Document of The World Bank FOR OFFICIAL USE ONLY Report No: 53932- M V INTERNATIONAL DEVELOPMENT ASSOCIATION AND INTERNATIONAL FINANCE CORPORATION PROGRESS REPORT ON THE COUNTRY ASSISTANCE STRATEGY FOR THE REPUBLIC OF MALDIVES May 4,2010 Maldives and Sri Lanka Country Management Unit South Asia Region The International Finance Corporation South Asia Department This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The Country Assistance Strategyfor Maldives [Report No: 41400-rnwas discussed by the Board on January 8, 2008. Currency & Equivalents Currency Unit = Maldives rufiyaa (Rf) US$1= Rf.12.80 (as of Feb 22,2010) Fiscal Year January 1 - December 3 1 Abbreviations & Acronyms AA4 Analytical and Advisory Activities IMF International Monetary Fund 7NDP Seventh National Development Plan MDG(s) Millennium Development Goal(s) AG Auditor General MDS Maldives Securities Depository AGO Auditor General?sOffice M EW Maldives Environmental Management Project BPT Business Profits Tax MFLC Maldives Finance & Leasing es Pension Administration Strengthening Initiative GCE General Certificate of Education PPP Public Private Partnerships Programme IF1 International Financial Institution W A F United Nation Development Assistance Framework IHDP Integrated Human Develo.pment Project WMC Waste Management Corporation FOR OFFICIAL USE ONLY IDA IFC WB Vice PresidentnFC Paolo Martelli Isabel Guerrero Regional Director Country Directormanager Naoko Ishii Per Kjellerhaug Task Team Leader Daniel Boyce Namita Datta I Co-Task Team Leader I Francis Rowe I I This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization. ACKNOWLEDGEMENTS This joint IDA-IFC CAS Progress Report (CAS PR) was prepared under the guidance of Naoko Ishii, IDA Country Director, and Per Kjellerhaug, IFC Manager. Alema Siddiky (consultant) worked extensively on the preparation of the report. Core team support was provided by Lalima Maskey. The following country team members and other colleagues also made important contributions: Victor Antonypillai, Pavol Vajda, Ehsanul h i m , Rajashree Paralkar, Sriyani Hulugalle, D.H. C. Aturupane, Manoj Jain, Robert Palacios, Sumith Pilapitiya, David Robinett, Kirthisri Rajatha Wijeweera, Ludmilla Butenko, and Claus Pram Astrup. The team acknowledges guidance on the results Eramework Erom Christine Richaud (OPCCE) and overall IDA-IFC coordination from Nigel Twose in the IDA-IFC Secretariat. TABLE OF CONTENTS I. INTRODUCTION ....................................................................................................................... 1 I1. COUNTRY DEVELOPMENTS SINCE CAS PREPARATION.............................................. 1 .. A. Political Developments........................................................................................................... 1 B. Recent Economic Developments: Crisis Response ................................................................ 1 C . Government’s Medium-Term Development Program ........................................................... 3 I11. PROGRESS IN CAS IMPLEMENTATION............................................................................ 4 A . CAS Framework ..................................................................................................................... 4 B. Progress towards CAS Outcomes ........................................................................................... 5 C. Portfolio Performance and Results ......................................................................................... 8 IV . CAS APPROACH AND PROGRAM GOING FORWARD ................................................. 11 V . RISKS ...................................................................................................................................... 14 TABLES Table 1: Maldives Key Macroeconomic Indicators ........................................................................ 3 Table 2: Expected World Bank Group CAS Program .................................................................. 13 FIGURES Figure 1: IDA Committed Portfolio................................................................................................ 9 Figure 2: IFC Committed Portfolio .............................................................................................. 10 BOXES Box 1: Corporate Governance in the Maldives............................................................................... 6 Box 2: Maldives Post Tsunami Emergency Project ....................................................................... 7 APPENDICES Appendix I CAS FY08-12 Revised Results Matrix and Progress to Date ........................ 16 Appendix I1 Development Partners Activities in Maldives .......................................... 26 Appendix I11 Maldives Trust Fund Activities FY 08 .12 .......................................... 29 Appendix I V Meetings Held During the CAS Progress Report Consultations..................30 ANNEXES Annex A2: Maldives at a Glance .................................................................... 32 Annex B2: Selected Indicators of Bank Portfolio Perfonnance and Management.......................................................................... 35 Annex B3: IDA Program Summary FY 08-12 ..................................................... 36 Annex B3: IFC Investment Operations Program.................................................. 37 Annex B4: Summary of Non-lending services...................................................... 38 Annex B5: Poverty and Social Indicators........................................................... 39 Annex B6: Key Economic Indicators................................................................ 40 Annex B7: Key Exposure Indicators................................................................ 42 Map (IBRD 33442) I. INTRODUCTION 1. This Country Assistance Strategy Progress Report (CAS PR) reviews the progress of the Bank Group?s program under the current CAS of FYOS-12. The report was prepared by a joint World BaMnternational Finance Corporation (IFC) country team and reflects discussions held with the Government concerning the principles and key instruments of the program going forward. 2. Consultations with stakeholders and within the World Bank Group indicate that the CAS framework and pillars remain valid. The Bank Group program will continue to support economic governance and investment, human development and social protection, and environmental management. Planned activities and instruments, such as International Development Association (IDA)? Development Policy Credit (DPC) lending and a strong IFC program of investments and advisory support, do not deviate significantly from what was anticipated in the CAS. However, they do reflect a realignment of Bank Group activities to better support the Government?s Strategic Action Plan (2009). Consistent with this approach, the CAS results matrix has been revised. 11. COUNTRY DEVELOPMENTS SINCE CAS PREPARATION A. Political Developments 3. Since the CAS was prepared two years ago, the Maldives has undergone a major democratic transformation. Mohamed Nasheed was elected president in October 2008 in the country?s first democratic presidential election after 30 years of one-party rule under President Maumoon Abdul Gayoom. The Government has presented bold ideas to create a more effective democracy and move towards a more private sector-led economy. It is also seeking to inspire both local and global action on climate change, a major threat to the country. The Government?s efforts to advance economic, political and other reforms are constrained by global factors (especially the global economic downturn) as well as endogenous factors such as the country?s difficult fiscal situation. Additionally, the policy making environment is constrained by the fact that the President?s party holds just 30 of the 77 seats in the country?s unicameral legislature known as ?the Majlis.? B. Recent Economic Developments: Crisis Response 4. The Maldives has achieved notable development progress in recent decades through a combination of private sector-led tourism development and improving public service provision. Annual real GDP growth has averaged over seven percent in the last 25 years, contributing to a sharp reduction in poverty. Poverty rates, as measured by the headcount ratio at 15 rufiyaa per person per day, have fallen steeply, from 40 percent in 1997, to 28 percent in 2004. Other human development indicators - infant mortality, maternal mortality, or educational attainment - have registered similar improvements. The country had achieved 5 of 8 Millennium Development Goals (MDGs) by 2007, but progress has been relatively slower toward achieving gender equality and women?s empowerment (MDG3),* ensuring environmental sustainability (MDG7) and developing a global ??World Bank? and ?IDA? are used interchangeably in this report. ?See ADB?s Maldives: Gender and Development Assessment, September 2007, and the UN?sSituation Report ( W A F ) published in 2010. Maldives has achieved gender parity in primary and secondary education, and is ranked second-highest in South Asia on the UN?s Gender-related Development Index. However, the country has low female labor force participation and proportion of seats held by women in the national parliament, although the latter has increased from 6% to 12% in recent years. partnership for development (MDG8). While poverty has declined sharply overall in recent years, vulnerability and inequality are a concern, as a significant number of people fell back into poverty during the recent crisis, and the disparities between remote islands with small populations and the capital Male region remain ~ubstantial.