Overview

  • Maldives, whose population of about 400,000 people is dispersed over 188 islands vulnerable to climate change, has an economy narrowly based on tourism and fisheries. It has a complex political situation, weak government institutions, a high fiscal deficit and public debt, and inclusion issues.

    The Government has started several infrastructure projects to enable people to move from smaller islands to Greater Malé, and construction has overtaken tourism as the main driver of growth. To allow for these investments, the Government is reducing current expenditure. In the medium term, with the emphasis on construction, large current account deficits will be financed by investment and infrastructure loans.

    Based on the Country Partnership Framework (FY2016- 2019), World Bank Group support focuses on enhancing employment and economic opportunities of Maldivians, strengthening natural resource management and climate resilience, and improving the efficacy of public financial management and policy making.

    Since the adoption of a new Constitution in 2008, the political context has been dynamic. There is growing political instability ahead of Presidential and Parliamentary elections due in 2018 and 2019 respectively. Government institutions remain relatively weak.

    Thanks to returns from tourism, Maldives made strong gains in human development and is now an upper middle-income country. Between 1990 and 2015, GNI per capita increased by over 200 percent, and life expectancy at birth increased by 15.6 years. Headcount poverty declined from 23 percent in 2003 to 16 percent in 2010 based on the national poverty line. Inclusion issues persist, with high youth unemployment and low women’s workforce participation.

    Environmental sustainability, climate change and disaster resilience are significant risks. Almost half of all settlements and over two thirds of critical infrastructure are located within 100 meters of the shoreline and are under immediate threat from rising sea levels.

  • The World Bank Group’s Country Partnership Framework (FY2016-2019), endorsed by the institution’s Board of Directors in May 2016, aims to support Maldives to achieve more inclusive and sustainable growth, making better use of the country’s assets – human capital, natural assets, and financial resources. It focuses on enhancing employment and economic opportunities for Maldivians, strengthening natural resource management and climate resilience, and improving the efficacy of public financial management and policy making, Youth, gender, and governance are considered critical crosscutting development challenges to be addressed by the World Bank Group. These areas take into account the development priorities identified in the Systematic Country Diagnosis of September 2015.

    Under IDA17 (FY15-17), Maldives received $33.2 million. During IDA18 (FY18-20), Maldives may access approximately $73 million in concessional financing.

    World Bank Program

    World Bank financing to Maldives has traditionally been limited. As of September 2017, the portfolio comprised four IDA operations with a total net commitment value of $52 million. The operations support solid waste management, education, fisheries and public financial management. The trust fund portfolio has been used to support clean environment and renewable energy. The World Bank is preparing a package of operations to strengthen Maldives’ fiscal, institutional, and physical resilience. In view of the government’s interest in strengthening macroeconomic stability, the World Bank is considering a development policy financing to support reforms. In addition, given Maldives’ exposure to the tourism sector, which is vulnerable to natural disasters and  health epidemics, it is discussing the potential of a Catastrophe Deferred Drawdown Option (Cat DDO), a form of contingent financing offered by IBRD to help countries take a proactive stand towards reducing exposure to catastrophic risk. Furthermore, the World Bank is considering support for sustained urbanization and expanding employment opportunities. Given Maldives’ financing needs and debt situation, the World Bank is exploring ways to leverage IDA resources to mobilize private sector capital and financing from other international development institutions.

    A significant body of analytical work and non-lending technical assistance has underpinned the World Bank program over the past few years, including human capital development, gender, youth, water security, tourism, health insurance, and poverty.

    World Bank Active Portfolio

    (As of September 4, 2017)

    • No. of Projects: 4
    • Commitments: US$52.00 million
    • IDA: 4 projects; $52 million
    • Trust Funds*: 2 projects; $15.8 million

    * Only those Trust Funds that are $3 million or greater

    WORLD BANK – IFC COLLABORATION 

    Maldives became a member of the International Finance Corporation (IFC) in 1983. Since then, IFC has invested $157 million, including $8.5 million mobilized from other institutions. IFC’s committed and outstanding investment portfolio stood at $2 million at the end of June 2017, supporting housing finance. IFC’s operations in the Maldives are overseen by its Colombo office in Sri Lanka.

    IFC’s strategy in the Maldives focuses on addressing the development gaps in the areas of inclusion, infrastructure productivity, and sustainability. To promote inclusion, IFC is targeting financial intermediaries that can provide access to finance to MSMEs and women. To support development of infrastructure and increase productivity, IFC is focusing on electricity services, tourism infrastructure, maritime transport, and urban development and related infrastructure. To enhance sustainability, IFC will promote renewable, resource efficiency solutions and climate change adaptation and mitigation measures.

