Regions and Countries

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p. 2 of 4 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels

Country Strategy and Program Update 2005–2006: Maldives

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

10. Since the Government and ADB signed the PRPA in March 2002, progress has been observed in some key target areas. These include more than 6% economic growth in the past 2 years; initial steps to further improve the fiscal management system; initial steps to diversify economic activity into other sectors of the economy; nurturing new sources of employment and growth; promoting good governance, including initial steps to improve the public accounting system; greater ease of access by the population in remote islands to public utilities and publicsector information; and greater involvement of local communities, the private sector, and local authorities in decision-making and delivery of public services.¹ Discussions are ongoing between the Government and its key development partners regarding the preparation of the Seventh National Development Plan (7NDP, 2006-2010). The Government is proposing that the 7NDP would also be considered a national poverty strategy for the country.

B. Progress in the Country Strategy and Program Focus Areas

1. Regional Development

11. As prioritized in the Sixth National Development Plan (6NDP), the Government continues to pursue economic development initiatives in the key islands. These initiatives are being undertaken in tandem with infrastructure investment to spur regional economic growth. Activities such as regional airport upgrading, resort improvement and development, and harbor and marina development are nearing completion. Participatory development plans in selected atolls, to guide atoll- or region-based economic and social development, are also being completed. The plans will promote inter-island and intra-atoll economic and social development activities including transport network development, public utility services development and regulation, and comprehensive regional planning. ADB’s assistance to improve living conditions and to promote human development in the atolls is being prepared under the second phase of a project for regional development to be approved in 2004.

2. Education

12. The quality of primary education has been further improved and further expansion of access to secondary and post-secondary education is being pursued. The gross enrollment ratio for the combined primary, secondary and tertiary education for female students is slightly higher than for male students’. On post-secondary education, the Government has come a long way in consolidating activities of the eight separate postsecondary institutes into one institution with a common identity and culture. The Maldives Accreditation Board (MAB) and the delivery of foundation courses to help prepare students for postsecondary education have also been made functional and operational.

13. Assisted by the ADB, the Government has initiated an employment skills training scheme to increase the size of the labor force. Employment-oriented skills training in various occupations is being planned and provided to make Maldivians more attractive to employers. The in-country capacity to deliver competency-based skills training will be strengthened. The Government is also initiating the preparation of a new legal education framework to support provision of education for all, and to make postsecondary education more affordable to students within the framework of sustainable financing for education.

3. Financial Sector

14. ADB has been working closely with the Government to strengthen public accounting and to improve governance, transparency, and accountability in public-sector operations. Central to ADB's financial sector development program over the next 3 years is Loan 1915: Strengthening of the Public Accounting System Project. The loan will support institutional and procedural changes in public finance. It will act as the backbone for all the other expenditure- and revenue- side support ADB is extending to the Maldives in order to develop a social security system, diversify revenue sources, manage domestic and foreign public debt, and form a foundation for the financial network at the atolls and island level. In this context, given the still pending effectivity of Loan 1915, the advisory technical assistance (ADTA) for the development of credit schemes in the atolls is now scheduled to be processed in 2006.²

4. Transport

15. A lack of transport facilities adds to problems of remoteness and isolation, an important dimension of human poverty in the Maldives. To address the inter-island transport problem, ADB provided technical assistance (TA) to develop a transport masterplan to guide institutional capacity building and future sector investments from a long-term perspective, in line with the Government’s regional development strategy. The transport master plan is being finalized and an ADB follow-up TA is scheduled to prepare a transport infrastructure development project for 2005. The private sector is expected to provide inter-island shipping services, while the Government is to provide ports, deepened harbors, and regulatory functions.

5. Energy

16. Provision of reliable and efficient electricity supply in the outer islands is also important to reduce regional disparities and the vulnerability of the outer islands' population. ADB approved its first loan for the Outer Island Electrification (Sector) Project in December 2001, which will finance improved electricity supply systems on about 30 islands. This leaves many islands without sufficient electricity supply, so another loan for a follow-up project is planned in 2006 with project preparatory technical assistance (PPTA) to be conducted in 2005. However, the schedule for the project preparation for the next electrification loan will depend on satisfactory and timely progress in accomplishing the covenants under the last loan, including the requirement to establish new legislation that will enable legal recognition of communityowned power supply companies or cooperatives on the islands.³

6. Agriculture

17. The Government has been developing agriculture, especially in the atolls to help promote economic diversification and regional development. Agriculture has thus far only accounted for 3% of GDP. The potential for agricultural development has been recognized, especially on islands with large landmasses. ADB is helping the Government undertake an initial study to review the status of agricultural development, and explore its potential as a new source of income especially for the atoll population.

7. Good Governance

18. The Government has made a commitment to controlling the deficit and improving its fiscal position. For now, the Government plans to finance long-term deficits only through marketbased instruments. Initial actions have been taken to introduce a new public accounting system to enable more comprehensive and updated control over public expenditures. Three draft bills have been prepared and the president’s office is expected to submit them to the People’s Majlis (parliament) before the end of 2004: (i) the Public Finance Bill, (ii) the Public Enterprise Accountability Bill, and (iii) amendments to the Audit Bill. The Government has also initiated actions to expand the tax base. An implementation plan for the business profit tax (BPT) including the property rental value tax (PRVT) is being devised and the enactment of relevant legislation and regulation will be supported.

19. The Government has initiated actions to formulate a medium-term macro economic framework to better plan economic development. A public expenditure management and budgeting workshop was held in June 2003 with the involvement of the World Bank and the International Monetary Fund (IMF). One outcome of the workshop was the decision that government budgets will be formulated under a medium-term expenditure framework from 2005 onwards. Under this approach, all line ministries and agencies will prepare multiyear budget frameworks, showing capital and recurrent expenditures.

20. ADB continues to assist the Government in capacity development—especially at key public institutions—as this issue is central to poverty reduction. An ADTA has been included in the 2005 ADB program to build on the staff consultancies in 2004 and to strengthen institutional capacity of selected government agencies.⁴

8. Regional Economic Cooperation

21. As part of its effort to diversify its economy, the Maldives has recently been more active in pursuing closer trade ties with neighboring countries in South Asia. The environment has become more conducive for subregional cooperation following the South Asia Association and Regional Cooperation (SAARC) Summit in Islamabad in January 2004. A TA to explore the Maldives’ economic cooperation potential has been implemented to help identify mutually beneficial opportunities for economic cooperation with other South Asian countries, in line with ADB’s efforts to promote regional cooperation in South Asia. The draft report finds that the Maldives and other South Asian countries have generally strong export performances in similar product categories but not in the same specific products, implying opportunities for complementary intraregional trade. It also finds opportunities for cooperation with other South Asian countries in sectors such as tourism, fisheries, trade and investment, transport and communications, finance, education, medicine, and information technology. The findings in the final report were discussed during a workshop held in May 2004.

C. Highlights in Coordination of External Funding and Partnership Agreement

22. ADB maintains close coordination with key development partners, including UNDP, the World Bank, and IMF. Recent cooperation among major development partners has focused on human resource development, including employment skills, capacity building, and institutional development of key government ministries and agencies. ADB’s and IMF’s support to financial sector reform was closely coordinated. Coordination with the World Bank has focused on education and human resource development. Coordination with the UNDP, which has a resident representative in the country, has focused on undertaking a joint private-sector assessment, as well as cooperation in the areas of poverty reduction data collection and monitoring and strengthening capacity of selected government institutions.

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