~ 5. Real GDP growth contracted by an estimated 3.0 percent in 2009, but is expected to rebound to about 3.4 percent growth in 2010.4 The tourism sector in Maldives is the lifeblood of the economy accounting for 30 percent of GDP.’ While the global crisis resulted in a contraction in tourist arrivals in the early part of 2009, arrival numbers rebounded in the 3rdand 4” quarters of the year. As a result, total tourist arrivals in 2009 were just 4 percent lower than in 2008. Arrival numbers for February 2010 show arrivals up over 30 percent, but duration of stay and tourism expenditure per arrival has been slower to rebound. 6. The global economic crisis exposed the Maldives’ weak underlying fiscal situation. Due especially to large increases in the public sector wage bill in recent years, as well as falling revenues, an unsustainable fiscal deficit has emerged. The fiscal deficit (excluding grants) is estimated to have reached nearly 26.3 percent of Gross Domestic Product (GDP) by the end of 2009. Both tax and non-tax revenues are driven mainly by the fortunes of the tourism sector. The downturn in tourism with the onset of the global economic crisis led to a decline in tourist related revenues bringing the unsustainable level of government expenditures into sharp focus. 7. The Government has been active in the last few months implementing a coherent stabilization program supported by IMF financing. The main element of the Government‘s program is expenditure reduction. It has implemented wage cuts for the public service in October 2009 and cut domestically financed capital expenditures. The Government has also cut subsidies by increasing the electricity tariff charged by the state-owned electricity company (STELCO) by an average of 35 percent (for residents of Male’, with increases for the rest of the country planned for later this year). Revenue measures also figure prominently in the government’s program. A goods and services tax on the tourism sector has been proposed - which would be additional to the existing flat-rate bed tax - as well as a business profits taxa6 The austerity measures are being complemented with social support measures; social sector spending is being protected and for the poor and vulnerable who will be most affected by the increase in electricity tariffs, the Government will introduce targeted consumer subsidies. 8. Supporting policy and institutional changes have also been implemented to ensure that the austerity measures are sustainable. The Bank has in particular focused on support to three areas: (a) public financial management, specifically budget preparation, implementation and monitoring; (b) public enterprise reform, specifically measures to help ensure that the Government’s planned Public-Private Partnerships (PPPs) appropriately minimize future fiscal risks to the Government; and (c) social protection, especially efforts to lay the foundations for a harmonized national social protection system. These actions and the austerity measures have taken place in an extremely challenging environment, particularly considering the lack of a parliamentary majority for the Government. A detailed analysis can be found in the draft “Situation Analysis” of the United Nations, published on March 14, 2010. See Annex B6 for Key Economic Indicators and Table 1. Including the indirect value added from the tourism sector would bring its contribution to GDP closer to 70 percent. Both tax changes are pending legislative approval. 2 9. Key IFIs have supported the Government’s actions by providing external financing. The IMF approved a blended Stand-By Arrangement along with funding under the Exogenous Shocks Facility for a combined amount of about US$ 92.5 million (or 700 percent of quota) on December 4,2009. The first review of the program was successfully completed on March 26th,2010. The Bank has approved a US$13.7 million budget support operation that was processed under IDA’S Fast Track Facility and is proposing a second operation of similar value for FY 201 1. The ADB has approved a US$ 35 million budget support operation with half being disbursed in 2010 and the other half planned for mid-20 1 1. 10. Implementing, the planned medium-term fiscal consolidation will remain a challenge. The public service wage cuts that have been in place since October 2009 may be reversed earlier than anticipated if a Supreme Court ruling judges the cuts to be unlawful under the Civil Service Act. This possibility would represent an estimated additional 3.5 percent of GDP to the 17.7 percent fiscal targeted for 2010. Delays in implementing revenue measures are also a source of risk. Both the GST on the tourism sector7 and the Business Profits Tax (BPT) have been delayed and with a lack of majority in the Parliament their passage in a timely manner is a question mark. Other revenue developments have been positive, with import tariff and tourism revenues higher than expected in late 2009 and early 2010. Planned capital expenditures are also coming in lower than anticipated. Nevertheless, the authorities are in active discussions with the IMF to implement compensatory measures that will help reduce the fiscal deficit below the program target. Table 1: Maldives Key Macroeconomic Indicators Real GDP (Yo change y-y) 18.0 7.2 6.3 (3.0) 3.4 3.7 Consumer price index ( % change y-y) 3.1 10.3 9.1 4.0 4.5 6.0 Government balance (Yo of GDP) (7.2) (4.9) (17.1) (26.3) (17.4) (4.2) Domestic public sector debt (Yo of GDP) 23.4 26.4 31.2 48.1 55.0 47.7 Current Account balance (billions of US$) (0.3) (0.4) (0.6) (0.4) (0.4) (0.3) (Yo of GDP) (33.0) (41.5) (51.4) (31.0) (24.9) (15.8) External debt (billionsUS$) 0.6 0.8 1.o 1.1 1.2 1.2 (Yo of GDP) 62.8 79.7 76.9 77.8 81.4 75.4 F o r e 9 Exchange reserves (billionsUS$) 0.2 0.3 0.2 0.3 0.3 0.3 (months of imports of g&S) 3.0 3.4 2.1 3.2 3.1 3.3 Memo: Nominal G D P (billionsUS$) 0.9 1.1 1.3 1.4 1.5 1.6 r Source: World Development Indicators, Maldives Monetary Authority and staff estimates. Notes: External debt is the sum of public external debt and commercial banks’ external liabilities. Consumer price index is national, end-year C. Government’s Medium-Term Development Program 11. The Government’s development strategy is explained in its recently completed Strategic Action Plan (SAP*).The S A P aims to redefine the role of the state in the economy to achieve upper- 7 This bill would introduce an ad valorem rate of 4 percent, and coexist with the specific tax of $8 per person per night until end- 2010. * “Aneh Dhivehi Raajje” in the Maldivian language. 3 middle income status, ensure more equitable access to services and opportunities, improve service delivery, facilitate economic diversification, and support better environmental practices to sustain growth and adapt to global climate change. The development framework also seeks to make progress on key cross cutting themes that are considered central to the Government’s reform agenda: sustainability of the environment and climate change, gender rights, social protection, decentralization and regional development, PPPs, human rights and transport. 12. The Government has further identified five priority areas in the SAP. These priority areas are closely linked to the S A P ’ S key themes of good governance, social justice and economic development. The Government hosted the donor conference in March 2010 around these themes, to mobilize resources. The five priorities are: i) Macroeconomic Reform to support private sector-led economic growth: Reducing the role of the state in the economy is a core component of the S A P as is facilitating conditions for growth in the tourism and fisheries sectors. ii) Public sector reform: A major plank of the structural adjustment program is public sector reform. The public sector is being streamlined in order to deliver more efficient and effective government services. iii) Good governance initiatives: Strengthening democratic institutions and processes is a priority to ensure that the new democracy is entrenched. iv) Social development: Investment in human resources development of the country is an immediate step required to deliver on all social development pledges. v) Climate change and adaptation: Climate change poses an existential threat to the Maldives. The Government is proposing a series of mitigation and adaptation measures. 111. PROGRESS IN CAS IMPLEMENTATION A. CAS Framework 13. The Maldives Country Assistance Strategy (CAS) was jointly prepared by the Bank and the IFC and discussed by the Board on January 8, 2008. The three pillars were selected to align the Bank’s assistance with the previous Government’s Seventh National Development Plan (7NDP) which envisaged a sustainable development path built on economic growth, social equity, environmental protection and good governance. 