    In addition to housing finance, IFC has invested in several businesses, including a telecom operator, a leading hotel operator in Maldives, a finance leasing company and a Maldivian sponsor’s South-South investment in Seychelles. IFC’s advisory projects have included support for the Maldives Monetary Authority on establishing a credit bureau, and drafting the Non-Banking Financial Institutions Act. IFC also has completed projects promoting green growth, such as advising on resort island energy efficiency and on solid waste management for Malé.

    MIGA

    The Multilateral Investment Guarantee Agency (MIGA) supports the World Bank Group strategy for the Maldives and stands ready to facilitate foreign investment into the country. While the Agency does not have current exposure in the Maldives, MIGA remains engaged and will consider projects across sectors as appropriate opportunities emerge.

  • Fiscal outcomes, fiscal consolidation and public expenditure management: The Bank has assisted with the implementation of Public Accounting System (PAS), an integrated financial management information system (IFMIS) that aims to improve budget management and implementation by strengthening government accounting, timely monitoring of expenditure and revenue, and enhancing cash management. Implementation of Treasury Single Account (TSA) along with PAS has led to closure of more than 1,500 bank accounts of spending units and operation of a single public bank account across public sector agencies, which has substantially improved cash management.

    The first independent Auditor General's Office (AGO) in 2008: With the assistance of an Institutional Development Fund (IDF) grant, in 2008, the Audit Office in Maldives was transformed. An Audit Act was legislated and an independent auditor general (professional accountant) was appointed for the first time. The AGO started out with risk-based strategic audits across central government audit entities, some of which had never been audited before. Several high-profile audits were conducted and disseminated (through press conferences) which set a platform for initiating debate on governance issues across the government. The audit reports are now posted on the AGO's website as soon as they are tabled in the People's Majlis. In addition, a major achievement has been the production of the first annual statement of the execution of the budget for 2009, produced in 2010. Previously, financial statements of the government were neither prepared nor published.

    Procurement reform: The Bank supported new procurement regulations and a set of standard bidding documents which is a major improvement over the prevailing systems.

    Access to finance: World Bank Group support in the financial area centered on putting in place a credit registry located at the Maldives Monetary Authority (MMA), the modernization of the banking payment system, and the establishment of mobile banking to ease the constraints that a difficult geography places on access to credit.

    Investment policy and tourism: According to the Doing Business Database, the quality of the business environment in Maldives was 95th in the world (out of 185 economies) in FY2013, worsened from 79 in FY2012. The difficult macroeconomic environment could well be an emergent hindrance, although the main line of business, tourism, has rebounded.

    Estimating Maldives tourism response to price changes: In Maldives, where tourism is the lifeblood of the economy, a proper understanding of the pricing structure of the industry and how it features vis-a-vis its competition is an important determination. A proper assessment of the pricing structures and responsiveness of demand to price changes would not only be useful for the resort operators but also for the government in the formulation of tax policy. The bank's Tourism Sector TA — Phase II (carried out over FY12) provided an insight into these issues.

    Devising a forecasting methodology for tourist earnings: Having a robust platform for forecasting earnings from tourism is of vital importance to a multitude of stakeholders in the country, particularly for tourism policy and planning, fiscal policy, and the conduct of monetary and exchange rate policy. Through detailed deliberations carried out with the authorities and other stakeholders, the Bank team during FY11-12 developed models for tourism sector arrivals and earnings forecasts.

    A comprehensive and modern pension system: A Pension Law, effective in mid-2009, set the basis for the new pension system and led to the creation of the Maldives Pension Administration Office (MPAO). The new pension system combines two pillars. The first pillar provides to all Maldivians over age 65 a basic pension (2,000 rufiyaa) that is subject to a partial offset if the individual has significant pension income based on employment. All eligible Maldivians are already receiving the mandatory payments. The second pillar is a defined-contribution plan that covers public and private sectors. Around 70,000 eligible individuals have registered and are contributing. The defined-contribution plan absorbed the existing civil service pension scheme previously in existence. Civil servants received compensation for their rights in the old system in the form of a corresponding transfer to their accounts in the new system. International Development Association (IDA) support to achieve these results was provided through the Pension and Social Protection Administration Project, which has received additional financing (FY11) to continue supporting the initiative, including advice on pension regulation and investments.

    Developing a targeted social assistance system: During the crisis, the budget protected social welfare contributions, pensions, and spending on relief for tsunami victims. In addition, the government replaced the subsidy for electricity that benefited the higher-income strata of the Male population with a cost-based pricing scheme combined with targeted relief for the poor. The need to resort to the use of various instruments evidenced the lack of a well-targeted system of social assistance, and the government requested Bank support to develop a single social assistance scheme that brings all subsidies under a single and well-targeted system. The government has issued a unified safety net strategy paper to cabinet, whose implementation the Bank is supporting through the extension to the Pension and Social Protection Administration Project.

