Maldives - An updating economic memorandum

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 4881-MAL The Maldives: An Updating Economic Memorandum January 1984 South Asia Programs 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 Banl, "uthorization.  CURRENCY EQUIVALENTS a/ End of Period Currency (mid-:rate) Unit 1978 US$1.00 Rf 8.63 Rf 1.00 US$ 0.12 Rf I mn US$115,874.86 1979 US$1.00 Rf 7.55 Rf 1.00 2 US$ 0.13 Rf 1 mn US$132,450.33 1980 US$1.00 Rf 7.54 Rf 1,00 - US$ 0.13 Rf 1 mn US$132,625.99 1981 US$1.00 Rf 7055 Rf 1.00 = US$ 0.13 Rf 1 mn US$132,450.33 1982 Us$1.00 Rf 7.00 Rf 1,00 = US$ 0.14 Rf I mn US$142,857.14 Annual Average Exchange Rate M{arket Rate Official Accounting Rate b/ 1978 US$1.00 Rf 8.96 RE 3.93 1979 Us$1.00 Rf 7.45 RE 3.93 1980 US$1.00 Rf 7.55 Rf 3.93 1981 US$1.00 = Rf 7.54 RE 3.93 1982 US$1.00 = Rf 7.00 REf 4.00 (from April) 1983 US$1.00 Rf 7.05 RE 5.50 (August) a/ The Maldivian rufiyaa (Rf) was linked to the Sri Lankan rupee aad indirectly to the Pound Sterling until November 21, 1967, when it was linked to the Dollar. b/ Until January 25, 1982 this rate was used for all foreign exchange receipts and payments in the budget, and the valuation by Customs of exports and imports. The use of this rate in budget transactions was discontinued from January 25, 1982. For import valuation, the xate was raised to Rf 4.5 in January 1983. This report is based on the findings of an economic mission to the Maldives by Mr. K. Caden in June 1982 and of a short visit to the country by Messrs. H.FazeL and F. Ahmed in February 1983.  FOR OFFICI&L USE ONLY GLOSSARY DTFI - Department of Tourism and Foreign Investment. Since November 1982, Department of Tourism (DT) DWT - Deadweight tonnage "Maldive fish" - A dried, salted and smoked tuna product MER - Market exchange rate MKA - Maldives Monetary Authority MSL - Maldives Shipping Limited Mr - Metrie ton MTCC - Maldives Transport and Contracting Company NOPAR - National Office for Personnel and Administrative Reform NPA - National Planning Agency. Since November 1982, the Ministry of Planning and Development (NPD) OAAPEC - Organization of Arab Petroleum Exporting Countries OAR - Official accounting rate STO - State Trading Organization SIMDOLS 1Not available - Nil or negligible This docurnent has a testricted 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 MALDIVES: AN UPDATING ECONOMIC MEMORANDUM Table of Contents Page No. Glossary List of Tables in the Text Country Data PREFACE SUMMiARy AND CONCLUSIONS 9.9.............9.999.9.*.... **9*...9 I. INTRODUCTION .........9.... 1 II. RECENT DEVELOPMENTS, 1978-82 5 PRODUCTION, EMPLOYMENT AND INCOME ..................5 Overall Trends ............ .... 5 Fisheries ......... .........* 7 Agriculture and Industry 9 Tourism *0.......... * .. . ....... 10 Shipp'ng ................. . * .9 ........ .... 11 Other Sectors ...... 912 BUDGETARY DEVELOPMENTS ............ ..99.9 9 13 BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE .................. 15 INSTITUTIONAL DEVELOPMENTS ........... ......... 20 III. DEVELOPMENT PROSPECTS AND ISSUES ...................... . 23 PROMOTION OF PRIMARY PRODUCTION ..........................9999 24 Fisheries ... 24 Agriculture 9....... ...*........... * 25 SUSTAINING TOURISM ...9... 999.9.. 9. 9......9.... 26 DEVELOPING SOCIAL INFRASTRUCTURE '-'-''-''-''-'-'-'--'-''' 27 RESOURCE MOBILIZATION .................9999 ... 28 ANNEX A: Maldives: Structure of the Government 31 STATISTICAL APPENDIX ...................99........ 33 Map  -ii- LIST OF TABLES IN THE TEXT Page No. Table 1: Gross Domestic Product, 1978-82 ..... ................ 5 Table 2: Sectoral Value Added and Employment, 1978-82 ......... 6 Table 3: Selected Fisheries Statistics, 1978-82 ............... 7 Table 4: Selected Tourism Statistics, 1978-82 ................ 10 Table 5: Public Finance, 1978-82 ........................ . 13 Table 6: Summary Balance of Payments, 1978-82 ................ 16 Table 7: Principal Exports, 1978-82 ..... ..................... 17 Table 8: Value of Imports, 1978-82 ...... ..................... 18  Page 1 of 2 pages COUNTRY DATA - MALDIVES a/ AM . POPULATION DENSITY (1982) 298 sq km 160,200 (end-1982) 538 per sq km Rate of Growth: 2.3% (from 1977-82) POPU LATION CHARACTERISTICS (1981) HEALTH (1981. 1982) Crude Birth Rate (per '000): 44.0 Population per physician 17,333 Crude Death Rate (pev '000): 12.0 Population per hospital bed: 1,592 Infant Mortality (per '000 live births): 88.0 Life Expectancy at Birth (years): 52.0 INCOME DISTRIBUTION DISTRIBUTION OF LAND OWNERSHIP % of National income, highest quintile: 2 Owned by top 10% of owners lowest quintile : .. % Owned by smallest 10% of owners: ACCESS TO PIPED WATER (1977) ACCESS TO ELECTRICITY (1977) x of population, total: 15.0 X of households, urban: 59.3 urban: 54.0 rural: 2.3 rural: 5.0 NUTRITION (1977) EDUCATION (1981) Calorie intaXe as % of Requirements: 77.6 Adult literacy rate (1977) X: 81.6 Per capita protein intake (gm/day): 68.3 School enrollment (ages 6-10) X: 61.0 (ages 11-15) S: 6.0 GDP PER CAPITA IN 1980: $308 b GROSS DOMESTIC PRODUCT IN 1980 ANNUAL RATE OF GROWTH (Q. constant 1980 prices) $ Mn X 1977-81 1982 GDP at Market Prices 47.1 100.0 13.2 9.0 Exports of Goods, NPS 20.2 42.9 Imports of Goods, NFS 45.9 97.5 OUTPUT, EMPLOYMENT AND PRODUCTIVITY IN 1980 Value Added Labor Force V.A. Per Worker SMn % Th 2 $ X Primary Sectors c/ 15.5 32.9 35.9 54.1 432 60.8 Secondary Sectors d/ 5.9 12.5 17.8 26.9 331 46.6 Services e/ 25.7 54.6 12.6 19.0 2040 287.3 Total/Average 47.1 100.0 66.3 100.0 710 100.0 GOVERNMENT FINANCE (Rf. Mn) 1982 1983 (est) Current Receipts f/ 101.6 125.0 Current Expenditure 96.5 106.1 Current Surplus 5.1 18.9 Capital Expenditure gI 46.7 147.2 External Assistance 40.3 123.3 a/ Unless otherwise specified, data provided by the Ministry of Planning and Development, Dept. of Finance and Maldives Monetary Authority. b/ GDP at wp^ket prices in rufiyaa converted at average market exchange rate and divided by end year population. c/ Agriculture, Fisheries, and Coral and Sand Mining. d/ Construction, Manufacturing, Electricity. el Includes Tourism. f/ Includes capital revenue. K/ Includes net lending. BEST COPY AiVAILARI F  Page 2 of 2 pages COUNTRY DATA - l4ALDIVES a/ MONBY, CREDIT, AND PRICES 1979 1980 1981 1952 ~R_f. million, end-of perioad) Money and Quasi-Money 65.0 95.4 87.4 104.7 Bank Credit to Public Sector (net) 37.5 72.7 86.5 99.2 Fank Credit to Private Sector 17.6 22.1 51.3 99.6 (Percentage or Index Numbers) Money as Z of GDP .. General Price Index .. Annual Percentage Changes in: General Price Index .. Bank Credit to Public Sector 94 19 15 Bank Credit to Private Sector 26 132 94 BALANCE OF PAYMENTS MERCHANDISE EXPORTS (1982) -~~~~~- ~~~~1980 1981 1982 ($ Million) S Million Z Exports of Goods, NFS 68.2 74.7 76.4 Fresh, frozen fish 3.6 22.9 Imports of Goods, NFS 89.1 91.8 96.2 Dry, salted fish 1.9 12.1 Resource Gap (deficit -) -20.9 -17.1 -19.8 Other marine products b/ 0.8 5.1 Garments 3.3 21.0 Net Factor Income -2.7 -3.5 -5.3 Other Manufactures c/ 0.2 1.3 Reexports d/ 5.9 37.6 Balance on Current Account -24.8 -22.9 -28.7 Total (exc. sale of ships) 15.7 100.0 Direct Foreign Investment Net MLT Borrowing 18.1 12.8 5.3 Disbursements 18.1 13.0 6.i Amortization - 0.2 0.R EXTERNAL DEBT, DEC. 1982 e/ Grants 2.6 2.7 4.6 Other Capital (net) 4.3 7.7 18.3 $ Million Overall Balance 0.2 0.3 -0.5 Total Outstanding 58.7 Total outstanditg and disbursed 38.9 RATE CF EXCHANGE, Annual Average 1978 1979 1980 1981 1982 DEBT sERVICE RATIO, 1982 f/ US$1.00fRf R.96 7.45 7.55 7.54 7.00 4.0Z Rfl.00sUS$ 0.11 0.13 0.13 0.13 0.14 OfficIal Accounting Rate US$1.00-Rf 3.93 3.93 3.93 3.93 4.00 IDA LENDtNG, December 31. i982e/ S Million Outstanding and Disbursed 2.2 Undisbursed 1.0 Outstanding, including Undisbursed 3.2 / See footnote a/ on page I of C,untry Data. zI Dry shark fins. shark oil, ambergrIs, live tropical fish, tortoIse shells. / Canned tuna and mica chIps. i/ Consumer goods imported and sold to visiting traders. */ Repayable in foreign currencies and with a maturity over one year. Source is External Debt Division, the World Bank. ! RatIo of debt service to exports of goods and non-factor services. South Asia Programs Department December 6, 1983 REST CoPY AVAILBLE  PREFACE 1. The Republic of Maldives became a member of the International Monetary Fund and the World Bank in January 1978. In February 1983 the Maldives became a member of the International Finauce Corporation (IFC), which is a World Bank affiliate providing the type of financing and invest- ment expertise particularly suited to attracting, and lending confidence to, private sector investors in developing countries. The first World Bank economic mission visited the Maldives in July 1979, and produced a comprehen- sive introductory economic report attempting to set the Bankos initial diag- nosis of the problems and prospects of the economy in the context of the country's historical, political and socio-economic background. The present report attempts to update and analyze the impressive development performance of this quite unique nation of islands during the five-year period, 1978-82. 2. The Republic of Maldives is an archipelago of over 1,200 tiny coral islands in the Indian Ocean, grouped together in clusters or "atolls", form- ing a long narrow chain strung over an area of 90,000 square kilometres. The neazest land mass lies 483 kilometres northeast, the distance to Cape Comorin, India's southern extremity. The Maldives' physical remoteness explains how the islands have managed to remain relatively untouched by the great social and political changes that have swept across southern Asia. The population of 160,2o0 (1982) is scattered thinly over 202 islands; only 19 islands have more than 1,000 inhabitants. Male, the capital, has over 30,000 crowded on its 2.6 square kilometres. The society has traditionally been small, closely knit, rigidly structured and disciplined, and unified by the common bonds of religion (Islam) and language (Dhivehi, based on Sinhalese, Arabic, and Hindustani). Each island community is a self-contained economic unit, dependent on the sea around it, as fishing is the main activity. 