14. The current Government’s Strategic Action Plan ( S A P ) emphasizes themes similar to those of the 7NDP, but it places relatively more emphasis on the institutions of democratic governance. Another important difference is that the current Government is moving ahead more aggressively with key reforms than was the previous administration. For example, while both plans emphasize private sector-led growth, in practice the current Government has been more aggressive in its promotion. The Government’s policy towards increasing investment through the private sector includes privatization of State-owned Enterprises (SOEs), setting up joint ventures with domestic and international investors, and a program of PPPs that is fundamental to implementation of the SAP. 15. The results framework in Appendix 1 summarizes recent progress and updates the original CAS goals to reflect the current Government’s S A P . To do so, some outcomes have been reformulated, new ones have been introduced and others were dropped because of lack of 4 current relevance. Other aspects of the results framework (e.g. milestones) have been modified to be better aligned with the revised outcomes. The new results framework thus seeks to more precisely and clearly reflect the results that the Bank Group is working to influence through its financial and technical assistance. Progress towards these results is discussed in the following section. B. Progress towards CAS Outcomes 16. The Maldives CAS is built on three pillars: (i) economic governance and investment; (ii) human development and social protection; and (iii) environmental management. The economic pillar aims to support the Government’s efforts to manage its economy and finances better, while strengthening the investment climate. Pillar I1 seeks to strengthen the quality of public services for human development and social protection. Pillar I11 supports efforts to strengthen environmental management capacity and skills, build a sound knowledge base to better address environmental risks, mitigate threats to nature based tourism by improving environmental infrastructure, and implement a strategy to build climate resilience and adapt to the impending risks of climate change. 17. Overall progress towards CAS outcomes has been mixed, with substantial progress in human development and environmental management, and only very recent progress in macroeconomic management. Until late 2009, the country’s fiscal situation had worsened to the point of being a cloud over all economic activity in the country. But recent actions have put fiscal reforms back on track, and these have been supported by key reforms to public financial management (PFM). Human development and social protection has continued to advance, with potential for stepped up action in some areas such as pensions. With regard to the environment, the Government has made a strong case to the international community to support environmental protection in the Maldives, which has already shown some results in terms of funding. Now the challenge is to build on more narrow results (e.g. in solid waste management) to achieve systemic impacts. Pillar 1: Economic Governance and Investment 18. The Government’s fiscal situation has only recently begun to improve. The current fiscal imbalances in Maldives are due in part to expenditure policies that were not based on realistic forecasts of Government revenues. The Bank through an Institutional Development Fund (IDF) grant and the FYlO DPC9 has been working with the Government to help implement a Medium Term Expenditure Framework (MTEF) and address key institutional shortcomings in budget preparation and implementation. An important achievement was that the 2010 budget was presented in a MTEF and in a format consistent with Government Finance Statistics (GFS 1986). Other actions taken by the Government (e.g. implementation of a government revenue forecasting methodology) are aimed at enabling the Ministry of Finance and Treasury to recognize budget overruns so that they can be addressed within the year. 19. Implementation of a Public Accounting System (PAS), which will automate many aspects of accounting and budget management is also helping fiscal management The PAS has now been hlly implemented in Phase I agencies (Ministry of Finance and Treasury, Customs and Department of Inland Revenue), with the final phase of the system to be rolled out to the rest of the agencies including atolls and islands. The PAS will help the Government to comply with Law on Public Finance 2006 (effective in 2009) which requires the Government to prepare consolidated Economic Stabilization and Recovery Credit. 5 financial statements. A joint Bank-Fund Public Expenditure Financial Accountability (PEFA) assessment was completed recently and a comprehensive action plan for improvement of PFM has been agreed with the Government which will be monitored during the implementation of the Economic Stabilization and Recovery Credit. 20. Economic governance is being strengthened by the launch of the first independent Auditor General’s Office (AGO) in 2008. With the help of an IDF grant the AGO carried out risk- based strategic audits in 2008 across central government audit entities, some of which had never been audited before. The audit reports are posted on the AGO’S website as soon as they are tabled in the People’s Majlis. The Bank is considering the Government’s request for hrther technical assistance to the AGO in the area of strengthening financial attest audit, legislative oversight and the audit follow up process. An IDF grant” has also supported procurement reform, helping the Government with the preparation of new procurement regulations and a set of standard bidding documents which is a major improvement over the prevailing systems. Box 1: Corporate Governance in the Maldives The Bank at the request of the Maldives Capital Market Development Authority (CMDA) prepared a report on corporate governance.” The main findings from the report are that in the last five years the CMDA, the Maldives Stock Exchange (MSE) and the Maldives Securities Depository (MDS) have become independent, a new code of corporate governance was launched and the 2006 Maldives Securities Act (MSA) and 2008 Listing Rules introduced. These reforms reflect the government’s long term goal of attracting foreign listings and foreign capital to Maldivian companies both through Maldives Stock Exchange (MSE) and by listing abroad. They also underpin other key reform efforts, including SOE performance management and privatization and the introduction of a new pension system. However, corporate governance in Maldives is still not as developed as in comparable countries (e.g. Mauritius), and gaps in the legal framework for investor protection and foreign portfolio investment remain a challenge. The next steps will be to close the gaps in the law and further develop the capital markets. 21. Progress has been made in increasing access to finance. A general legal and regulatory framework has been developed in close collaboration with the legal authorities in Maldives, and a Credit Bureau is being created with the help of IFC Advisory Services. In collaboration with the Consultative Group to Assist the Poorest (CGAP), the IDA-hnded Mobile Phone Banking Project is working to increase and improve banking system transactions through mobile phones. The establishment of mobile phone banking will help improve access to finance and it is also expected to create a platform for the financial institutions to introduce new products. The IFC has provided financing and advisory and technical assistance programs to the Housing Development Finance Corporation Project (HDFC) and Maldives Finance and Leasing Company (MFLC) helping to increase financing to Small and Medium Enterprise (SMEs) and reduce urban congestion by supporting house construction in Hulumale. 22. IFC’s focus on the tourism sector expanded during the CAS period, through advisory services and US$ 50 million in new investments. Besides supporting the tourism industry’s efforts to save on water and energy consumption, IFC conducted a scoping study of local tourism industry linkages with the poultry sector. The proposed project, along with ongoing advisory services, aim to build better linkages between the tourism sector and the local economy. IFC is also the lead lo The grant was implemented from late 2006-2009. ” Maldives: Corporate Governance Report on Observance of Standards & Codes (ROSC) Assessment (October, 2009). 6 transaction advisor to the Government in its efforts to attract international private developers to modernize and expand Male International Airport; this is expected to address a key bottleneck to increased tourist flow. Pillar 2: Human Development and Social Protection 23. Significant progress has been made in improving access, quality and gender parity in education.” The Maldivian education system includes about 229 networks of schools across the atolls and islands that enroll 91,130 students. These school networks have achieved universal primary enrollment, with gender parity both in primary and secondary education. The Bank- supported Integrated Human Development Project (IHDP) and Post Tsunami Reconstruction projects have contributed to the upgrading of secondary and higher secondary schools in four atolls to meet the rising demand. The Bank also assisted the Government to conduct national learning outcomes assessments in 2007 and 2009 to monitor progress. Enrollment for higher secondary or General Certificate of Education Advanced Level (GCE A/L) has increased sharply from 833 in 2007 to 1,461 in 2009. Even though the quality of primary and secondary education improved moderately, learning levels need to be strengthened. While progress has been made in training teachers, the quality and education level of the teachers still remains a ~hal1enge.l~. 