(Jan 22, 2008) The new World Bank Group Country Assistance Strategy (CAS) for the Republic of Maldives envisages lending around US$45 million in highly concessional funds from the International Development Association (IDA) over the next five years to support the country’s development program.
Facts: - Maldives is on its way towards achieving middle-income status with a per capita GDP of US$2,800. - The Indian Ocean tsunami of December 2004 caused damage worth 62% of GDP. - The Maldivian economy has expanded at an average of 7% per year for the last 25 years. - Poverty in the Maldives fell by more than 50% from 1997 to 2004. - Maldives has lower poverty but high inequality relative to South Asia. - Tourism and fishing are the key contributors to Maldives economy.
This Country Assistance Strategy (CAS) aligns a joint IDA/IFC assistance program behind the Government of Maldives' development strategy for the next five years through FY12. The Bank Group's overarching objective is to contribute to policy and institutional reforms that help maintain the country's successful development trajectory of the last two decades.
The Maldives is endowed with 1,192 small tropical islands that cross strategic shipping routes and has a marine environment rich in diversity. The coral reefs are the seventh largest in the world and cover an area of 8,920 square kilometers. There are now 89 tourist resorts in operation, up from 64 in 1990 and with another 45-50 planned; over the last ten years tourist arrivals have increased at an average annual rate of 8 percent. Fish catch, the other main economic activity, has increased around 5 percent per year during the same period.
Key Development Challenges and Medium Term Prospects
Overshadowing the strong economic performance is the substantial weakening of fiscal policy over the past three years, which is the main policy lever for affecting outcomes in the Maldives. This is the key source of risk facing the Maldives in the short-term.
The medium-term outlook is favorable due to vibrant tourism sector and continued investment in human development. This can be sustained provided the government is able to strengthen its fiscal policy stance and does not face adverse macroeconomic situation.
The government has set out its vision and strategy in the 7NDP for the period 2006-2010: “Creating New Opportunities.” This is also the strategic policy framework for achieving the objectives of Vision 2020. The national vision is to achieve upper-middle income status, ensure more equitable access to services and opportunities through urbanization and improved service delivery, facilitate economic diversification, promote gender equality, and support better environmental practices to sustain growth and adapt to global climate change.
Chapter 4: The World Bank Group's Assistance Strategy
The World Bank's last CAS was approved in November 2000 and was originally intended to cover the period up to the end of 2004. However, following the tsunami of December 2004, the Bank agreed to extend its agreed assistance program, to include emergency reconstruction activities, and to delay the preparation of a new assistance strategy until 2007. The overarching goal of the CAS was “the reduction of poverty and regional disparities in access to social and infrastructure services.”
In recent years, the government has sought to strengthen its monitoring and evaluation (M&E) systems. The databases it maintains provide an increasingly satisfactory set of statistics, with some variations in relative quality. The economic and fiscal data sets maintained by government are generally adequate for the government and donors to monitor performance at a national level. Working with government, the Bank's economic team will seek to update the statistical tables at least twice a year.
While potential country risks have been highlighted throughout this document, three predominate: political instability, fiscal uncertainties, and potential issues associated with project implementation.
The past four years have seen increasing political unrest and growing tensions between government and opposition. There is little that the Bank can do to alleviate this risk directly. Other actors including the EU, the Commonwealth, and the UN are better positioned to act as “honest brokers” between the government and the opposition.
In the absence of a fiscal crisis, it seems unlikely that the government will change course before the elections scheduled for next year. To alleviate the risk that unsustainable fiscal deficits derail implementation of the proposed program, in close cooperation with other development partners, the Bank Group will continue to try and persuade the Government to adopt more realistic fiscal policies.
Based on past experience, capacity limitations constrain effective project implementation. To alleviate this risk, all projects will include an institutional development focus, be kept simple and will be tightly focused outputs and outcomes.