3. Throughout its recorded history, the Maldives has managed to remain self-governing, except for one brief spell under Portuguese rule in the 16th century. In 1887, the Maldives became a British protectorate, but there was no British presence in Male. Independence was attained in 1965, and, after a period of experimentation with institutional reforms, the Sultanate was replaced by a Republican Constitution in which a President is nominated by the Citizens' Majlis (House of Representatives) and confirmed in a subsequent nationwide referendum. There is universal adult franchise; the executive branch has considerable leverage over the legislature. The President, Mr. Maumoon Abdul Gayoom, took office on November 11, 1978, and committed his new Government to a number of political and economic reforms. T:iese involved a liberalization of the political system, a more decentralized decision- making process, and a major new development program to redress the past neglect, of economic and social infrastructure, particularly in the atolls. The country's very remarkable progress to date testifies to the success of the reforms initiated in 1978. In 1983, President Cayoom was nominated by the Citizens' Majlis for a second five-year term of office, winning 99% of the secret vote of the Majlis. In the subsequent nationwide referendum, Mr. Gayoom was affirmed by 95.6% of the voters, and he took office for the second term on November 11, 1983.  4. Like most island developing countries (IDCs), the resource base of the Maldives is narrow in relation to population, and it lacls known mineral resources. The country is heavily specialized in fishing and tourism; in the last two to three years, it has made successful efforts to diversify the economy by setting up export-oriented garment factories. The country s own successful shipping line, Maldives Shipping Limited (MSL), has mitigated some of the disadvantages of remoteness. Communications with the rest of the world has also been boosted tremendously with the completiotL, in 1981, of the Male International Airport; with the inauguration of direct charter flights in wide-bodied jets and the planned inauguratioLl of scheduled flights by Singapore Airlines; and with rapid development of efficient telephone and telex facilities. 5. The Maldives' energetic and resourceful population justifiably looks forward to continued strong economic growth and development explored in this report. In addition to the development of fisheries, tourism and shipping, the recent growth of trade and banking, and of education and health facilities, have strengthened the development potential of the Maldives. Some policies and prospects for the realization of this potential are examined in the last chapter of this report.  SUMMARY AND CONCLUSIONS I. Three years ago, the World Bank's first economic report on the Maldives provided a comprehensive survey of the country's development problems and prospects in the context of its historical background and of its society, polity and economy. The present report looks at the impres- sive achievements of the last few years, and examines some policies aro.i prospects for sustaining growth and development. ii. By all economic indicators, the Maldives today Is clearly better off than it was five years ago. This situation is attributable in large manner to the country's sound economic growth strategy, emphasizing an open economy and productive Investments in sectors offering comparative advantage -- fishing, tourism and shipping. iii. During 1978-82, rapid development of fishing and tourism, as well as the acceleration in public sector investment in infrastructure, led to strong economic growth. Real GDP increased at 12% per year; and per capita GDP, at nearly 10% per year. Total employment, between 1978-80, expanded by 3.5% per year, keeping pace with the rate of growth of the labor force. iv. The fisheries sector remains the mainstay of the Maldivian economy despite the fact that tourism now generates nearly twice as much in gross foreign exchange earnings. Fish landings increased regularly from a low point of 25,800 MT in 1978 to a record catch of 34,900 MT in 1981; at the same time, fish exports rose from 17,300 MT to 20,300 MT. A drastic decline in negotiated export prices for fresh fish was a major setback to Maldivian fishing in 1982. This was an additional burden on the sector already constrained by shortages and rising prices of diesel (for mechanized boats), inadeauate collector capacity offshore, and limited freezing and storage facilities onshore. The government appropriately averted a major crisis; it maintained procurement prices paid to fishermen and also stepped in to maintain the collection and canning operations of a foreign company which had withdrawn from the country. New export markets have been sought successfully in Thailand, and programs to alleviate con- straints to fisheries output and incomes have been launched. v. The tourism sector has grown spectacularly since 1978. Between 1978 and 1982, the number of resorts increased from 17 to 44; resort bed capacity expanded from 1,298 to 3,982; tourist arrivals rose from about 17,000 to 57,000; and tourist expenditures increased from about $5 million :o $20 million. The completion of Male International Airport in 1981 removed an important bottleneck in the form of limited connecting flights to and from Colombo. Direct charter flights from main tourism generating areas, in wide-bodied jets, are now operating. Tourism and tourism related jobs have had a beneficial impact on the development of skills in hotel and catering trades, and in construction and simple engineering sectors. The Government's tourism promotion strategy has emphasized local ownership of resorts, but encouraged management by experienced foreign management groups. Only a few uninhabited islands within convenient reach of the international airport remain to be developed as tourist resorts. Since  -ii- tourism will remain important to the Maldivian economy, the Government plans to develop new tourism zones in a stepwise and flexible manner adjusting to market conditions. vI. Maldives Shipping Ltd (MSL), the government-owned shipping line, has expanded its fleet and the average size of operating vessels. As a result of an effective training program, the number of Maldivian nationals employed on MSL ships has risen overall and as a proportion of the total. The contribution made by shipping to the balance of payments and the budget has risen again after a low point in 1979. In addition to financial transfers, MSL also contributes goods and services to the economy. These recently included installation of fuel tanks on the outer islands, con- struction of a jetty and a garment factory on Thulusdhoo Island, and assis- tance to government efforts at developing the fishing sector. Through Its worldwide contacts, MSL management was instrumental in putting the govern- ment in touch with foreign investors who set up two export-oriented garment factories on Gan island in 1981. vii. Agriculture In the Maldives consists mainly of subsistence garden- ing around homesteads, where much of the fruit, tubers, condiments, vegetable crops and coconuts are grown. Deliveries of fruit and vegetables to Male, the main cash market for crops, have increased over the last five years. Poor soil, sheer lack of space, and inadequate extension and tran- sport services inhibit efforts to expand farm production. Revertheless, there are prospects for improving cultivation practices, which are ineffi- cient at present, and particularly so for systematic cultivation of coconuts. viii. Garment factories, two or, Gan and one coming up on Thulusdhoo, have been recent additions to the manufacturing sector. Beside these and the small tuna cannery and mica fabrication p ant, the bulk of manufacturing output consists of cottage industries, handicrafts, and small-scale fabrication and repair. ix. Commerce, transport real estate and banking services expanded rapidly during 1978-82, although inter-island7transport remains an impor- tant constraint to further economic integration and development. Construction of a small harbor facility is in progress on Thulusdboo island to reduce congestion in Male harbor. The MaldAves Transport and Contracting Company (MTCC) was established in 1981 with participation by private individuals, the Government and the MSL. Its activities include cargo handling, passenger launch operations, boat building, engine instal- lation on fishing boats and public construction works. The establishment of the Maldives Monetary Authority (MMA), in July 1981, to perform central banking functions was a major step forward in organizing the country's monetary system. x. Education and health facilities have been expanded in recent years, but formal education facilities remain concentrated in Male. Health serv- ices are inadequate even in Male, where water supply and sewerage systems  -ii- are insufficient. The development of social infrastructure remains a challenge to the government given the small number of personnel, limited funds and the high cost of providing services to the widely dispersed atoll population. xi. The budgetary situation improved considerably during 