24. Important steps have been taken to establish a new pension system in the Maldives. The Bank-financed Pension and Social Protection Administration Project (PSAP) is supporting the establishment of a new pension authority in order to implement the system effectively and provide a platform for a broader social protection scheme. Significant progress has been made towards implementing a new, defined contribution pension scheme for civil servants. A new basic pension system has been introduced which provides a cash transfer of 2,000 rufiyaa to all Maldivian citizens aged 65 and above, subject to a partial offset if the individual has significant pension income based on employment. These programs are codified under the Pension Law which was passed in mid-2009 and led to the creation of the Maldives Pension Administration Office (MPAO). The MPAO is on track to meet the legal mandates to start contribution collection for civil servants in May 2010 and has already started making the basic pension payments to roughly about 14,000 elderly Maldivians. Box 2: Maldives Post Tsunami Emergency Project The project focused on providing support to households affected by the Tsunami, rebuilding schools and supporting the Tsunami Recovery and Reconstruction Fund (TRRF) to help manage resources through provision of technical assistance and training. All of the IDA resources have been used satisfactorily and the objectives of the project were broadly fulfilled. The safety net cash grants to households affected by the Tsunami were successfully completed and some of the key achievements were: 0 58,370 beneficiaries received cash grants. (exceeded target of 50,000) 5,868 farmers received compensation. (exceeded target of 2,000) 0 40 schools have been rehabilitated. 0 940 loans have been distributed to small businesses. (exceeded target of 800) ’*See Appendix 1 for progress. l 3 The number of trained Maldivian teachers declined slightly from 3,538 in 2005 to 3,358 in 2009. Teacher education has not been able to keep up with the rapid expansion of the education sector. Due to the unavailability of trained teachers, schools often employ teachers with only lower or higher secondary level education. 7 Pillar 3: Environmental Management 25. Concrete progress has been made towards improving human and institutional capacity for environmental management and developing solid waste management systems. In recent years growing environmental pressures have emerged as a consequence of rising population densities, increased tourism and changing consumption patterns. A key constraint to addressing these issues has been the lack of technical and managerial capacity to implement environmental policies. The Bank has responded through the Maldives Environmental Management Project (MEMP), which has laid a foundation for improving capacity in the Ministry of Environment and associated agencies like the Environmental Protection Agency and the Marine Research Center. A university-level environmental management program has been initiated to ensure basic academic training in the sector. The project has improved capacities of the Marine Research Centre in developing a knowledge base and monitoring systems for the critical natural resources and involving communities in monitoring and awareness creation. 26. Steps have been taken to initiate better management of solid waste. The Government recently established the Waste Management Corporation (WMC) to manage solid waste in the entire country. Islands waste management has been established in inhabited islands in the South Ari Atoll, but these centers are not yet operating. Studies have commenced under MEMP to identify a sustainable solid waste management system for the North Province of the Maldives and to explore the potential of PPPs in solid waste management. Lessons on strong consultation and community buying solid waste management are built into the project for sustainability of operations. IFC is providing transaction advisory services to the Government to help design solid waste management plans for provision of equitable services and to mobilize private sector capital and efficiency in the development and delivery of these services. 27. The Bank and IFC are working together to advise the Government in preparing a comprehensive climate change program which will include energy efficiency initiatives. The Bank established a multi-donor Trust Fund Program on Climate Change in collaboration with European Union (EU). The program is in the early phase of implementation and intends to strengthen capacities of the Government to develop a strategic plan for low carbon development and promote a range of energy sector solution^'^. IFC has completed a Clean Production (CP) audit pilot program in the tourism sector with 4 resort islands, identifying potential for energy and water savings, resulting in 25 percent decrease in Greenhouse Gas (GHG) emissions. A wholesale CP program for Maldives’ resort sector is under preparation with a target to include at least 30 percent of the resorts. C. Portfolio Performance and Results IDA Lending: 28. The Maldives has received a somewhat larger IDA allocation than had been projected in the CAS. The overall size of the IDA envelope during the five year CAS period (which extends from the last year of IDA14 through the first year of IDA16) was assumed to be about SDR 30 million (about US$ 45 million). Actual allocations will be slightly higher, thanks to a regional re- allocation (which increased the IDA15 allocation from SDR 10.9 million to SDR 17.9 million) and l4 Energy sector solutions including demand side management for energy, energy efficiency, renewable energy technologies by identifying the enabling policy and regulatory environment and leveraging private-public partnerships. a an additional SDR 1 million provided under Stage 1 of the Crisis Response Window, both of which were approved during FY 10 and allowed for a stronger Bank response to the global financial crisis. Figure 1 :IDA Committed Portfolio - 60 50 40 30 20 10 0 FYOO FYOl FY02 FY03 FY04 FY05 FY06 FY07 FY08 FYO9 FYlO MD H Annual IDA Commitment INet Commitment Amount ( Portfolio Total) 29. Overall performance of the portfolio is satisfactory with no problem projects or projects at risk. The’IDA portfolio in the Maldives consists of five credits with a total commitment of US$ 50 million of which US$ 35 million are undisbursed. Three projects are rated Satisfactory, one Moderately Satisfactory and one has yet to be rated (the new DPC). The three investment operations that were proposed in the CAS for FY08 and FY09 - mobile phone banking, environmental management and pension administration - were all approved by the Board during those years. In addition, and also consistent with the CAS,15 the DPC of US$ 13.7 million was approved in FY 10. 30. IDA has made significant use of trust fund resources during the CAS period. These trust funds mostly focus on capacity building in the audit office, improving the procurement regulatory framework, and recovery and reconstruction of post Tsunami affected areas. A European Union- financed and the Bank established multi-donor Climate Change Trust Fund (CCTF) (US$ 8.8 million) will soon be under implementation. The IFC Program: 31. IFC has focused on four key areas during the CAS period: tourism, financial markets, infrastructure (all under pillar l), and renewable energy/climate change (pillar 3). During the previous CAS period the IFC committed a total of US$ 47.8 million in both debt and equity, consisting of four projects in the financial, tourism, logistics and telecommunications sectors. As shown in the graph below, this ramping up continued in the first part of the current CAS period (2008 to January 2010), during which IFC has more than doubled its commitments to US$ 103 million. 15 The CAS proposed a “possible DPL” for FY 2010. 9 Figure 2: IFC Committed Portfolio 1 120 I IO3 100 100 80 /I .- E 0 .- = 66 E 60 55 I 40- 20 -4 - 2 1 2 FYOO FYOl FY02 FY03 W04 FY05 FY06 FY07 FY08 FYO9 FYlO MD I Annual Commitments ICommitted Portfolio 32: As of January 31,2010 IFC investments spanned three sectors - tourism (72%), telecom (13%) & financial services (15%), and IFC has an active program of Advisory Services. During the CAS period to date, IFC increased its investment in both the tourism and the financial sectors through investments in Hotel Shangri La (US $50 million) and HDFC (US $12 million) respectively. . In the financial sector, IFC’s advisory services program assisted the Maldives Monetary Authority (MMA) in establishing and strengthening prudential guidelines and also provided technical assistance to help set up a Credit Bureau. IFC support has helped MMA to train judges (Lower courts to Supreme court) and lawyers (private bar and the State) on financial regulations relating to finance leasing. IFC played a critical role in building capacity of both MFLC and HDFC through both direct investment and technical assistance. In addition to capacity building of staff, IFC assisted MFLC to strengthen their processes and draft key policy documents. IFC Advisory services helped HDFC prepare business plans for privatization, develop its policies, guidelines, and systems/ processes, prepare a marketing strategy, establish its treasury department and train its staff. IDMFC Coordination: 33. During the CAS period IDA and IFC teams have worked together on many sectoral and thematic issues. These include PPPs, financial sector strengthening and climate change. IFC is currently supporting the Government as a Transactions Adviser to structure and create two PPPs in solid waste management and the privatization of the country’s international airport. The Bank meanwhile is leading the overall dialogue on solid waste policy through the existing IDA fbnded MEMP and has provided technical advice on the airport transaction. Donor Coordination: 34. The Maldives recently concluded a Donor conference on March 29, 2010 and secured 10 total pledges of about US$ 320 millionI6. The conference was attended by 102 international participants from 24 countries and 20 agencies. The Government committed to making its donor coordination mechanisms more effective, in particular with the regard to cross-sectoral areas such as governance. Donors welcomed the Government's presentation of five priority areas within the SAP, costed out so that development partners can align their programs accordingly in the future. 