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Annual Report 2001

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Maldives

Economic performance

Economic performance in the Maldives was favorable during the first 8 months of 2001, but came under stress with recent adverse global developments, in particular after the 11 September events. Tourism, which accounted for more than one third of GDP, stagnated. Concerns over travel safety and declines in consumer spending and confidence significantly reduced tourist arrivals in the Maldives. Tourist arrivals declined by 20.1% in October and 22.2% in November, from 2000 levels. Overall, tourism was estimated to have contracted by 0.5% in 2001, compared with 6.0% growth per annum in recent years. This had a spillover effect on other sectors, reducing GDP growth in 2001 to 2.1% from 4.6% in 2000. The fiscal deficit increased from 4.9% of GDP in 2000 to 5.3% of GDP in 2001. Money supply increased by 9.0% but inflation remained as low as 0.7%. The trade deficit was estimated to have deteriorated by 3.7% and reached 42.5% of GDP in 2001 from 41.6% of GDP in 2000. Overall current account deficit expanded by 17.0% and was posted at 10.9% of GDP in 2001 from 9.5% of GDP in 2000. As for capital account, net nonmonetary capital inflow for 2001 declined by 20%. Consequently, the balance-of-payments deficit for 2001 expanded to $26.0 million from $7.9 million in 2000. Foreign exchange reserves at the end of 2001 declined to $94.3 million, sufficient to cover 2.9 months of imports.

ADB operations

Operational strategy: ADB’s operational strategy will support poverty reduction by combining pro-poor growth, social development, and good governance initiatives. To foster pro-poor growth, ADB will assist in regional development by providing basic infrastructure and capacity building; creating an enabling environment for private sector development, including financial sector and legal system reform; and 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. To support good governance, ADB will develop improved information access in the public sector and build the capacity of key public institutions for improving management efficiency. ADB will also help the Government facilitate private sector participation in the economy with the eventual graduation of the Maldives from a least-developed country status.

Policy dialogue: Policy dialogue focused on the telecommunications and energy sectors. The formulation of the telecommunications sector policy indicated the Government’s strong commitment to restructure tariff, enhance regulatory framework with appropriate legislation, and open telecommunications markets to competition. In the energy sector, major policy developments included strengthening the regulatory body for sector efficiency and facilitating cost recovery policy and private sector participation in establishing and managing island community-based power supply systems.

Loans and technical assistance: In 2001, ADB approved two loans totaling $17.5 million for an information technology development project and a sector project on outer islands electrification. ADB also approved three technical assistance grants totaling $700,000, of which two were for project preparation and one was for capacity building.

Project implementation: Since joining ADB in 1978, the Maldives has received 11 loans, of which 5 were active at the end of 2001. Contract awards totaled $3.3 million, bringing the cumulative figure to $45.4 million. The contract award ratio was 13.1%, lower than the ADB-wide average of 14.8%. Disbursements during the year totaled $2.7 million, bringing cumulative disbursements to $38.8 million. The disbursement ratio was 14.9%, lower than the ADB-wide average of 20.5%.

A country portfolio review in December assessed key performance indicators, and developed a plan to improve project implementation and promote readiness for better overall portfolio performance in the Maldives. Recent improvements in project monitoring and reporting were reviewed with the various executing agencies and project directors. A procurement workshop was also conducted in Malé for ADB project directors and government officials.

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