1978-82, with marked annual Increases in revenues and essential expenditures. Whereas revenues covered about a quarter of total expenditures in 1978, they are estimated to have covered about 70% of a much larger total expenditure in 1982. Excessive dependence of public revenue on net transfe-s from public enterprises (for 60-70% of revenue), and on tourist related taxes (for about 18% of revenue), constitutes a potentially unstable reve"P.e structure. Expenditures for operations and maintenance, debt servicing and development works are expected to increase in future. Hence there is a need to mobilize additional sources of revenue, while at the same time exploring ways to contain expenditures. The Government has taken appropriate measures in the 1983 budget and is considering further measures. Available options include increases in effective rates of import duties; taxes and charges on business and real estate; economic charges on commercial exploitation of natural resources, such as coral mining and coconut felling; and betLer targetting to reduce expenditure on food subsidies. xii. The balance of payments has been characterized by deficits on the trade account and surpluses on the services account. Inflows of official long-term capital, mainly from OAPEC countries, and varying short-term capital inflows into the local branches of commercial banks, have offset the current account deficits. However, the small overall surpluses provided little coverage for imports, pointing towards a need for impro e reserves management. The recently established MMA is expected to discharge this function. While receipts from both merchandise exports and tourism grew rapidly during 1978-82, the growth of tourism earnings has far out- paced the rest. Fresh fish continues to be the principal merchandise export. Dry salted skipjack and dry salted reef fish have appeared as new export products since 1980, and garment exports have appeared since 1981. Durirng the period of rapid development in 1978-82, imports have been very pro-ninent in the economy. Imports of food, petroleum products, and inter- mediate and capital goods have all grown rapidly, reflecting expansion in tourism, boat mechanization and construction sectors. The debt service, equivalent to about 4X of export earnings in 1982, is still light, although it is rising rapidly. xiii. For the future, the Governmenit's twin objectives of rapid economic growth and regional balance are important and appropriate in the situation of the Maldives. The major sources of growth -- marine resources and new tourism zones -- are located precisely in the outer atolls which, at present, are poorer relative to Male only because of past policy neglect. Government ini,iatives to correct this situation, through the atoll development programs, should be continued in a cost-effective manner. Development programs should also promote growth of primary production,  -iv- sustain the buoyant tourism sector, and provide essential social and economic Infrastructure. xiv. Sclut:an& to certain problems in fishing -- notably, navigational aids, boat design, fuel distribution, collecting and freezing capacity -- are being sought through ongoing programs. Additional programs are needed to improve availability of bait fish, install fish aggregation devices, conduct a stock research and resource survey, and strengthen incentives. In agriculture, there is scope for improving the cultivation and processing of coconuts, and raising the productivity and quality of homestead fruit and vegetable plots, provided local transport, incentives and institutions are strengthened. Higher output would provide more food and nutritional support to the atoll population; it could also substitute for imported edible oil, and for some fresh fruit and vegetables currently imported for the tourist industry. xv. New tourism zones, properly selected and designed, could help atoll development. At the same time, complementary investments in the existing zone are also needed as, for example, accommodation at or near the Male International Airport and fast feeder transport between the airport and resorts. xvi. Government priorities in developing social infrastructure appropriately emphasize primary education; secondary and vocational train- ing to meet the growing demand for skilled manpower; high level training abroad; and primary health care. The physical difficulties, and the atten- dant costs, of delivering services to the widely dispersed population require innovative approaches. Qualitative improvements of the traditional countrywide primary schools could be accomplished by upgrading teacher skills, curricula improvement and provision of school materials. Primary health care could be promoted by provision of water supply and sanitation facilities which, with initial material and technical assistance, could be constructed and maintained by local communities. With a population density of about 19,000/sq. km, Male-s virtually non-existent urban infrastructure requires investments to improve the water supply, and to provide a storm wpter drainage and a solid waste disposal system. xvii. The Maldives has demonstrated a sound potential for rapid development. given adequate financial resources. As noted in paragraph xi, the country has made significant efforts at mobilizing domestic resources, and is also considering additional measures to meet future needs. Donor support will continue to be important in meeting external resource requirements. The sizable past commitments on account of Male International Airport have been virtually disbursed now, and further development will be contingent on obtaining fresh commitments. Donors need to consider improving not only the volume but also the quality of assistance, which should include capital aid as well as initial financing of incremental current expenditures resulting from new investments. Given the Maldives' resource constraints, donors should continue providing aid on concessional terms.  I. INTRODUCTION 1. Three years ago. the World Bank-s first economic report on the Maldives 1/ provided a comprehensive survey of the country's development problems, performance and prospects. That report concluded that while the problems of this small island economy appeared large, they were by no means insurmountable, and that the Government, then recently elected, was com- mitted to reversing past neglect of economic and social infrastructure and to spreading the benefits of development more evenly. The country's potential--based on marine resources, tourist attractions and a highly successful shipping line--and it; small size would permit many problems to be addressed quickly and relatively easily, given adequate financial and administrative resources. The present report looks at the impressive achievements of the last three years, and examines some policy issues whose resolution will be important to sustaining and strengthening further development efforts. 2. Recent developments in ;he Maldives reveal strong economic growth, increasing employment, a high rate of productive investment activity, and an encouraging growth in public revenue and exports. At the same time, important initiatives have been taken to promote development of the poorer outer atolls. In this regard, a number of activities have been undertaken, including construction of jetties, navigational aids and storage facilities to upgrade fishing villages; establishment of export-oriented garment factories to provide alternative employment opportunities; establishment of atoll trading centers to facilitate distribution of essential commodities; and provision of atoll schools, health centers and water supplies. 3. Government policies and procedures have continued to be open and pragmatic, and have demonstrated remarkable resourcefulness in the face of adverse circumstances, particularly the drastic fall in tuna export prices during 1982. Last year, the Government took an important step in eliminating the use of the Official Accounting Rate (OAR) for the valuation 1/ World Bank, "The Maldives: An Introductory Economic Report", Report No. 2739-MAL, April 2, 1980.  -2-- of foreign exchange transactions in the central government budL L/ This step will simplify the compilation and analysis of budgetary acc tints from 1982 onwards. For practical purposes, the customary use of the C R for determining the procurement price of exported fish has been abandoned. The Government is also aiming at a phased elimination of the OAR in the 'ormula for setting the domestic prices of imported bacic foodr and in import duty assessments. 2/ These reforms have begun to remove the significant economic distortions which had existed under the old accounting practices. Those distortions had included the relative Rufiyaa unprofitability of fisheries compared to trading and tourism; and the inadvertent but ineq- uitable transfer of resources from relatively poor fishing communities to the relatively well-off in Male. and( even to the tourists. 