    Improving access to and quality of education: Bank assistance focused on easing constraints to providing equitable access to all levels of education from preschool to higher secondary education (10 years of basic education). The program focused on removing the main constraints, which included a lack of well-trained teachers, and costly access given the dispersion of the population across the islands. The bulk of the Bank support came through the Integrated Human Development Project (IHDP) and Post Tsunami Reconstruction projects, both of which have been completed. In addition, analytical work contributed to dialogue about the options to strengthening up tertiary education in the country.

    Improving teacher development, school leadership, teaching and learning materials, and facilities: The number of trained teachers increased from 3,400 in 2009 to around 6,000 in 2011, with 1,000 of 7,000 teachers countrywide remaining untrained. However, 70 percent of trained teachers have only advanced certificate training (O levels plus a one-year certificate) and the country has yet to find an effective system of training. Even though the quality of primary and secondary education improved, learning levels need to be strengthened.

    Supporting health institutional reform: The IHDP supported targeted health initiatives with mixed results due in part to the restructuring of the Ministry of Health and an adverse human resource situation. The project component on health put in place innovative initiatives towards rationalizing care for non-communicable diseases (NCDs) by establishing standard treatment protocols and operating procedures and improving access to health services, including through use of telemedicine and better monitoring of health outcomes. The NCD standard treatment protocols have been incorporated in the new health information system developed by the Ministry of Health and rolled out countrywide. Online and real-time data entry by doctors during consultation is a highlight of the new system. Although the telemedicine facilities and equipment have been in place in four centers for a few months, their use has been sporadic, as logistical hurdles need to be ironed out. But government commitment through a massive training program to man 39 telemedicine facilities currently in place (35 financed by other donors) and WHO participation augur well for the sustainability of the initiative.

    Addressing threats to the environment: Awareness has grown of the growing pressures on the natural resource base of Maldives. Resorts are generally well-managed, but solid waste and raw sewage in other inhabited islands end up in relatively stagnant lagoons. Waste disposal is likely to become even more challenging in the future as population densities rise and prosperity grows. Potable water is growing increasingly scarce in the islands. Other threats to reef ecology include intrusive and poorly planned construction activities that damage or weaken valuable corals, damage caused by divers and dive boat anchors, and the illegal collection of marine flora. The World Bank Group is supporting improvements in institutional capacity for environment management, development of solid waste management systems, and preparing for the impact of climate change.

    Improving human and institutional capacity for environmental management: The Maldives Environmental Management Project (MEMP) has increased the technical and managerial capacity of the government, working with the Ministry of Environment and associated agencies like the Environmental Protection Agency and the Marine Research Center. The project has trained high-level technical staff abroad, and a university-level environmental management program has been initiated that assures basic training. The project has improved capacities of the Marine Research Centre in developing a knowledge base and monitoring systems as well as involving communities in monitoring and awareness creation.

    Improving waste management on Male: The public-private partnership mobilized $50 million in private investment toward improving waste collection, transportation and disposal; reducing marine and air pollution; generating power; processing 70% of the country's solid waste; and reducing greenhouse gas emissions. The International Finance Corporation (IFC) helped the government develop an integrated waste management and implementation strategy for the country, working closely with the Bank and a broad range of development partners. The total cost of the project was $1 million, including donor contributions.

    Supporting waste management services for the inhabited islands in the North Province: MEMP is financing a regional solid waste management program in targeted northern islands. More than 80% of the target professional staff (within the government) are enrolled or have completed foreign training or an in-country degree/diploma program under the capacity building component of the project. The Marine Research Centre (MRC) has developed monitoring protocols and a knowledge base for terrestrial and coastal monitoring.

    Developing a regulatory framework for the Maldives energy sector: The activity provided support to the government of Maldives and Maldives Energy Authority (MEA) in the design of a robust regulatory regime, corporate governance, and capacity building of the regulator. The activity supported the drafting of critical regulations to guide MEA in ensuring adequate, reliable, and affordable power is delivered to customers as well as provide assurance to companies and other private investors on future energy sector developments in the country. In addition, a skills-gap analysis and other capacity building activities were undertaken to support MEA's institutional development and strengthen its ability to effectively exercise its regulatory mandate. The activity was supported by the Energy Sector Management Assistance Program, a global technical assistance partnership administered by the World Bank and sponsored by bilateral donors, as well as the Asia Sustainable and Alternative Energy program.

    Financing renewable energy investments: The Bank and other multilateral development banks are working to enable Maldives (as one of selected six islands) to receive up to $180 million in funding for renewable energy. The priority is to support renewable energy technologies that have gone beyond pilot phase, that are economically viable, and that have developmental impact. While the funds are intended to support renewable energy technologies, energy efficiency investments and inter-island connectivity, which will contribute to developing renewable energy, may also be eligible.

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LENDING

Maldives : Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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Additional Resources

Country Office Contacts

Male
5th Floor, H. Aage. Bank of Ceylon Building, Boduthakurfaanu Magu, Male 20182, Republic of Maldives,+960 334 3208
infomaldives@worldbank.org