86767 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-425 December 11, 2000 05:36:50 PM Statement by Terrie O'Leary Date of Meeting: December 12, 2000 Maldives: Country Assistance Strategy The Maldives are a group of 1200 coral islands in the Indian Ocean with a population of some 280,000. The Maldives was one of the world's 20 poorest countries in the 1970s, but through a combination of sound policy and favorable external environment, they have become a lower- middle income country with a GNP per capita of US$1200. This is quite an achievement. Social indicators have improved substantially over the same time: since 1977, life expectancy at birth has increased by 16 years to 62 (1997), infant mortality has been reduced from 121 per thousand to 27 and primary school enrollment has increased from 38 percent in 1982 to 98 of relevant age group. They have also achieved a literacy rate in excess of 96%. We would join staff and OED in their conclusion that the authorities should be commended for their solid track record with respect to both economic and social policies. But, considerable development challenges remain, including "... a small domestic market; a narrow and fragile resource base; a shortage of skilled manpower; difficult inter-island transport and communication; high unit costs of social and economic infrastructure provision; heavy dependence on external trade; and vulnerability to external shocks and disasters." (1999 OED Country Assistance Evaluation (CAE), p. 1) We would note that this list is typical of a small island state. It would certainly be interesting to know if the success to date in the Maldives can benefit other small island economies. We were particularly interested to note the government's success with donor coordination, a key concern to small states where a multitude of large international bureaucracies can easily undermine government capacity. In general, we support the proposed strategy for Bank assistance outlined in the CAS. As a good performer (both in the broad economic/social terms, and with respect to the Bank's portfolio in Maldives), they deserve enriched Bank assistance. A gradual shift from investment lending to programmatic lending seems appropriate, as long as the Bank continues to work with the authorities to strengthen public sector management as envisioned in the CAS. In this regard, it would be useful to know if other donors are considering following a similar shift. Increased analytical and advisory services are also clearly appropriate. The CAE concluded that: "Although sparse, the Bank's economic work has played a valuable role in providing a periodic external overview of development progress and challenges ahead." More importantly however, is the government's request that the Bank increase it level of engagement. It would indeed be unfortunate if "the world's knowledge bank" could not offer its clients regular and more frequent development advice, particularly when the Bank's more general development work is not fully applicable to the special characteristics of small states. Against this request, it is worth highlighting that a Country Assistance Strategy every five years, with Country Economic Memoranda on roughly the same schedule does truly represent a limited level of advisory engagement. On the other hand, the proposed level of non-lending services as summarized in CAS Annex B4 does offer a somewhat enriched level of Bank assistance. It would be worth hearing from staff as to whether this proposed level of engagement does allow for a strong, ongoing dialogue between the Bank and the government. A Public Expenditure Review is a welcome first step in this regard, with the proposed annual updates. However, we would seek clarification from staff as to the extent of these updates and the proposed level of Bank participation since Annex B4 allocates resources to the PER in fiscal years 2001 and 2004, but nothing in the intervening years. We noted with great interest the fact the Maldives has been practicing the principles that underpin a comprehensive development framework. However, rather than offering our congratulations to the authorities for their approach, maybe it would be more appropriate for us to acknowledge that for many years, the government of the Maldives has been implementing the CDF principles as the underpinning of their development strategy. Therefore, our conclusion should be that we as an institution are on the right track with the CDF principles. That being said, the CAS discussion of the relationship between the government's Sixth National Development Plan and a Poverty Reduction Strategy paper is a little troubling. The document concludes that: "It (the National Development Strategy) is a product of in-country consultations, and addresses the development needs of the island communities. It is comprehensive in its coverage of the key structural and social areas of development, with a focus on sustaining broad- based growth and raising the standard of living, particularly in the outer atolls. The strategy is supported by a large number of donors." (para. 59, page 15). If the National Development Plan is based on the CDF principles, why does it need to feed into the development of a separate PRSP? Shouldn't the two be one and the same? While this is a valid point regardless of the size of the country, this is a particularly important point for a small state, where capacity is a major factor, not only government capacity (institutional and otherwise), but also private sector, civil society and donor capacity. As a group we cannot afford to duplicate efforts in any way. We would therefore welcome a response from staff on the relationship between the proposed PRSP and the government's Sixth National Development Plan. Why is the Sixth National Development Plan not the PRSP! As discussed in the Small States paper presented to the Development Committee last Spring, vulnerability to external shocks and the need for economic diversification are real challenges facing this group of countries, with no easy or obvious answers. We were somewhat disappointed that the CAS does not deal head on with the vulnerability to external shocks. We are also very interested in the document's approach to economic diversification. In particular, the Country Assessment Evaluation offers some criticism as to how the Bank has supported the country's fisheries sector, suggesting that the Bank should have done more to encourage the liberalization of the fisheries sector rather than strengthening the role of the public sector. We are not sure that we agree. As a result, we were encouraged that the CAS takes a more cautious and careful approach. We would hope that the Fisheries Assessment Study currently under preparation takes a broad perspective. As Canadian fisheries management attests, balancing off the economic and social considerations with due consideration as to the impact on the resource base is particularly difficult. We strongly support the need for an environmentally sustainable approach which recognizes the social value of the fishery. In fact, the CAE notes that "Although fisheries and agriculture now account for only 16% of GDP, as much as 75% of the population still depend on these two activities for their livelihood." (page 7). This is a social and economic reality that cannot be ignored. Obviously the risks are considerable, suggesting the need for a comprehensive and cautious approach. As a constituency representing a number of small island countries, we are very interested in the Country Assistance Strategy for the Maldives before us today. For us, the most important item of consideration is the role of the World Bank in the small states. In an increasing globalized world, the Bank cannot forget the importance of being available to support the needs of the small states, countries that are clearly facing major challenges with respect to both market access and institutional capacity constraints. We wish the government and people of the Maldives all the best as they address their future challenges.