4. The country's institutional capability has been improved considerably, although manpower and administrative resources are still a serious constraint. Essential national institutions, such as the Maldives Monetary Authority, the Maldives Transport and Contracting Company and the Bank of Maldives Limited, have been set up and have begun operations. Meanwhile, older established institutions, such as the State Trading Organization, the Department of Finance, the National Planning Agency (as of November 1982, the Ministry of Planning and Development) and the Department of Totvrism have acquired more experience and increased capability. Under the aegis of NOPAR, 3/ a new set of civil service codes has been drafted, and includes provisions for training and career development. The organizational set up of the government has been 1/ Until then, and for near17 a decade, all foreign exchange receipts and payments in the budge; were valued at the Official Accounting Rate (OAR) of Rf 3.93 per U.S. dollar, while the Market Exchange Rate (MER) varied between a low Rf 6.65 per U.S. dollar (1974) and a high Rf 8.96 per dollar (1978), and averaged Rf 7.51 per dollar during 1979-81. The MER was determined by the interplay of the commercial banks and the open market, consisting mainly of private traders and tourist resorts. The use of the OAR in budget transactions was discontinued from January 25, 1982. Customarily, the OAR was also used as a reference rate for determining the domestic procurement price of fish for export, for setting domestic sales prices of imported basic foods (rice, sugar, flour), and baby foods, and for valuing all imports for purposes of import duty assessments. The use of the OAR in this manner gave rise to an effective tax on fish exports, a subsidy on imported basic foods and a loss of potential import duty collections. 2/ To that end, the OAR was raised to Kf 4 - $1 in April 1982, and -- for import duty assessment -- to Rf 4.5 = $1 in January 1983, thus reducing the differential with the MER. The Maldives Monetary Authority also fixed the MER at Rf 7 = $1 in April 1982. 3/ National Office for Personnel and Administrative Reform.  -3- revised, 1/ and the role and responsibilities of various units are being defined clearly to avoid duplication and ensure adequate coordination of functions. 5. An Important task facing the country now is to sustain the recent record of economic performance while attempting to spread the benefits of growth more equitably, as the atoll development programs have begun to do. This task will require complementary investments and adequate operations and maintenance expenditures in the principal growth sectors of the economy--fisheries and tourism--to enhance the productivity of existing assets. It will also be necessary to create or regenerate other productive activities in various part of the country as, for example, the cultivation and processing of coconuts, improvements in the productivity and quality of minor field crops, and of homestead fruit and vegetable plots. Additional domestic and external resources will be needed, which will also be impor- tant in continuing to meet the country's rising debt service obligations. There appears to be considerable potential for increased resource mobilization. Among the options available are tax and non-tax measures to raise local Rufiyaa revenue, and balance of payments management measures to raise and conserve net foreign exchange earnings and reserves. 6. The main characteristics of the Maldivian economy were described in the World Bank's last economic report. 2/ In the present report, Chapter II analyzes recent economic trends and policy issues, and describes some institutional developments that have taken place. Chapter III examines some issues and prospects for the medium term, and the need to mobilize resources in support of the country's development strategy. 1/ See Annex A. 2/ World Bank, op. cit.  t I l  -5- II. RECENT DEVELOPMENTS, 1978-82 PRODUCTION, EMPLOYMENT AND INCOME Overall Trends 7. During 1978-82, rapid development of fishing and tourism, as well as the acceleration in public sector investment in infrastructure, led to strong economic growth. Real GDP is estimated to have increased at an ai >rage rate of 12% per year; and per capita GDP, at about 10% per year. To-al employment, between 1978-80, is estimated to have expanded by 3.5% pei year, keeping pace with the rate of growth of the labor force. Table 1: GROSS DOMESTIC PRODUCT, 1978-82 (constant 1980 market prices) Rate of Growth 1978 1979 1980 1981 1982 % per Annum GDP (Rf mn) 271.0 299.9 355.6 384.0 418.4 11.8 Population ('000) 147.0 150.0 153.0 156.0 160.2 2.1 GDP per capita (Rf) 1,843.5 1,999.3 2,324.2 2,461.5 2,611.7 9.5 Memorandum item GDP per capita ($) /a 244.2 264.8 307.8 326.0 345.9 /a Conversion at the 1980 market exchange rate. Source: Statistical Appendix, Tables 1.1 and 2.1. 8. Changes in the structure of output and employment are illustrated in Table 2. The share of primary production (agriculture, fishing, coral and sand quarrying) in total value added has shrunk, while that of the services sector has increased, from 49% to 54%, because of the growth of tourism, transport and commerce.  -6- Table 2: SECTORAL VALUE ADDED AND EMPLOYMENT, 1978-82 (percent of Total) Value Added Employment 1978 1980 1982 1978 /a LIM5 Primary Production 37.4 32.9 29.9 56.0 54.1 of which: Fishing 2T453 W75 ". TTW 40-D Secondary Production /b 13.7 12.5 15.8 26.6 26.9 Services 48.9 54.6 54.3 17.4 19.0 of which: Tourism 9.3 12.5 14.5 0.7 3.0 Transport 5.7 6.4 7.1 5.5 5.0 Commerce 11.4 13.8 14.7 3.2 5.0 Government 17.2 13.6 12.7 5.1 /c 7.4 Ic Total 100.0 100.0 100.0 100.0 100.0 Memorandum items: GDP (Rf Mn, 1980 market price) 271.0 355.6 418.4 Total Employment ('000 persons) 59,890 /d 66,310 /a Based on the December 1977 Census. 7T Manufacturing, Construction, Electricity /c Excluding Government employees in Tourism, Transport and Commerce. /d Excluding 369 persons not classified. Sources: Statistical Appendix Tables 1.4 and 2.1. 9. Since service industries are concentrated in and around the capital, the data in Table 2 would imply that about 50% of income accrues to residents of the Male region, who account for about 20% of the population. The disparity is corroborated by the 1980 employment estimates, the most recent available, showing just over half the labor force employed in the primary sector while service industries occupied 19X of the labor force. These data and their implications, however, must be seen in perspective. Although no firm estimates are available, it is thought that immigrants from outer atolls remit part of their incomes earned in Male to their home islands. The above data also Teflect, on the one hand, the economic momentum which past policy conferred on Male and the neighboring atolls and, on the other hand, the serious physical and economic constraints on growth of primary production--especially fishing-- in the outer atolls, as explained below. The Government has very actively sought to correct this situation. If backed with adequate domestic and external resources, several ongoing and prospective programs to develop the outer atolls could reduce current disparities significantly. In this respect, the Government's initiative in reviving Gan island in the southernmost atoll, which had been a depressed area since the evacuation of  -7- the British air force base in 1976, was very successful. In 1981, two export-oriented garment factories were opened on Gan in a joint venture enterprise between Government and foreign private investors; by June 1982, these plants employed over 1,000 workers. 1/ Fisheries 10. The fisheries sector remains the mainstay of the Maldivian economy and continues to play an important social role despite the fact that tourism now generates nearly twice as much in gross foreign exchange earnings. It is estimated that about 29,000 people, or 44% of the employed labur force, are working as fishermen, or in related activities, such as drying, salting and canning of fish, and in boat building and repair. Table 3: SELECTED FISHERIES STATISTICS, 1978-82 Jan-June 1978 1979 1980 1981 1982 Fish Landings ('000 MT) 25.8 27.7 34.6 34.9 16.7 of which: Tuna species 23.5 24.7 30.4 Total Registered Fleet (No.) 2273 2341 2436 2626 2878 of which: Mechanized dhonis 548 767 805 944 1066 Total Sector Employment ('000s) 27.2 .. 29.2 . Fish Exports ('OOO MT) 17.3 18.6 22.7 20.3 of which: Fresh/Frozen 11.4 12.4 14.0 13.8 Fish Exports ($ mn) 3.9 4.4 6.8 7.2 3.2 Average Export Price ($/MT) /a 272.0 253.0 340.0 398.6 235.0 Average Procurement Price (RT7MT) /b 900.0 900.0 1,110.0 1,340.0 1,340.0 Memorandum items: Tuna World Market Price ($/MT) /c 730.0 816.0 1,193.0 1,213.0 1,147.0 Proportion of Maldivian Avg. Export Price received by fishermen (%) /d 36.9 47.7 43.2 44.6 76.0 /a Negotiated between Government and foreign collecting companies. Weighted average based on 60% fish above 2 kg. and 40% below 2 kg. /b Set by Government with reference to Official Accounting Rate. 7c Average skipjack prices U.S. West Coast (San Diego). 7d Procurement price as proportion of export price converted to Rufiyaa at the Market Exchange Rate. Source: Statistical Appendix Tables 1.4, 3.2, 7.1-7.4; World Bank, Commodities and Export Projections Division. 1/ The air force base had employed 1200 workers at its height of activity.  -8-- 11. Fish landings, consisting mainly of tuna species, increased regularly from a low point of 25,800 MT in 1978 to a record catch of 34,900 MT in 1981--an average annual growth of 13.0% per year. During 1978-81, the volume of fish exports grew, on average, at 7% per year, and the value, at 25.5% per year. Export prices for fresh fish are negotiated annually between the government and foreign collecting companies. Prices are set separately for fish weighing less than or more than 2 kg.; the weighted average negotiated prices increased at an annual rate of 15.5% per year in the period 1978-81 and the Government, which sets producer prices, increased the average domestic procurement prices by 23% in 1980 and 20% in 1981. 12. Negotiated export prices fell drastically to $235/MT in 1982, from nearly $400/MT in 1981, as the international market continued to weaken owing to large stocks of frozen tuna. Also in 1982, one of the foreign collecting companies, which had been handling about 30% of Maldivian exports as well as operating the Maldives- only 15 MT per day canning plant on Felivaru island, withdrew from the country. These events represented a second major setback to the Maldivian fishing sector within a decade. 