. Progress has been observed in some of the key targets and indicators in the Poverty Reduction Partnership Agreement that was signed by the Government and the Asian Development Bank (ADB). These include improving the fiscal management system, increasing competition in public utilities and fisheries marketing, gender equity in lower secondary education, increasing telecommunications penetration and reduction in tariffs, and increasing postsecondary education opportunities for atoll students. The country's key poverty and social indicators are in Table A1.3 of Appendix 1. 10. A key implementation issue of the Poverty Reduction Partnership Agreement is the monitoring of poverty incidence. The Government's last survey on poverty was undertaken in 1998. However, since then there has been no follow-on survey nor an effective tracking mechanism. The Government is committed to establishing a poverty and vulnerability monitoring unit, which will be the focal point of a poverty monitoring exercise of the Government and which will produce a poverty monitoring report annually. ADB's assistance to capacity building for a national statistical system will complement the Government's efforts to strengthen poverty monitoring through improving institutional arrangements, strengthening the statistical legal framework, and augmenting human resources capacity. B. Progress in the Country Strategy and Program Focus Areas1. Least Developed Country Graduation11. The Government is fully cognizant of the need for appropriate national strategies to cope with the negative impacts of potential graduation from LDC status. In view of a possible reduction of grant assistance and a hardening of terms and conditions of international aid, the Government has initiated a process of establishing a debt management system with ADB assistance to better monitor the fiscal and external debt positions. Graduation from LDC status will lead to an end to preferential access to the major international markets of the Maldives' key exports. The Government, as part of the process for economic diversification, has formed committees to develop plans on how to diversify both the industrial base and export products and markets. 2. Regional Development12. Regional development initiatives taken by the Government have shown progress. The parallel economic development initiatives in the key islands, which are being envisaged to be undertaken in tandem with the Government's infrastructure investment to spur regional economic growth, have picked up in the areas of regional airport upgrading, resort development, and harbor and marina development. Atoll development plans are being formulated in selected atolls to guide atoll- or region-based economic and social development, with the participation of island communities. The plans promote interisland and intra-atoll economic and social development activities, including transport network development. 3. Education13. Government efforts to improve the quality of primary education and expand access to secondary education are ongoing. Gender equality, which has been attained for primary education under the universal education policy, has shown improvement in lower secondary education. The number of students who received postsecondary education in the atolls is expected to increase from 1,400 in 2000 to 2,000 by end 2003. Another 90 will be added to the figure with the completion of a hostel in Malé with ADB assistance. 14. Given the young population structure of the country where the population under 15 years of age accounts for more than 40% of the total, an increasing number of young people are expected to enter the labor market. The Maldives faces a challenge of providing employment opportunities to these people. To address the training needs of young people who have not passed their "O" level examinations and of those who do not complete secondary education, an employment skills-oriented project is being prepared. 4. Financial Sector15. Following the liberalization measures of the financial sector undertaken in recent years, the Government's further initiatives on financial sector reforms are continuing. As a key initiative to fight money laundering, a financial intelligence unit will be established with the assistance of the World Bank. The Government is working to introduce a new supervisory legislative framework on insurance companies, with the aim of further liberalizing new entry into the industry and strengthening insurance companies' role as institutional investors in the domestic market. The volume of share trading at the recently opened security trading facility provided by the Capital Market Development Section of the Maldives Monetary Authority has been expanding. 5. Good Governance16. Key progress has been seen in the Government's efforts to promote good governance, among other things, to improve public sector management. With ADB assistance, a legal framework to improve the Government's public accounting system has been prepared: the three bills-Public Finances Bill, Public Enterprises (Accountability) Bill, and Amendments to Audit Act-will be submitted to the People's Majlis shortly. The Government aims to introduce a medium-term budgeting approach in the budgeting process. Under the approach, all the line ministries and agencies will prepare multiyear budget frameworks, showing not only capital expenditures but also recurrent expenditures. This approach is expected to contribute to better fiscal management by reducing cases where the Government is forced later in the year to meet additional costs, particularly for recurrent expenditures. 17. The Government's measures to restructure state-owned enterprises (SOEs) have picked up. To date, 14 out of 20 SOEs have been corporatized and each of these SOEs has become a legal corporation with limited liability (and with limited government involvement in their management and operations). Also, eight SOEs have been partially privatized; three of the eight have been divested and their shares offered to the public. The Government plans to corporatize two more SOEs in 2003. 6. Private Sector Development18. There have been achievements in promoting private sector participation in the Maldives' economy. In the telecommunications sector, the Internet market has been opened up for a second service provider. Coupled with enhanced regulatory measures, continuous and significant reductions in Internet tariffs have been observed. The Government also plans to open the mobile phone market by inviting a second service provider into the market in 2004. The opening up in 2002 of the country's two fishing zones to private sector operators is another achievement. It has contributed to some extent to the increase in the fish catch and creation of new employment opportunities in the atolls. 7. Gender Development19. The Government's efforts for gender development have been accelerated. The Ministry of Women's Affairs and Social Security is strongly encouraging all the development projects by other government ministries or external assistance agencies to address gender issues. While women's representation in senior government positions is still low, the ratio of women among those who are promoted has shown a significant increase. The Government has accorded high priority to addressing domestic violence by raising public awareness on the issue, with the involvement of civil society. 8. Regional Economic Cooperation20. Despite its location, the Maldives' trade ties with neighboring countries in South Asia are weaker than those with Europe, United States, and Association of Southeast Asian Nations (ASEAN) countries. The slowdown in economic growth since 2000, which was due largely to the weak performance of tourism stemming from global security concerns, poses a question on the country's conventional development path that heavily relies on tourists from Europe. The possible graduation of the country from LDC status in the foreseeable future will have significant negative implications for the country, including declining external assistance (and hardening terms) as well as an end to preferential access to industrial country markets-including the United States for garments and the European Union for fish products. While some ASEAN countries, including Singapore, have been major trading partners, recent movements toward free trade agreements within ASEAN and East Asia may leave the Maldives in a disadvantaged position as a trading partner. 21. These developments therefore call for a new economic development strategy that aims to establish new and diversified economic linkages with the rest of the world. Given its location and historical, political, and diplomatic ties, the deepening of regional economic cooperation with South Asian economies will be an important agenda in this regard. The Government, with the assistance of ADB, has initiated work to explore the regional economic cooperation potential of the Maldives with South Asian countries. C. Highlights in Coordination of External Funding and Partnership Arrangements22. While it has no resident mission in the Maldives, ADB has maintained close communication with key development partners, including the United Nations Development Programme, World Bank, and International Monetary Fund. Recent cooperation among major external agencies has focused on capacity building and institutional development of key government ministries and agencies, such as public expenditure management and statistical development. Table A1.5 of Appendix 1 provides a matrix on development coordination.
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