35. The Bank Group and United Nations were co-sponsors of the donor forum, and have been in close communication during the preparation of this CAS PR. The UN is the only multilateral with a substantial presence on the ground in the Maldives. The UN's Development Assistance Framework (UNDAF) is being prepared in parallel to the CAS PR, which has allowed for timely collaboration. Generally stated, in the Maldives the UN places relatively more emphasis on social and democratic governance issues, with the Bank Group focusing relatively more on fiscal, economic, and private sector areas. In some areas, such as education and environment, both the Bank Group and UN are actively engaged. 36. Appendix I1 provides information on donor activities in the Maldives. The thematic breakdown of the matrix reflects current activities as well as statements made at the donor forum, which in some cases have not yet been fully specified. FYIO-I 1 IDA lending is most directly linked to programs of the ADB and IMF, each of which is supporting fiscal reforms. Specifically, the ADB and IMF have taken the lead on various areas of tax reform, while the Bank is taking the lead on aspects of medium-term expenditure reform, budget implementation and public service reform. IV. CAS APPROACH AND PROGRAM GOING FORWARD 37. During the remainder of the CAS period the Bank and IFC will support the Government's S A P primarily through policy lending, advisory services, and IFC investments. This approach supports the reform-minded Government as it seeks to make major policy improvements. IDA investment lending will be considered only if it can leverage additional resources. The Bank Group will also work to catalyze financial support from donor partners and private investors. 38. IDA and IFC will use selective interventions to maximize development impact. Development Policy Credits (DPCs) will support critical policy reforms, and by preparing fewer projects, resources will be freed up for additional analytical and advisory activities (AAA). Policy reform is needed in many areas and the Government is advancing a number of proposals, some of which are already pending in the legislature. For this reason, second phase DPC lending is proposed for FY11, with flexibility in FYI2 for an additional DPC should there be promising possibilities for policy reform under one of three CSA pillars. IFC investments are expected to continue to be focused on tourism, the financial sector and infrastructure. IDA and IFC will continue to collaborate in many areas such as PPPs, the financial sector and climate change. In most cases, the Bank will support policy and regulatory reform as well as broader program implementation, with IFC providing financial and advisory support for strategic initiatives and key transactions. 39. Under the Economic Governance pillar, IDA will provide financial assistance through the DPC-financed operations. The first phase operation (Economic Stabilization and Recovery Credit - FY 10) focuses on three key areas: public financial management, public enterprise reform l6 See donorconference2010egov.mv 11 and social protection. It supports the institutional arrangements that will promote macroeconomic stability and help the Government achieve the development objectives set out in the SAP. This operation complements the IMF and ADB programs that are also helping the country to rebound. The remaining IDA15 resources (SDR 6.8 million) will be available to fund a second phase of the DPC, along with perhaps one small investment loan, in FY 1 1. 40. The Bank and IFC will engage in a number of advisory activities related to economic governance and investment. The Bank’s technical support will be in corporate and public sector governance, capacity building for PPPs, financial sector, public financial management and economic management. In public sector governance, the Bank will work with the GoM as it continues to establish a framework for the participation of interested donors can participate. IFC will provide advisory services for the private sector financial institutions and advise on key PPP transactions. In some of these areas the Bank will also be involved, with a particular focus on the overall regulatory environment. IFC is also exploring the possibility of extending the Global Trade Finance Program through the Bank of Maldives. 41. In the financial sector, IDA will continue to help improve financial sector strategy, laws and regulations, especially through technical assistance to the MMA. The Bank has completed a financial sector review funded from the Financial Sector Reform and Strengthening Initiative (FIRST) and builds on previous work carried out by the IMF. The first part of the technical assistance to MMA has been submitted to the Maldives Monetary Authority (MMA) and the Government in January 2010. IDA will continue its support to the MMA in establishing and strengthening prudential guidelines and IFC will provide technical assistance for setting up a Credit Bureau. IFC will also work to respond to the Government’s request for help to firther expand financing to SMEs through financial intermediaries. 42. During the CAS PR consultation process, the Government expressed interest in Bank Group analytical and advisory support in the tourism sector. Tourism - which is already the leading area of IFC support - has driven the impressive growth rates and poverty reduction in the Maldives during the past three decades, but the Government would like advice as to how the industry could have a stronger and broader development impact. Key pieces of proposed AAA are expected to focus on the linkages between the tourism sector and the broader economy. One is a programmatic Non Lending Technical Assistance (NLTA) that will focus on education and skills mix and training in the labor market (see para 44). Another is the proposed Country Economic Memorandum that would discuss the outlook for the sector, include an economy wide growth diagnostic study and investigate the Government’s management of tourism wealth for better growth and poverty reduction outcomes. This work could complement more specific support such as IFC’s investments and clean energy initiatives with the industry, as well as its response to the Government’s request for advice on strengthening linkages between the tourism sector and the rest of the economy. 43. The consultation process also indicated a demand for support in the fisheries sector. In fisheries, technical advice can build on prior extensive analytical work carried out in the sector, which could be quickly updated and provide valuable information for policymakers. This groundwork could support a grant proposal (e.g. Global Environment Facility (GEF)) to support investments in the sector. Further discussion ‘with country counterparts is required to determine the nature of possible Bank Group support. 44. IDA will also focus on social safety net programs and education under the Human Development pillar. The first phase of the DPC operation aims to support the development of a well- 12 designed mechanism for targeting poor households that is fiscally sustainable and consistent with a permanent targeting system. The second phase of the DPC will support the Government’s eventual transition to an integrated social protection system. On the analytical side, IDA plans to prepare two policy notes focusing on (i) education skills and labor market and (ii) general and higher education and training systems in the context of global developments relevant to small island economies. This work will contribute to the development of a strategic framework for the education sector that can help to improve linkages between the education system and local labor markets. 45. Environmental management will continue to be a key aspect of the Bank Group strategy. In addition to improving environmental management capacity the Bank Group will also support the Government in building greater climate resilience. Work carried out under the Bank-funded MEMP will be complemented by the EU-financed (IDA administered) CCTF, which will support the development and implementation of climate change strategy and help design and implement pilot activities in areas such as coastal protection and biodiversity conservation, water and livelihood options and disaster management, sewerage and solid waste management and technical assistance to mainstream climate change into development planning and policy dialogue. Meanwhile IFC will further focus on stepping up its climate change-related work through clean energy audits with clients, assessing investments in sustainable energy projects directly or via financial intermediaries, and by collaborating with the Bank on other areas of the climate change agenda with a focus on the private sector role and the enabling environment for investments. 46. In addition, the Bank also intends to provide technical assistance in the energy sector focusing on: (i) assisting the Government to create a regulatory framework and build capacity of the regulatory agency. This will be instrumental for attracting private sector investments, promoting energy efficiency and renewable efficiency, setting tariffs and ensuring compliance with service quality standards and (ii) supporting in reducing dependence of the power sector on fossil fuel”. 