1/ The Government maintained procurement prices paid to local fishermen and also stepped in to keep the departing company's fish collection and canning operations going. 13. The fishing sector was being increasingly constrained even before the collapse of tuna export prices in 1982. Scarcity of bait fish, and the short period for which it could be kept alive on traditional boats, limited the number and duration of fishing trips per boat. Lack of navigational aids deterred boats from venturing out of sight of land or outside familiar waters. Shortages of diesel, due to limited fuel distribution and storage capacity in the outer atolls, also reduced the number of fishing trips of mechanized boats. Inadequate collector capacity offshore, and limited freezing and storage facilities onshore, further discouraged higher catches. In addition, procurement prices set with reference to the lower OAR (see footnote 1, page 2) and rapidly rising prices of diesel were cutting into the profitability of fishing, especially when compared to less risky substitute uses of fishing boats--such as transporting goods and passengers. Bank staff estimates, based on data for the eight good fishing 1/ The first major shock, beginning in the early 1970s, had been the progressive loss of Maldives' only market (Sri Lanka) for its sole export ("Maldive fish"--a dried, salted and smoked tuna product) as acute foreign exchange shortages prompted Sri Lanka to restrict imports of Maldive fish. The Maldives adjusted to that shock by inviting foreign companies to start collection of fresh fish for freezing and export to alternative markets. A program of mechanizing the country's fishing fleet was initiated in the mid-1970s as mechanized vessels were better suited than the traditional sailing vessels to supply fresh fish to the highly mobile collector vessels.  -9- atolls away from the Male region, I/ indicate that in 1981, the combined impact of these constraints amounted to: (i) about 12,500 MT potential catch foregone (equivalent to 35% of the actual catch of 36,400 MT); (ii) about $5 million potential export revenue foregone (equivalent to nearly 70% of actual fish export revenue) 2/; (iii) about Rf 936 in (annual) per capita wages foregone by the crew of mechanized boats in the eight atolls concerned (compared to an estimated Rf 1,630 per capita actually obtained by them during the year). Such estimated fishing sector "losses" underscore the linportance of ongoing government programs aimed at alleviating constraints to output and incomes in the fisheries sector. These, and a few proposals for prospective programs, are further dealt with later on in this report (paras 51-55). Agriculture and Industry 14. Agriculture and related activities (production and gathering of thatch, firewood, some timber) play a minor role in the economy, accounting only for about 10% of GDP and employment. Primary agricultural activity, much of which goes unrecordeu, is small, and consists mainly of subsistence gardening around homesteads, where much of the fruit (banana, breadfruit, guava, jackfruit, lemon, mango, papaya, pomegranate), tubers (cassava, yams), condiments (chillies, fenugreek), vegetable crops (gourds, eggplant, onion, pumpkins) and coconuts are grown. Some coarse grains (millet and sorghum), maize and plantation coconuts are grown on a minor scale where land area and conditions are suitable. Otherwise, poor soil conditions and sheer lack of space (the total cultivable area in the Maldives is about 2,800 ha only) inhibit any efforts to expand farm production. Male is the main cash market for crops, and deliveries of fruit and vegetables have increased with improvements in inter-island transport during the last five years. A poultry farming project set up close to Male also sells most of its output to the capital, and one or two tourist resorts are experimenting with hydroponic vegetable cultivation. Nevertheless, there are prospects for improving cultivation practices, which are inefficient at present, and particularly so for systematic cultivation of coconuts. 15. The bulk of manufacturing output in the Maldives consists of cot- tage industries (coconut coir and coir products such as ropes), handicrafts, boat building and repair, production of coral-based construc- tion material, and a few small food and beverage enterprises. The sector primarily produces for the home market. The only exceptions are the export oriented small tuna cannery; a mica fabrication plant in Male vnich produces mica chips for electronic components; and the two garment fac- 1/ Lhaviyani, Baa, Raa and Noonu atolls in the north; and Laamu, Gaafu Alifu, Gaafu Dhaalu and Thaa atolls bordering the one and half degree channel in the south. In 1981, these eight atolls accounted for 60% of the country's actual catch, and 54% of the mechanized vessel fleet. 2/ A3suming all the catch foregone had been exported.  -10- tories on Gan island. The sector contribution to GDP has remained at about 10%. The employment effect is considerable, however. In 1980, an estimated 14,500 people (22% of working age population) were working in this sector, three quarters of them women. Another 3,100 (4.7% of working age population) were working in construction. Monthly wage rates of unskilled workers in industry are between Rf 200-300, compared to Rf 325 for waiters in tourist resorts; Rf 280 for government clerical workers; and Rf 170 in fishing. Skilled workers, such as carpenters and electricians earn around Rf 400 per month. Apart from the basic wage, mot.t employers in industry pay a food allowance in cash or kind worth between Rf 4-8 per day. Tourism 16. The tourism sector has grown spectacularly since the early 1970s when the first trickle of Europeax. visitors arrived in the Maldives. Between 1978 and 1981, room capacity tripled as the number of resorts more than doubled. The completion of the ;:ulule International Airport expansion near Male in 1981 removed an important bottleneck in the form of limited connecting flights to and from Colombo. Direct charter flights from main tourism generating areas, in wide-bodied jets, are now operating. There were 60% more tourist nights recorded during the November-March 1981/82 high season, compared to the same period in 1980/81. Table 4: SELECTED TOURISM STATISTICS, 1978-82 1978 1979 1980 1981 1982 /a Tourist Arrivals 16,846 25,023 34,695 48,233 57,175 Tourist Nights 144,875 215,898 298,740 445,493 588,902 Tourist Expenditures ($ Mn) 4.7 8.2 9.4 14.5 20.6 No. of Resorts (end-year) 17 25 32 37 44 Resort Bed Capacity (end-year) 1,298 1,674 2,418 3,208 3,982 Contribution to GDP (%) /b 9.3 9.5 12.5 14.3 14.5 Contribution to Govt. Revenue (%) /c .. 14.9 20.3 23.9 24.3 of which: taxes & charges paid by tourists .. (12.7) (12.2) (13.0) (17.3) No. employed in Tourism /d 1,090 .. 2,000 /a Revised estimate. /b Value added in tourism sector as proportion of GDP at constant 1980 market prices. /c Tourism-related govt. revenues as proportion of total govt. revenue, with foreign exchange revenues converted at market exchange rate. /d Direct employment only. As proportion of working age population, these numbers were 1.8% in 1978, and 3% in 1980. Source: Statistical Appendix Tables 2.1, 5.3 and 8.1.  -1 1- 17. Several indicators in Table 4 (capacity expansion, arrivals, expenditures, etc.) illustrate the buoyancy of the tourism sector. It has provided substantial foreign exchange earnings at a time when fisheries exports were under strain (para 13). The contribution of tourism to GDP increased from 9% in 1978 to 15% in 1982 and is set for further rapid growth in the future. Tourism and tourism related jobs have had a benefi- cial impact on the development of skills in hotel and catering trades, and in construction and simple engineering sectors (refrigeration and power generation, motor boats and electrical equipment maintenance). Tourism wages are high compared with returns from fishing or agriculture, and have had a strong multiplier effect on construction and service industries, particularly in the Male region. 18. The Government's tourism promotion strategy has emphasized local ownership of resorts, but encouraged management by experienced foreign management groups. The Government it.elf owns most of the large resorts but, in terms of bed capacity, private resorts now account for 56% of the total compared to 44% in 1978. Profits accruing to Maldivian resort owners are largely ploughed back into capacity expansion and improvements. Only a few uninhabited islands within convenient reach of Male International Airport remain to be developed as tourist resorts. These, and limited possible extensions to existing resorts, make up the bulk of possible capacity expansion in the short term. Beyond these, any further expansion of the industry would require the development of new zones, beginning with basic infrastructure (airport, feeder transport between airport and resorts, water, power). As discusced later on, the country would have to evaluate the medium to long term tour.aim sector strategy quite carefully, including decisions on essential complementary investments in the existing zone (airport accommodation, water supply and sewerage), on development of new zones, and on financing requirements and resource mobilization. Shipping 19. The contribution made by shipping to the balance of payments and the budget has risen again after a low point in 1979. Maldives Shipping Ltd. (MSL), the government-owned shipping line, operates as an independent profit-making enterprise. MSL serves the Far East, including Japan and Korea, the east coast of Africa, and the Middle East. The ships carry bulk cargo, mainly timber, grains, coal, fertilizer and cement. Between 1978 and 1981, MSL expanded its fleet from 29 to 41 vessels. The average size of operating vessels also increased, from about 3,400 DWT to about 8,000 DWT. The number of Maldivian nationals employed on MSL ships has risen overall and as a proportion of the total, from 664 (67% of total employees) in 1978 to 1,071 (71% of total employees) in 1981. MSL profit transfers to the government were about $0.9 million (equivalent to 40% of government revenues converted at MER) in 1978 and about $1.4 million (equivalent to 10.5% of government revenues converted at MER) in 1981.  -12- 20. In addition to financial transfers, MSL contributes goods and services to the economy. These recently included the installation of fuel tanks on 51 islands, construction and equipment of a factory shell and ancillary plant on Thulusdhoo island in preparation for the establishment of a third garment factory, construction of a training school and of a dried fish godown. Perhaps more important is the advisory role undertaken by MSL management. This has enabled it, through its worldwide contacts, to put the government in touch with foreign Investors for the two garment factories on Gan island. MSL also plays a key part in assisting government efforts to overcome problems encountered by the fishing sector in 1982. It has ordered two custom-built storage vessels from Korea and is planning to build several. steel-hulled fishing boats in Male, whilst providing techni- cal assistance at several levels to government agencies concerned with fisheries. Other Sectors 21. Taken together, the remaining sectors (commerce, transport and communications, banking, real estate, public administration and other services) grew by 11.6% per year between 1978 and 1982. The rapid growth in commerce and transport sectors reflects increased operations and profitability of the STO and private trading activities, especially in and around Male, and tne opening of wholesale and retail trading centers in the atolls. 22. In the transport sector, the number of bicycles and handcarts increased from 9,966 in 1978 to 14,593 in 1981; the motor vehicle fleet (55% motor cycles) increased from 897 in 1978 to 1,167 in 1981. Excluding the fishing fleet, there were 1,674 registered sea vessels of various sizes in 1981, of which 538 were registered in Male atoll. The number of telephones in operation increased from 630 in 1978 to 1,582 in 1981; and telex machines, from 27 to 95. Inter-island transport remains an important constraint to further economic integration and development. 23. The development of social infrastructure poses a major challenge to the government given the small number of teachers and health services personnel, and limited funds. School enrollment for the age group 5-19 has been boosted considerably, from 26% in 1977 (10% In formal schools and 16% in makthabs--traditional Koranic schools) to 80% in 1980 (24% in formal schools and 56% in makthabs). The formal education system ana facilities are no longer concentrated in Male. Model schools and aided schools are being established in the atolls. There are now 31 Government sponsored schools and over 80 aided schools in the atolls, compared to none at the end of 1977. Health services have also been expanded in recent years, but they remain rudimentary even in Male. Male's water supply and sewerage systems are still inadequate and there is a total lack of storm water drainage.  -13- BUDGETARY DEVELOPMENTS 24. The Maldives' ovarall budgetary situation improved considerably during 1978-82, with marked annual increases in revenues and essential expenditures. Budget deficits have been financed largely with available external grants and concessional loans, and there has been no significant recourse to inflationary financing during 1978-82. Whereas revenues covered about a quarter of total expenditures in 1978, they are estimated to have covered about 707% of a much larger total expenditure in 1982. In the past, the annual presentation of proposed expenditures to the Majlis was not accompanied by estimates of revenue. Beginning with the 1981 budget, however, revenue estimates are presented with expenditure pronosals, and the Department of Finance has now adopted an economic class- ification of total expendittare data. Table 5: PUBLIC FINANCE, 19 78-82 (Rf million) /a Est. 1978 1979 1980 1981 1982 Revenue 11.7 17.6 45.9 73.5 101.6 Taxes 2.7 6.9 15.9 22.6 41.6 Nontax revenue /b 9.0 10.7 30.0 50.9 60.0 of which: public enterprise transfers (6.3) (7.8) (24.3) (36.8) (48.4) Expenditure 46.3 49.4 103.8 108.1 143.2 Recurrent 12.2 27.3 39.4 52.3 96.5 Capital 34.1 22.1 64.4 55.8 46.7 Balance -34.6 -31.8 -57.9 -34.6 -41.6 financed by: External Sources 27.6 17.8 58.5 34.8 40.3 Grants 19.3 7.9 11.5 8.3 25.5 Loans (net) 8.3 9.9 47.0 26.5 14.8 Donestic Financing 7.0 14.0 -0.6 -0.2 1.3 /a For 1978-81, all foreign exchange receipts and payments are valued at the OAR ($1 = Rf 3.93); 1982 receipts are valued at MER ($1 = Rf 7). /b Includes small amounts of capital revenue. Source: Statistical Appendix Tables 5.1 and 5.2. 25. Analysis of the official budget data (Table 5) is complicated because the use of the OAR to convert dollar-denominated receipts and payments prior to 1982 distorts the actual size of the budget deficit. Also, the budgetary impact of the implicit taxes on fish exports, and of  -14- the implicit subsidies on basic imports, both effected through the mechanism of the OAR, is not apparent from Table 5. The trends in public finances are clearer when adjustments are made for such distortions. 26. The adjusted financial receipts (Statistical Appendix Table 5.3) show an impressive growth of domestic revenues, from Rf 15.9 million (8.4% of GDP) in 1978 to Rf 101.6 million (19.4% of GDP) in 1982. The share of tax revenues rose from 19% of total revenue in 1978 to about 40% in 1982, and the tax/GDP ratio, indicating the tax effort, improved from 1.6% in 1978 to 8% in 1982. The sources of tax revenue, however, remained unchanged--customs duties (about 58% of tax revenues in 1982) and taxes payable by tourists (42% of tax revenues in 1982); there are no income or property taxes in the Maldives. Non-tax revenues, consisting largely of net transfers from the STO, the MSL and other public enterprises, and of revenue from sales of government fixed assets, rose sharply in 1980 and 1981, but are estimated to have decreased slightly 't 1982. These revenues, which provided about 60-70% of total re-ve;aues during 1978-82, can be quite volatile as they are significantly affected by factors outside the government's immediate control. Thus, for example, STO profitability is directly related to domestic sales as well as to the international prices of the items it imports; under its pricing formula, the STO's markups are based on an ad valorem rate over import costs, albeit converted at the OAR. MSL profits are obviously conditioned by the international freight market. Such factors, in fact, partly accounted for sharp increases in STO and MSL transfers in 1980 and 1981. The fact that public enterprise trans- fers to the budget have been positive and increasing speaks well for these Maldivian enterprises when in many developing countries public enterprises constitute a drain on the budget. Nevertheless, excessive dependence on this source (for 60-70% of revenues), and on tourist related taxes (for about 18% of revenues) constitutes a potentially unstable revenue structure. This issue needs to be considered in future efforts at resource mobilization. 27. Adjusted financial expenditures (Statistical Appendix Table 5.5) during 1978-82 grew, on average, at about 20% per year--much below the average annual rate of growth of revenues (66% per year). As a result, the relative size of the overall deficit was reduced from 38% of estimated nominal GDP in 1978 to about 8% of GDP in 1982. On average, current expen- ditures grew at 41% per year; annual capital expenditures averaged slightly over Rf 100 million in 1980-81 at the peak of construction work on the international airport, and declined to less than Rf 50 million in 1982. Major items of capital expenditures have been the Male International Airport, mechanization of fishing boats, the Male Land Reclamation Project, school construction, and atoll development programs. Budget expenditure requirements are expected to increase in the future to provide for adequate operations and maintenance; capital expenditures on externally aided projects (fisheries, inter-island transport); further programs for develop- ment of the atolls; and debt servicing. 28. During 1978-82, the budgetary implications of the official pricing policy (implicit taxes on fish exports and subsidies on basic food imports)  -15- became increasingly apparent. As a result of the increase in the volume and prices of fish exports, the estimated amount of the implicit tax on fresh fish rose from Rf 13 million in 1978 to Rf 22 million in 1981 (Statis- tical Appendix Table 5.6). This amount is estimated to have fallen sharply to about Rf 7 million in 1982, following the collapse of tuna exoort prices and the Government's decision not to pass on the export price decline to domestic producers (para 12). The estimated amount of implicit food sub- sidies rose from Rf 10 million in 1978 to Rf 23 million in 1981, and Rf 22 million in 1992 (Statistical Appendix Table 5.7), reflecting mainly the sharp increase in imports of basic foods. Thus, the net effective finan- cial balance of the tax-subsidy scheme changed from a surplus of about Rf 3 million In 1978 to a deficit of about Rf 15 million in 1982. Such an imbalance cannot be sustained for long. The Government is rightly con- cerned with avoiding the disincentives and inequities involved in the past heavy implicit taxation of the fisheries sector. Hence it would be appropriate to consider a combination of measures aimed at alternative means of raising revenue as well as limiting implicit subsidies to areas where they are most needed. 