ADB, Maldives Enter 5-Year Strategic Partnership

News Release | 5 October 2007

MANILA, PHILIPPINES - The Asian Development Bank (ADB) and the Republic of Maldives have entered into a five-year Country Partnership Strategy (CPS) that will assist in alleviating the constraints of weak capacity and lack of adequate institutional framework to ensure the country can cope with development challenges as it approaches middle income economy status.

The financial support to be provided by ADB under the CPS involves a total $34 million in loans and $3 million in grants, spread over two phases. ADB's CPS for Maldives prioritizes energy, industry and trade, law, economic management, public policy, and transport and communications. The theme of the strategy centers on capacity development, environmental sustainability, gender and development, good governance, inclusive social development, and private sector development. In Phase I, assistance would be provided to developing capacities in managing the development process. It will also establish the technical ground work for Phase II, where ADB will focus on providing assistance for power, transport and private sector development. Phase II will also involve assistance for small and medium enterprises, privatization of state-owned enterprises and structuring of public-private partnerships.

"The Maldives faces many of the constraints of a small-island economy. Its vulnerability to external shocks was exposed by the 2004 tsunami, which destroyed nearly two-thirds of the country's capital stock," said Yukiko Kojima, Country Director-Maldives of ADB's South Asia department. An assessment of the damages inflicted by the tsunami by ADB, World Bank and United Nations System estimated total damage suffered by the country to have reached $470 million, or 62% of GDP.

Prior to the tsunami, which pushed back the graduation of Maldives into a middle-income country by seven years to January 2011, rapid economic growth allowed the country to provide basic services and boost the living standards of its people. But it also masked the need to address longstanding constraints to broad-based, sustainable socioeconomic development. Such constraints include the Maldives' narrow economic base, a government-dominated economy, low participation rate in the labor force, inequality, weak public institutions, and lax fiscal policy.

"As the country approaches middle-income status, it can no longer afford to neglect these accumulated constraints," said Ms. Kojima.

A CPS is based on an analysis of a developing member-country's development priorities and poverty reduction programs. It is prepared with the developing member-country's active participation through extensive consultation with government and other country stakeholders, including civil society, non-government organizations, private sector, and other development agencies.

Through the strategy, ADB will provide loans to strengthen economic and financial management in areas such as internal audit, tax administration, the development of a long-term fiscal framework, debt management, and strengthening project management capacity.

ADB will also assist in structuring public-private partnerships in the priority areas and providing an environment conducive to small and medium-sized enterprises.

To ensure continuity of assistance, the Government of Maldives will have to show a reduction in external debt, improved disbursements for projects assisted by ADB and progress in developing a medium-term fiscal framework to ensure that new public investment is prioritized and can be financed without undermining macroeconomic stability.