47. Table 2 provides a concise list of the planned Bank Group activities, divided according to the CAS pillars. These activities are in addition to the supervision of existing IDA projects and IFC investments. Table 2: Expected World Bank Group CAS Program Pillars Economic Governance Human Development Environment 6 3 s, *) * TDmc :1 vestment4 Lending 8r Trust Fun( IDA: IDA: IDA: 0 Economic Stabilization & Recovery Credit 0 Economic Stabilization & e Climate Change Trust Fund (Development Policy Credit). Primary focus Recovery Credit. Focus on social (EU) on: public financial management, public protection. service reform and public enterprise reform. IFC : IFC: 0 Environmental & social due e Financing to selected tourism resorts. diligence on any future 0 PPIAF grant to support PPP. investments. e IDMFC FIRST Initiatives l7 A full TA program will depend on whether ESMAP and carbon financing trust fund grant can be obtained 13 FYll 1 IDA: I IDA: I Follow on DPC I1 operation. I Follow on DPC 11- social I protection components. FY12 IDA: IDA: IDA: Possible new DPC (Sector TBD) Possible new DPC (Sector TBD) * Possible new DPC (Sector TBD) * E S W and carbon financing ROSC (Corporate Governance) Review Costing of HIV/AIDs In collaboration with IDA and Support to Donor pledging forum. Strategic Action Plan. EC . Support to Tourism (TBD) Tourism industry’s efforts to IFC Advisory Service: put in clean energy measures. MMA on financial sector strategy; laws and regulations relating to financial sector. Leasing sector Setting up a credit bureau. 8 TA to HDFC and MFLC. Access to finance and SME linkages. Bar and judiciary. Scoping study of local tourism industry I linkages with the poultry sector. I F Y l l IDATAIAAA: 1 IDATAIAAA: ROSC (Accounting & Auditing) Education and Skills Training Governance Diagnostic Policy Notes. FY12 IDATAIAAA: IDA TAIAAA: Country Economic Memorandum Quality of General Education IDMFC Tourism Policy Notes (TBD) Policy Notes. V. RISKS 48. Three sets of risks were identified in the FYOS-12 CAS: political instability, fiscal uncertainty and capacity limitations. These risks remain relevant, but in a somewhat different form. The CAS will face the following risks during the remainder of the implementation period: 49. Economic Risks: The country’s fiscal situation is the most important risk to the implementation of its development program. Fiscal reform and stepped up donor support (which appears likely based on the results of the recent donor forum) would serve to reduce this risk. 50. PPP related: The Government is committing future cash flows through several PPPs - e.g. direct cash commitment for the next 20 years in the case of the solid waste management project and provision of land (resort islands) for projects such as the northern airport and ferry transportation networks. The capacity of the Government to keep committing these future resources needs to be assessed; else there is a danger of these projects not being sustainable. PPP related risks are being mitigated through advisory support from the Bank and IFC on the PPP framework and certain key transactions. IFC and the Bank have emphasized that a framework needs to be created first and a prioritized action plan should be developed and agreed upon. A donor coordination framework would also contribute to the success of this effort. 51. Risks also come from exogenous sources - the most prominent in the short run being the 14 global economic recession and its impact on tourism, credit availability, and financial flows. In addition, as a small, open and undiversified economy the country. is vulnerable to external shocks (e.g. oil price shocks). 52. Political Risks: Maldives is in a very early stage of democracy. The new Government lacks a parliamentary majority, which could significantly constrain the Government’s plans going forward. Political risks threaten to undermine the Government’s fiscal consolidation effort, as well as other proposed reforms. They are difficult to mitigate, but by providing technical assistance to key institutions and timely financial support and advice to deal with critical economic issues, the Bank Group can help to create a more stable operating environment. 53. Environmental Risks: Climate change presents a long term risk for the Maldives that cannot be well quantified. Over 80 percent of the country is less than 1 meter above sea level. This poses risks of intensifying weather events including damage caused by inundation, high winds, flooding, erosion and damage to infrastructure from storm surges. Sea level rise poses an existential threat in the worst case scenarios. In addition, the country’s exposure to natural disasters continues to be a threat to the economy and social development. Bank Group assistance can help the Government to manage its environment but cannot completely shield the country from environmental hazards. 54. Capacity Risks: Limited institutional and human capacity is one of the key development constraints in the Maldives. Capacity constraints significantly impact government functions and CAS implementation. This risk is being mitigated through a number of TA efforts. 55. Legal and Regulatory Risks: The weak regulatory environment and lack of sufficient procedural laws, rule of law and judiciary capacity to ensure enforceability of contracts is a significant risk for various WBG investments and agreements in the future. The Bank and IFC are providing assistance in a few areas (e.g. financial sector and PPPs), but fimdamental issues are likely to challenge the implementation of Government programs and private investments for years to come. 56. Fiduciary Risks: The CAS concluded that there were no significant concerns about managing fiduciary risks in the Maldives portfolio, and that investment projects are already largely using country PFM systems. With the turn to DPC lending, IDA will have to pay more attention to country-level fiduciary risk. This will be done through follow up on the PEFA and other interventions that support the strengthening of PFM. 15 Q) c, a" 0 Y m m M El a a B m 4 u .. H $ a 4 a d * e, C ,x e e: M .* C z S c M I e s m e, .e z Q - e 4 , - b e a i 0 +- s 0 m e, 8 e .- m s M 0 N 3 . Y e 4 e, 0 c 5 & a e, 4 Ti a .+ rn I 3 2 s Q c c- rl N a kl 1 " c-) M c .- * s g m !5 * O 8 e, * e .- k % .C 4 4-8 m 0 s -0 B B .C m N N J . 2 e a 0 d N e I LD N 3 Q P 2 03 N I I 5 a a a 3 m 'p $ 5 33 Appendix I11 - Maldives Trust Fund Activities FY OS - FY 10 ( Figures in thousands of USD ) c Grant Exc h an ge Trust Fund Net Grant Grant Sign Grant Trust Fund Name Closing Rate Diff. Exec. By # Amount Date Curr. Date (USD) TF054266 TF055263 PO55387 PUBLIC EXPENDITURE MANAGEMENT IDF-MALDIVES: STRENGTHENING OF PROCUREMENT REGULATORY FRAMEWORK JSDF-MALDIVES: SUSTAINABLE LIVELIHOOD IN COMMUNITIES AFFECTED BY THE TSUNAMI 198 267 1,961 +- 5/16/2008 10/5/2009 12131/2009 11/17/2004 USD 3/3/2010 6/ 13/2006 USD USD 0.00 Recipient 0.00 Recipient JSDF-MALDIVES: SUSTAINABLE LIVELIHOOD IN COMMUNITIES AFFECTED BY THE TSUNAMI (BANK- EXE TF TO COVER INCR BANK COSTS TF055388 OF RECI-EX 55387) 15 12/31/2009 6113/2006 USD IDF-REPUBLIC OF MALDIVES: INSTITUTIONAL DEVELOPMENT AND CAPACITY BUILDING OF THE AUDITOR TF055495 TF056638 GENERAL'S OFFICE I MALDIVES POST TSUNAMI RECOVERY AND RECONSTRUCTION PROJECT Active/Nerv Projects (TTR - CGAPGATES TECH PROGRA-M I I I 456 20.057 8/31/2009 1/31/2010 v7 I 1 I 9/1/2005 10/09/2006 I EUR USD t 0.00 Recipient -884.09 Recioient I TF090399 TF092007 TF09252 1 MALDIVES THE MALDIVES - INSURANCE REGULATION AND SUPERVISORY ADVANCEMENT (#8004) PUBLIC INTERNATIONAL LAW TO ADDRESS SOCIAL IMPACTS OF ICLIMATE CHANGE I 699 230 150 Recipient t 0.00 0.00 Bank 0.00 Bank TF094190 TF094701 ~ TF095016 IHDFC MALDIVES IFC SOUTH ASIA ENTERPRISE DEVELOPMENT FACILITY -MALDIVES TRUST FUND FIRST: MALIVES# 8 1 16 FINANCIAL SECTOR DEVELOPMENT PROJECT I 235 110 260 6/30/2014 6/30/2010 I I 7/1/2009 8/10/2009 I I USD USD I-- 0.00 Bank 0.00 ,Bank 0.OOIBank II II =I- MALDIVES CLIMATE CHANGE TRUST FUND 8,800 6/30/2013 12/29/2009 USD TF096026 TARGETING TA 70 12/31/2010 1/18/2010 USD 0.00 Bank TF096069 PPIAF: MALDIVES: PPP OPTIONS FOR SOLID WASTE MANAGEMENT IN MALDIVES 145 10/31/2010 I 1 1/4/2010 USD 1 0.00 Bank 29 Appendix IV: Meetings Held during the CAS Progress Report Consultations' Government Ministries 0 Office of the Vice President: Dr. Mohamed Waheed, Vice President 0 Ministry of Finance and Treasury: Mr. Ali Hashim, Minister (2 meetings) 0 Ministry of Foreign Affairs: Dr. Ahmed Shaheed, Minister 0 Ministry of Tourism, Arts and Culture: Dr. Ahmed Ali Sawad, Minister; Mr. Ahmed Salih, Permanent Secretary; and Mr. Thoyyib Mohamed, Minister of State, 0 Ministry of Fisheries, Agriculture and Marine Resources: Dr. Hussain Rasheed Hassan, Minister of State Minister; Dr. Abdulla Naseer, Permanent Secretary 0 Ministry of Education: Dr. Mustafa Lutfi, Minister 0 Ministry of Human Resources, Youth and Sports: Mr. Hassan Latheef, Minister; Mr. Mohamed Mahid Shareef, Permanent Secretary; Mr. Hussain Ismail, Deputy Minister; Ms. Mariyam Noordeen, Assistant Exec. Director 0 Ministry of Housing, Transport, and Environment: Mohamed Aslam, Minister; Mr. Akram Kamaldeen, Deputy Minister; Mr. Ahmed Saleem, Permanent Secretary. 0 Ministry of Economic Development: Mr. Mohamed Rasheed, Minister Other Government Auditor General's Office: Mr. lbrahim Naeem, Auditor General 0 - Central Bank Maldives Monetary Authority: Mr. Fateel Najeeb, Governor; Mr. Abdul Ghafoor Abdul Latheef, Sr. Executive Director (Financial Sector) Development Partners, Private Sector, and Civil Society: 0 United Nations: Mr. Mansoor Ali, Acting UN Resident Coordinator 0 Maldives Association of Tourism Industry: Mr. Sim lbrahim Mohamed, Secretary General 0 Transparency Maldives: llham Mohamed, Executive Director, 0 Maldives Finance Leasing Company Pvt, Ltd. Mr. D Soosaipillai, Managing Directo r/C EO. ~~ ~ All participants are not listed; only the primary/lead parties. The majority of these meetings were held in January 2010. It should be noted that in addition, at the beginning of the CAS PR Process, in August 2009, the CAS PR team consulted with numerous government officials, and with two business associations: (i) the Maldives National Chamber of Commerce and Industry; and (ii) Maldives Association of Construction Industry. 