29. Indeed the Government has already taken some action to mobilize resources and is considering further measures. The 1983 budget increased the rates of import duties, and raised vehicle license and visa renewal fees; introduced charges for retail trade licenses; and strengthened assessment and collection procedures. It has been decided to levy land rent on private resorts built on government-owned land. The Government also intends to phase out subsidies on basic foods over a two to three years period; the 1983 budget has provided a lower amount for this item (Rf 10 million) compared to actual expenditure in 1982 (Rf 22 million). BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE 30. During the period under review, the balance of payments has been characterized by a deficit on the trade account and a surplus on services account: the latter includes receipts from tourism, MSL profit transfers, and unrequited transfers, mostly in the form of official grants. Inflows of official long-term capital, mainly from OAPEC countries, and varying short-term capital inflows into the local branches of foreign banks, have offset the current account deficits. However, the small overall surpluses provided little coverage for imporz. requirements, pointing towards a need for improved reserves management.  -16- Table 6: SUMMARY BALANCE OF PAYMENTS, 1978-82 ($ million) Prov. 1978 1979 1980 1981 1982 Merchandise Exports /a 6.9 10.1 12.7 15.8 17.3 Merchandise Imports 14.8 21.7 44.0 41.7 46.0 Nonfactor Services (net) 3.2 7.2 10.4 8.8 8.9 Factor Services (net) 0.8 -1.6 -2.7 -3.5 -5.3 Other Services (net) .. -0.5 -1.0 -2.0 -2.3 Current Transfers (net) .. - -0.2 -0.3 -1.3 Current Account Balance -3.9 -6.5 -24.8 -22.9 -28.7 Official Capital (net) 7.4 9.4 17.8 18.2 10.7 Commercial Banks -2.7 0.5 -1.0 11.2 4.4 Other Capital /b -0.6 -3.3 8.2 -6.2 13.1 Overall Balance 0.2 0.1 0.2 0.3 -0.5 Meamorandum items: Resource Gap:GDP (%) -20.3 -10.5 -44.4 -28.0 -26.7 Current Account Balance:GDP (M) -16.8 -10.8 -52.7 -37.5 -38.7 /a Including re-exports. 7b Includes profit remittances and private portfolio investment, SDR allocation, and errors and omissions. Source: Statistical Appendix Table 3.1. 31. The export sector (goods and nonfactor services) expanded further during 1978-82, from about 48% of GDP in 1978 to an estimated 52% of GDP in 1982. About 20-25% of total export earnings are realized from re-exports of high value, low volume consumer goods (cigarettes, textiles, watches, radios, etc.) imported from Tapan and Singapore, and sold to visitors from India and Sri Lanka. Excluding these re-exports, the domestic export sector expanded from 38% of GDP In 1978 to 43% of GDP in 1981. The com- position and trends of the domestic export sector are shown below:  -17- Table 7: PRINCIPAL EXPORTS, 1978-82 /a 1978 1980 1982 $mn mi % $ mn _ $ mn % Exports Goods & NFS 9.1 100.0 63.3 100.0 C8.9 100.0 Merchandise Exports 4.1 45.1 7.8 12.3 9.8 14.2 Fresh fish 2.6 28.6 7.6 3.6 5.2 Processed fish /b 0.88 9.7 1.69 2.7 1.9 2.8 Other marine products /c 0.6 6.6 0.86 1.4 0.8 1.2 Garments - - - - 3.3 4.8 Other manufactures /d 0.02 0.2 0.45 0.7 0.2 0.3 Nonfactor Services 5.0 /e 54.9 55.5 87.7 59.1 85.8 of which: Tourism (TW7) (51.6) T54) (147.) (C2.5) (C299) /a Excluding re-exports and sale of MSL ships. 7b Dry and dry salted fish. /c Dry shark fins, shark oil, tortoise shells, ambergris, fish meal, live tropical fish, red coral. /d Mica chips and canned tuna. /e Does not include MSL cargo earnings. Source: Statistical Appendix Tables 3.1 and 3.2. 32. While receipts from both merchandise exports and tourism grew rapidly in the period, the growth of tourism earnings has far outpaced the rest. Tourism now provides about 30% of total earnings. Fresh fish con- tinues to be the principal merchandise export; beginning in 1981 garment exports have appeared as an important export item. Dry salted skipjack and dry salted reef fish have also appeared as new export products since 1980. These processed fish products appeal to special tastes and markets, and offer good opportunities for product diversification in a period when the world fresh fish market is weak. These items also have a high local value added component; their development should be further explored, including the development of drying technology (e.g., sun-drying) that would utilize less inputs of nonrenewable energy. 33. Commodity export prices rose at an average annual rate of 25% between 1978 and 1981. In 1982, however, the cut in fresh skipjack prices will have caused a fall in the export price index for the first time since 1977. 1/ A change in the overall direction of exports also appears to have taken place during 1982, as a result oI the reduction in Japanese direct 1/ Statistical Appendix Table 3.6.  -18- purchases of fresh fish. Japan's share of Maldivian exports in 1978-81 ranged between 56% and 73%. 1/ It could now fall to around 40%. Efforts to find new markets are underway; initial attempts to export fresh fish to Thailand have been successful and other markets, notably in the Middle East, are being sought. 34. The (former) DTFI and STO continued to handle all foreign sales of fresh, dry and salted skipjack. The private sector, which handles all re-export trade, has also increased its share of domestic export earnings, from 9% in 1976 to 16% in 1981, with increased sales of dry shark fins, and dry or salted fish other than skipjack. Exports of other marine products (Table 7) are handled exclusively by the private sector. 35. Averaging abouti 70% of GDP, imports (goods and nonfactor services) have been very prominent in the Maldivian economy during the period of rapid development in 1978-82. Table 8: VALUE OF IMPORTS, 1978-82 1978 1980 1982 $imn % $ mn z $ mn x Imports Goods & NFS 16.6 100.0 89.1 100.0 96.2 100.0 Merchandise Imports 14.8 89.2 44.0 49.4 46.0 47.8 Food 2.5 15.1 10 1T-1.2 7.8 8.1 Other consumer goods 7.0 42.2 7.5 8.4 11.7 12.2 Petroleum products 0.5 3.0 4.2 4.7 2.2 2.3 Interm. & Cap. goods 4.8 28.9 22.3 25.0 17.6 18.3 of which: project aid-related (X.4) (14.5) (18.0) (20.2) (6.7) (6.7) Nonfactor Services 1.8 /a 10.8 45.1 50.6 50.2 52.2 /a Does not include MSL expenditures. Source: Statistical Appendix Tables 3.1 and 3.4. 36. Food imports increased from $2.5 million in 1978 to $7.8 million (equivalent to llX of export earnings) in 1982; they reached a high of $10 million (equivalent to 16% of export earnings) in 1980. The peaks and troughs in food imports during the period were caused by irregular pur- chases and deliveries of essential food stocks (mainly rice and sugar). The share of food and other consumer goods in total imports fell from 57% In 1978 to 20% in 1982. The share of petroleum products increased from 3% 1/ Statistical Appendix Table 3.3.  -19- to about 5% in 1981, reflecting the mechanization of the fishing fleet, the tourist industry's requirements for energy and transport, and higher prices. Intermediate and capital goods imports grew almost fourfold, from $4.8 million (29% of total imports) in 1978 to $18 million (about 18% of total imports) in 1982 as machinery, transport equipment, cement and steel imports rose in response to expansion in the fishing, construction and tourism sectors. Intermediate and capital goods imports related to aid projects accounted for 50% of all such imports in 1978; 80% in 1980; and 52% in 1981 when the airport expansion was nearing completion. 37. Import prices paid by STO for the essential commodities (rice, wheat flour and sugar) rose much less than major export prices between 1976 and 1981. 1/ Iii fact, between 1976 and 1979, prices were lower than in 1975. They rose sharply in 1980 but declined again in 1981 as world prices weakened and STO improved its timing of commodity purchases. 38. As mentioned already (para 32) the large overall increase in for- eign exchange earnings from services between 1978 and 1982 was due mostly to the growth of tourism. Unrequited transfers in the form of grants in cash and kind were $5 million in 1978, and have been about half that amount annually since then. These transfers involve a variety of transactions, including some food aid from Kuwait and Australia. 39. The balance of payments on capital account is dominated by inflows of official long-term loans granted mainly by OAPEC member countries on a bilateral or multilateral basis. Drawings rose from $2.4 million in 1978 to $12.4 million in 1980, the peak year for construction work on Male International Airport. 2/ Amortization payments on foreign borrowing started in 1981 at the rate of $0.2 million, rising to $0.8 million in 1982. This debit item is expected to increase rapidly, reaching an estimated $4 million a year by 1985. Commercial banks- capital flows throughout the period 1978-81 were irregular, as were other private capital movements. 40. Payments surpluses between 1978 and 1981 were relatively small at $0.1-0.3 million a year. This was reflected in the slow growth of official reserves. Until the MMA came into operation, reserves were managed by the Foreign Exchange Section of the STO. Since the STO was mainly concerned with day to day availability of foreign exchange for its commercial transactions, there was no effort to accumulate reserves. The STO could obtain foreign exchange from the central government (proceeds of fish exports); from the sale of Rufiyaa, at the market exchange rate, to commer- 1/ Statistical Appendix Table 3.5. 