30 e Housing Development Finance Corporation: Dr. A D Priyanka Baddewithana, Managing Director Housing Development Corporation (Hulhumale) Bank of Ceylon: Mr. D M L C Kumara, Country Manager Habib Bank: Mr. M J Anjum, Senior Vice President / Country Manager Rajee Foundation: Ms. Ming Yu; Ms. Fathmath Nelfa Maldives NGO Federation: Ms. Fathmath Afya Society for Women Against Drugs: Ms. Fathmath Afya Journey: Ms. Ahmed Adam Hope: Ms. Rashida Yousoof, Ms. Aneesa Ahmed 31 Page 1 of 3 Annex A2: Maldives at a glance 2125110 Lower I Key Development Indicators South middle Age distribution, 2008 Maldives Asia income (2008) Male Female Population, mid-year (millions) 0.31 1,543 3,702 Surface area (thousand sq, km) 0.3 5,140 32,309 Population growth (%) 1.7 1.5 1.2 Urban population (% of total population) 38 29 41 GNi (Atlas method, US$ billions) 1.1 1,522 7,692 GNI per capita (Atlas method, US$) 3,580 986 2,078 GNI per capita (PPP, international $) 5,280 2,733 4,592 10 5 0 5 10 GDP growth (“h) 5.2 6.9 7.6 percent of total population GDP per capita growth (%) 35 5.3 6.3 (most recent estimate, 2003-2008) Poverty headcount ratio at $1.25 a day (PPP. %) 40 Under-5 mortality rate (per 1,000) Poverty headcount ratio at $2.00 a day (PPP, %) 74 Life expectancy at birth (years) Infant mortality (per 1,000 live births) 68 26 65 59 68 46 150 , Child malnutrition (% of children under 5) 41 26 120 Adult literacy, male (% of ages 15 and older) 97 74 88 90 Adult literacy, female (% of ages 15 and older) 97 52 77 60 Gross primary enrollment, male (% of age group) 112 111 112 Gross primary enrollment, female (% of age group) 109 104 106 30 0 Access to an improved water source (% of population) 83 87 86 Access to improved sanitation facilities (% of population) 59 33 52 1990 1995 2000 2007 oMaldives OSouth Asia Net Aid Flows 1980 1990 2000 2008 * (US$ millions) Net ODA and official aid 21 21 19 37 Growth of GDP and GDP per capita (%) Top 3 donors (in 2007): European Commission Netherlands Japan 0 0 1 1 0 6 0 1 8 7 5 4 I 30 20 T 10.8 3.2 3.7 10 Aid (“hof GNI) Aid per capita (US$) 132 97 70 122 0 Long-Term Economic Trends 95 05 Consumer prices (annual % change) 23.8 3.6 -1.2 10.0 GDP implicit deflator (annual % change) 1.1 13.6 I +GDP -GDP per capita Exchange rate (annual average, local per US$) 7.6 9.6 11.8 12.8 Terms of trade index (2000 = 100) 98 100 96 1980-90 1990-2000 2000-08 (average annual growfh %) Population, mid-year (millions) 0.2 0.2 0.3 0.3 3.1 2.4 1.6 GDP (US$millions) 42 215 624 1,261 8.5 6,9 (% of GDP) Agriculture . .. 6.2 6.7 1.8 2.4 Industry 17.7 9.9 9.5 8.8 Manufacturing 6.6 9.6 4.9 3.3 Services 76.1 8.5 6,9 Household final consumption expenditure 32 9 44.8 4.3 3.1 General gov’t final consumption expenditure 22 9 22.2 14.1 8.5 Gross capital formation 26.3 53.5 9.2 14.9 Exports of goods and services 153.5 85.5 89.5 83.5 8.6 90 Imports of goods and services 205.1 82.6 71 6 110.1 9.4 95 Gross savings 35 1 33.8 Note: Figures in italics are for years other than those specified. 2008 data are preliminary. .. indicates data are not available. a. Aid data are for 2007. Development Economics, Development Data Group (DECDG). Page 2 of 3 Maldives Balance of Payments and Trade 2000 2008 Governance indicators, 2000 and 2008 (US$millions) Total merchandise exports (fob) 109 331 Total merchandise imports (cif) 309 1,300 Voice and accountability Net trade in goods and services -25 -533 Political stability Current account balance -52 -503 asa % of GDP -0.2 -46.2 Regulatory quality Rule of law Workers' remittances and compensation of employees (receipts) 2 3 Control of conuption Reserves, including gold 123 308 0 25 50 75 100 a2008 Country's percentile rank (0-100) Central Government Finance 02000 higher values imply batterratings (% of GDP) Current revenue (including grants) 32.3 49.0 Soum: Kaufmann-Kmay-Marzzi, World Bank Tax revenue 21.0 Current expenditure 25.5 49.2 Technology and Infrastructure 2000 2008 Overall surpiusldeficit -4.4 13.0 Paved roads (% of total) Highest marginal tax rate (%) Fixed line and mobile phone Individual subscribers (per 100 people) 12 155 Corporate High technology exports (% of manufactured exports) 0.0 External Debt and Resource Flows Environment (US$millions) Total debt outstanding and disbursed 206 987 Agricultural land (% of land area) 33 47 Total debt service 20 65 Forest area (% of land area) 3.0 3.0 Debt relief (HIPC, MDRI) - - Nationally protected areas (% of land area) Total debt (% of GDP) 33.0 70.2 Freshwater resources per capita (cu. meters) 106 98 Total debt service (% of exports) 4.1 0.9 Freshwater withdrawal (billion cubic meters) Foreign direct investment (net inflows) 13 15 C02 emissions per capita (mt) 1.0 2.4 Portfolio equity (net inflows) 0 0 GDP per unit of energy use (2005 PPP $ per kg of oil equivalent) Composition of total external debt, 2008 Energy use per capita (kg of oil equivalent) IBRD. 0 IDA, 79 I I -1MF.4 (US$millions) IBRD Total debt outstanding and disbursed 0 0 Disbursements 0 0 Principal repayments 0 0 Interest payments 0 0 US$ millions IDA Total debt outstanding and disbursed 46 79 3 4 Private Sector Development 2000 2008 1 2 Time required to start a business (days) - 9 I Cost to start a business (% of GNI per capita) - 11.5 outstanding portfolio 4 60 Time required to register property (days) - 4 55 FC own account 0 0 Ranked as a major constraint to business 2000 2008 (% of mahagers surveyed who agreed) repayments for IFC own account 1 10 n.a. n.a. Stock market capitalization (% of GDP) Bank capital to asset ratio (%) Note: Figures in italics are for years other than those specified. 2008 data are preliminaly. Z25110 .. indicates data are not available. -indicates observation is not applicable. Development Economics, Development Data Group (DECDG). 33 Page 3 of 3 MiHennium Development Goa Is Maldives With selected targets to achieve between 7990 and 2075 (estmmate closest to date shown, +/- 2 years) Goal 1: halve the rates for extreme poverty and malnutrition 1990 1995 2000 2008 Poverty headcount ratio at $12 5 a day (PPP, % of population) Poverty headcount ratio at national poverty line (% of population) Share of income or consumption to the poorest qunitile (%) Prevalence of malnutrition(% of children under 5) 32.5 25.7 Goal 2: ensure that children are able to complete primary schooling Primary school enrollment (net, %) 87 98 96 Primary completion rate (% of relevant age group) 129 Secondary school enrollment (gross, %) 44 56 55 83 Youth literacy rate (% of people ages 15-24) 98 98 98 98 Goal 3: eliminate gender disparity In education and empower women Ratio of girls to boys in primary and secondary education (%) 101 101 Women employed in the nonagricultural sector (% of nonagriculturalemployment) 32 37 39 Proportion of seats held by women in national parliament (%) 6 6 6 12 Goal 4: reduce under-5 mortality by two-thirds Under-5 mortality rate (per 1,000) 111 83 55 30 Infant mortality rate (per 1,000 live births) 79 62 43 26 Measles immunization (proportion of one-year olds immunized, %) 96 96 99 97 Goal 5: reduce maternal mortality by three-fourths Maternal mortality ratio (modeled estimate, per 100,000 live births) 120 Births attended by skilled health staff (% of total) 90 70 84 Contraceptive prevalence (% of women ages 1549) 42 39 Goal 6: halt and begln to reverse the spread of HlVlAlDS and other major diseases Prevalence of HIV (% of population ages 1549) Incidence of tuberculosis (per 100,000 people) 129 96 71 47 Tuberculosis cases detected under DOTS (%) 107 75 92 Goal 7: halve the proportion of people without sustainable access t o basic needs Access to an improved water source (% of population) 96 95 87 83 Access to improved sanitation facilities (% of population) I .. 57 58 59 Forest area (% of total land area) 3.0 3.0 3.0 3.0 Nationally protected areas (% of total land area) CO2 emissions (metrictons per capita) 0.7 1.1 1.8 2.4 GDP per unit of energy use (constant 2005 PPP $ per kg of oil equivalent) Goal 8: develop a global partnership for development TeleDhone mainlines (Der 100 DeoDle) 2.9 5.6 9.0 15.1 Mob/le phone subscribers (per'lO0 people) 0.0 0.0 2.8 140.3 Internet users (per 100 people) 0.0 0.0 2.2 23.1 Personal computers (per 100 people) 1.2 3.7 20.0 Education Indicators (%) Measles Immunization (% of I-year olds) ICT indicators (per 100 people) 100 180 I____ n 150 75 120 :50 25 50 25 80 80 30 2000 2002 2004 2006 2008 0 0 1880 1885 2000 2007 2000 2002 2004 2006 2008 ---cL Primary net enrollment ratio ---ct Ratio of girls to boys In primary 8 secondary OMaldives nSoulh Asia OFixed + mobile subscnbers minternetusers education Note: Figures in italics are for years other than those specified. .. indicates data are not available. 2/25/10 Development Economics, Development Data Group (DECDG). 34 CAS Annex BZ Maldives - Selected Indicators* of Bank Portfolio Performance and Management As Of Date 4/7/2010 Indicator 2007 2008 2009 2010 Porifolio Assessment Number of Projects Under Implementation a 2 4 5 5 Average Implementation Period (years) 2.6 1.9 2.3 2.1 Percent of Problem Projects by Number an 0.0 0.0 40.0 0.0 Percent of Problem Projects by Amount a* 0.0 0.0 38.0 0.0 Percent of Projects at Risk by Number a, 0.0 0.0 40.0 0.0 Percent of Projects at Risk by Amount a, 0.0 0.0 38.0 0.0 Disbursement Ratio (%) e 33.1 35.6 14.3 20.6 Portfolio Management CPPR during the year (yes/no) no no no no Supervision Resources (total US$'OOO) 264.8 406.2 400.8 410 Average Supervision (US$'OOO/project) 88.2 101.5 100.2 68.3 Memorandum Item Since FY 80 Last Five FYs Proj Eva1 by OED by Number 6 I Proj Eva1 by OED by Amt (US$ millions) 61.O 16.8 % of OED Projects Rated U or HU by Number 0.0 0.0 % of OED Projects Rated U or HU by Amt 0.0 0.0 a.As shown in the Annual Report on Portfolio Performance (except for current FY). b.Average age of projects in the Bank's country portfolio. c.Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP). d.As defined under the Portfolio Improvement Program. e.Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the beginning of the year: Investment projects only. * All indicators are for projects active in the Portfolio, with the exception of Supervision Resources and Disbursement Ratio, which include all active projects as well as projects which exited during the fiscal year 35 Annex B3: IDA Program Summary FYOS-12 Maldives Environmental 12 Approved 06/10/2008 Project Maldives Pension 12 Approved 05/12/2009 Administration Project Additional Financing for 5 Dropped IHDP (education) Possible Development Policy Credit 6 Approved I 03’04/2010 I Possible Follow on Financing 5 Dropped I I I 36 Annex B3 Maldives: IFC Investment Operations Program 2007 2008 2009 201o* Commitments IUS$m) Gross 0.00 0.00 62 2.50 Net** 0.00 0.00 62 2.50 Net Commitments bv Sector I%\ Real Sector Cluster nla nla 80.65 100 Financial Markets nla nla 19.35 0 Total nla nla 100 100 Net Commitments bv Investment Instrument (%) Equity nla nla 7.26 0 Loan nla nla 92.74 100 Total nla nla 100 100 * As of March 31,2010 * IFC’s Own Account only 37 Annex B4 Annex B4 Summary of Nonlending Services As of April 7,2010 Product Comdetion FY Cost (US$OOO) Audience a Recent completions Public Expenditure Mgmt TA 2008 228 Government Review/Costing of HIV/AIDS TA 2010 35 Government Underway Maldives Governance Diagnostics TA 2010 . 50 Government Planned PPP Capacity Building TA 2011 50 Government ROSC Accounting and Auditing 2011 100 Government Education and Skills Training Policy Notes 2011 150 Government Country Economic Memorandum 2012 200 Government Quality of General Education Policy Notes 2012 150 Government a. Government, donor, Bank, public dissemination. 38 Annex B5: Povertv and Social Indicators Latest single year Same regionlincome group Lower- South middle- 1980-85 1990-97 2002-08 Asia income POPULATION Total population, mid-year (millions) 0.2 0.2 0.3 1,542.9 3,702.2 Growth rate (% annual average for period) 3.0 2.8 1.6 1.5 1.2 Urban population (% of population) 25.5 25.6 37.9 29.5 41.3 Total fertility rate (births per woman) 6.7 4.5 2.6 2.8 2.5 POVERTY (% of population) National headcount index 40 28 Urban headcount index Rural headcount index INCOME GNI per capita (US$) 3,630 986 2,015 Consumer price index (2000=100) 125 127 125 Food price index (2000=100) 81 99 lNCOME/CONSUMPTlON DISTRIBUTION Gini index Lowest quintile (YOof income or consumption) Highest quintile (% of income or consumption) SOCIAL INDICATORS Public expenditure Health (% of GDP) 6.5 0.9 1.8 Education (% of GDP) 4.0 7.9 2.2 3.2 Net primary school enrollment rate (% of age group) Total 87 96 a5 87 Male 87 96 87 89 Female 87 97 83 85 Access to an improved water source (% of population) Total 95 83 87 86 Urban 100 98 94 94 Rural 93 76 84 81 Immunlzation rate (% of children ages 12-23 months) Measles 47 96 97 72 80 DPT 28 94 98 69 77 Child malnutrition (% under 5 years) 33 41 26 Life expectancy at birth (years) Total 59 63 68 65 68 Male 60 63 68 63 66 Female 57 61 69 66 70 Mortality Infant (per 1,000 live births) 94 62 26 59 46 Under 5 (per 1,000) 135 83 30 78 65 Adult (15-59) Male (per 1,000 population) 247 208 181 246 205 Female (per 1,000 population) 322 284 153 167 137 Maternal (modeled, per 100,000 live births) 120 500 370 Births attended by skilled health staff (%) 90 84 42 64 Note: 0 or 0.0 means zero or less than half the unit shown. Net enrollment rate: break in series between 1997 and 1998 due to change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months who received vaccinations before one year of age or at any time before the survey. World Development Indicators database, World Bank - 15 September 2009. 39 Annex B6 Page 1 of 3 Annex B6 Maldives - Key Economic Indicators Indicator * 2005 2006 2007 2008 Estimate 2009 2010 Pro’ected 2011 2012 National accounts (as YOof GDP) Gross domestic producta 100 100 100 100 100 100 100 100 Agriculture 10 8 7 6 8 9 9 10 Industry 18 17 17 18 23 25 27 29 Services 72 75 76 76 69 67 64 61 Memorandum items Gross domestic product 750 929 1055 1261 1338 1441 1552 1669 (US$ million at current prices) GNI per capita (US$, Atlas method) 2580 2970 3190 3580 3690 4090 4470 4770 Real annual growth rates (%) Gross domestic product at market prices -4.6 18.0 7.2 6.3 -3.0 3.4 3.7 3.9 Real annual per capita growth rates (%) Gross domestic product at market prices -6.1 17.1 4.9 3.5 -6.3 1.5 1.8 1.9 Balance of Payments (US%millions) Exports (GNFS)b 485 777 877 1034 981 1042 1150 1329 Merchandise FOB 162 225 228 330 313 333 356 399 Imports (GNFS)~ 869 1047 1234 1570 1260 1248 1297 1374 Merchandise FOB 655 815 965 1221 1124 1120 1167 1237 Resource balance -384 -269 -357 -535 -279 -206 -147 -45 Net current transfers 142 8 -14 -52 -55 -55 -55 -5 5 Current account balance -273 -302 -438 -65 1 -395 -400 -350 -139 Net private foreign direct investment 9 14 15 15 5 15 15 20 Long-term loans (net) 18 39 0 70 40 -7 -15 Official 21 34 27 37 35 44 5 -2 Private -3 4 -37 35 -4 -12 -13 Other capital (net, incl. errors & omissions) 222 295 568 400 430 398 225 Change in reservesd 23 -45 -77 68 -81 -86 -56 -9 1 Memorandum items Resource balance (% of GDP) -5 1.2 -29.0 -33.8 -42.4 -20.8 -14.3 -9.5 -2.7 (Continued 40 Annex B6 Page 2 of 3 Maldives - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 Public finance (as % of GDP at market prices)e Current revenues 48.1 44.1 48.1 44.3 39.0 40.3 40.2 40.3 Current expenditures 48.4 47.2 48.6 51.3 54.2 48.0 42.5 38.2 Current account surplus (+) or deficit (-) -0.3 -3.1 -0.5 -7.0 -15.2 -7.8 -2.4 2.1 Capital account surplus (+) or deficit (-) 10.6 11.3 12.1 11.4 12.3 10.7 9.2 8.6 Foreign financing 11.0 11.8 12.3 8.5 '2.2 1.5 -1.4 -1.6 Monetary indicators M2/GDP 31.6 31.2 32.6 37.7 78.1 80.0 82.6 82.6 Growth of M2 (%) 22.5 22.2 18.8 38.1 120.1 10.2 11.3 7.5 Private sector credit growth / 72.5 104.4 93.4 67.2 97.7 93.0 93.0 93.0 total credit growth (%) Price indices Consumer price index (% change) 1.3 3.1 10.3 9.1 4.0 4.5 6.0 4.8 GDP deflator (% change) 1.2 4.0 6.6 13.6 11.0 4.0 3.8 3.5 a. GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 41 Annex B6 Page 1 of1 Maldives - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 2005 2006 2007 2008 2009 2010 2011 2012 Public finance (as % of GDP at market prices)' Current revenues 48.1 44.1 48.1 44.3 39.0 40.3 40.2 40.3 Current expenditures 48.4 47.2 48.6 51.3 54.2 48.0 42.5 38.2 Current account surplus (+) or deficit (-) -0.3 -3.1 -0.5 -7.0 -15.2 -7.8 -2.4 2.1 Capital account surplus (+) or deficit (-) 10.6 11.3 12.1 11.4 12.3 10.7 9.2 8.6 Foreign financing 11.0 11.8 12.3 8.5 2.2 1.5 -1.4 -1.6 Monetary indicators M2/GDP 31.6 31.2 32.6 37.7 78.1 80.0 82.6 82.6 Growth of M2 (%) 22.5 22.2 18.8 38.1 120.1 10.2 11.3 7.5 Private sector credit growth / 72.5 104.4 93.4 67.2 97.7 93.0 93.0 93.0 total credit growth (%) I Price indices Consumer price index (% change) 1.3 3.1 10.3 9.1 4.0 4.5 6.0 4.8 GDP deflator (% change) 1.2 4.0 6.6 13.6 11.0 4.0 3.8 3.5 a GDP at factor cost b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Consolidated central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. 41 Annex B7: Key Exposure Indicators Estimate Projected Indicator 2005 2006 2007 3,008 2009 2010 201 1 20 I2 rota1 debt outstanding and 390 484 576 987 1001 1014 982 946 iisbursed (TDO) (US$m)" \Jet disbursements (US$m)" 55 82 72 418 23 13 -32 -36 rota1 debt service (TDS) 35 39 50 65 96 106 105 77 :us$m)" Debt and debt service indicators oh) TDOKGS~ 76.9 59.9 62.6 91.9 121.0 86.1 67.2 TDO/GDP 47.8 48.6 50.3 72.0 62.5 57.7 TDSKGS 7.0 4.8 5.5 6.0 11.6 9.0 7.1 ConcessionaVTDO 53.8 46.9 42.6 26.4 30.5 34.0 37.1 [BRD exposure indicators ("!) IBRD DS/public DS 2.9 3.2 2.6 2.0 Preferred creditor DS/public 18.6 19.8 28.7 35.3 DS (%)' IBRD DS/XGS 0.2 0.1 0.1 0.1 IBRD TDO (US$m)d 0 0 0 0 0 0 0 0 Of which present value of guarantees (US$m) Share of IBRD portfolio ("h) 0 IDA TDO (us$rnld 64 70 77 79 85 89 92 94 IFC (US$m) Loans Equity and quasi-equity /c MIGA MIGA guarantees (US$m) a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements. d. Includes present value of guarantees. e. Includes equity and quasi-equity types of both loan and equity instruments. 42 IBRD 33442 71° 72° 73° 74° 75° 76° Dhidhdhoo HAA ALIFU 7° 7° THILADHUNMATHI UTHURUBURI HAA DHAALU THILADHUNMATHI Kulhudhuffushi DHEKUNUBURI SHAVIYANI MILADHUNMADULU MALDIVES UTHURUBURI Funadhoo 6° NOONU 6° MILADHUNMADULU DHEKUNUBURI Ugoofaaru Manadhoo RAA MAALHOSMADULU UTHURUBURI LHAVIYANI FAADHIPPOLHU Naifaru Eydhafushi 5° 5° BAA MAALHOSMADULU el ann DHEKUNUBURI a Ch v KAAFU rdi Ka MALÉ ATOLL ALIFU Rasdhoo Thulusdhoo ALIFU ARI ATHOLHU UTHURUGOFI MALÉ 4° 4° Mahibadhoo ALIFU INDIAN DHAALU ARI ATHOLHU Fulidhoo DHEKUNUGOFI VAAVU OCEAN FELIDHE ATOLL FAAFU Magoodhoo NORTH NILANDHE ATOLL 3° Muli 3° MEEMU Kudahuvadhoo MULAKU ATOLL DHAALU SOUTH NILANDHE ATOLL THAA KOLHUMADULU Veymandoo 2° 2° Fonadhoo LAAMU HADHDHUNMATHI One and Half Degree Channel GAAFU ALIFU HUVADHU ATHOLHU UTHURUBURI 1° 1° 75° 76° Viligili 0 25 50 75 Kilometers Thinadhoo M A L D I VES GAAFU DHAALU HUVADHU ATOLL l nne 0 25 50 75 Miles DHEKUNUBURI ha ATOLL ADMINISTRATIVE CAPITALS 0° al C 0° or i Equat Foamulaku NATIONAL CAPITAL ATOLL ADMINISTRATIVE GNAVIYANI SEENU FOAMULAKU BOUNDARIES* ADDU ATOLL This map was produced by the Map Design Unit of The World Bank. ATOLL The boundaries, colors, denominations and any other information Hithadhoo shown on this map do not imply, on the part of The World Bank Group, any judgment on the legal status of any territory, or any *Local Atoll Names shown in green; endorsement or acceptance of such boundaries. Official Atoll Names shown in white. 72° 73° 74° JANUARY 2005