2/ Loans made to MSL for the purchase of ships, although in some cases guaranteed by the Government, are excluded from the accounts, since these are serviced separately by the MSL itself from its foreign exchange earnings.  -20- cial banks; and from dollar-denominated overdraft facilities with the commercial banks, at high rates of interest. As the STO's requirements for foreign exchange increasingly exceeded the amounts available from fish exports plus that available from sales of Rufiyaa to the commercial banks, the STO had to resort to the overdraft facilities with the commercial banks. A sizable short-term foreign exchange debt (about $8 million), at high interest rates, had thus been accumulated by the end of 1981. This debt has since been retired 1/; however, these developments indicate a need for improved reserves management in the future. Gross reserves in mid-1982 were about $7 million ($6.5 million in foreign exchange holdings; $0.2 million SDR allocation; and $0.3 million reserve position with the IMF), equivalent to about two months of imports of goods and services at the 1981 rate. 41. The external debt outstanding (disbursed funds only) rose from $1.5 million at end 1977, to $30 million (equivalent .o 40% of GDP) at end 1982, excluding loans to the MSL. Of this total, $19 million (63% of the total) had been borrowed to finance the airport, from Kuwait, Saudi Arabia, Abu Dhabi and the OPEC Fund; a further $2.2 million came from IDA for the fisheries project; $0.9 million from Short Brothers of U.K. to finance the purchase of an aircraft for use on the Male-Gan rote; and $1 million from Abu Dhabi for telecommunications development. 42. The Maldives has obtained highly concessional terms on most offi- cial loans, and the debt service obligation, although rising rapidly, is still light relative to exports. In 1978, debt servicing (amortization plus interest) amounted to $41,000; by 1981 it had risen to $480,000 (about 2% of exports of goods and nonfactor services>. In 1982 it amounted to about $1.4 million (about 4% of export earnings); by 1985, the debt service, excluding MSL debts, is projected to amount to about $3 million (about 7% of export earnings). INSTITUTIONAL DEVELOPMENTS 43. The rapid economic developments during 1978-82 placed increasing demands on the Maldives' principal older economic institutions, 2/ all of which continued to upgrade their capabilities, and coped efficiently with 1/ The STO paid off this debt by purchasing dollars from the MMA, which had realized substantial inflows when domestic dollar holders exchanged them for Rufiyaa following the January 1982 regulation making the Rufiyaa the sole medium of exchange in the country (para 45). 2/ These include the Department of Finance; Department of T.arism and Foreign Investment (DTFI)--from November 1982, the Departmznt of Tourism; the National Planning Agency (NPA)--from November 1982, the M!inistry of Planning and Development; the Foreign Aid Coordination Unit of the Ministry of Foreign Affairs; the State Trading Organization (STO).  -21- their responsibilities despite continuing manpower shortages. The NPA sponsored an important survey of incomes and expenditures in Male in 1981, which will be used for the preparation of a consumer price index; and conducted a labor force survey in Male in January 1982. The STO performs important trading functions, 1/ holds a 51% share in the Can garment factories, and is also the executing agency for the recently negotiated IDA Second Fisheries Project. 44. A major step forward in organizing the country's monetary system was taken when the Maldives Monetary Authority (MMA) was established in July 1981. The purposes of the MMA, as defined by an act of the Majlis (Parliament), are: (i) to issue currency and regulate the international value of the Rufiyaa; (ii) to advise the government on banking and monetary matters; (iii) to supervise and regulate the banking sector; and (iv) to promote currency stability for the orderly and balanced economic develop- ment of the country. To this effect, the MMA has been given broad powers to issue currency, to maintain and manage the reserve assets and to engage in a wide variety of financial transactions, including loans and advances to the government and to banks and financial institutions, and to borrow at home and abroad. It may not go into private retail banking or into real estate transactions, other than for its own office needs. 45. With the establishment of the MMA, the financial functions of various government agencies were brought together under one roof. Most importantly, the MMA took over the issue of currency from the Department of Finance, the banking operations from the STO Accounts Division and reserves management from the STO Foreign Exchange Section. In the first year of operations the MMA has moved gradually towards fulfilling its functions as a central bank. One of its important steps so far has been to make the Rufiyaa the sole medium of exchange in the country. Previously, the US Dollar had circulated freely in the country alongside the Rufiyaa, and the large proportion of liquidity consisting of foreign currency deposits and foreign currency in circulation had hampered the ability of the MMA to fully exercise its monetary policy. Dollars, and other foreign exchange, continue to be readily available for imports and other international pay- ments obligations. Residents can also hold foreign currency bank deposits. 46. The Bank of Maldives Limited, a joint venture commercial bank, 60% owned by the Maldives Government and 40% by the International Finance and Investment Co. of Bangladesh, began operations in 1982. Until then, the 1/ The STO handles some two-thirds of the country's total imports, and supplies most of the nation's requirements of basic food items, other essentials such as medicine and baby food, and petroleum products. It also handles exports of processed (dried, salted) fish. Until the formation of the Maldives Monetary Authority in 1981, the STO s Accounts Division and its Foreign Exchange Section used to handle, respectively, the banking functions and the foreign exchange transac- tions of the public sector.  -22- banking system had consisted of the MMA and three local branches of foreign commercial banks--the State Bank of India and Habib Bank Ltd. (Pakistan), which were established in Male in 1974 and 1976, respectively, and the Bank of Ceylon which opened its branch in May 1981. The Bank of Credit and Commerce Internatiot.al has also been permitted to olen a branch in Male. 47. The Maldives Transport and Contracting Co. (MTCC) was established in January 1981 with participation by private individuals (40%), the Government (30%,), and the MSL (30%). As part of its capital contribution, the Government transferred to the MTCC the physical assets of the Mechanical and Transport Services Division, the Marine Department, the Shipping Department, and the Sawmill. The MTCC also took over the boat building yard, which continues to install engines in fishing boats and provide services under the boat mechanization program. In 1981, the MTCC employed 500 persons, 225 of whom were stevedores. In addition to cargo handling for all ships visiting Male, the MTCC operates passenger 'Launches and cruises on a charter basis in connection with the tourist trade; no regular inter-island ferry services are provided at present. The building and construction section of the MTCC carried out construction work mainly for the government, including a 100-room resort hotel and the electricity power plant at the international airport. The MTCC also provided non- profit public services, including diesel fuel distribution to the atolls.  -23- III. DEVELOPMENT PROSPECTS AND ISSUES 48. By all economic indicators, the Maldives today is clearly better off than it was five years ago, a situation attributable to a large degree to the country's sound economic growth strategy, emphasizing an open economy and productive investments in sectors offering comparative advantage--fishing, tourism, shipping. The country has made significant efforts at mobilizing domestic resources for development; it has also obtained strong and well placed donor support, particularly from OAPEC countries. Nevertheless, the Maldives still ranks amongst the least developed countries, and efforts and support for further development should be continued. The country has demonstrated a sound potential for rapidly overcoming its dis lvantages, given adequate domestic and external resources. 49. The Government's twin objectives of rapid economic growth and regional balance are important and appropriate in the situation of the Maldives. 1/ The key to attaining these objectives, and particularly to spreading the benefits of growth more equltably, would seem to lie in the promotion of faster growth of primary production, particularly fisheries; in sustaining the buoyant tourism sector; and in human resources development. Attainment of these objectives will require not only new investments but also adequate operations and maintenance expenditures, Implying the need for additional resource mobilization. 50. Development of the transport and communications system within the Maldives will be critical to the success of activities in all sectors. As explained in the World Bank's last economic report, 2/ inadequate inter- island transport is a serious constraint to spreading economic services, such as agricultural and fisheries extension, and social services, such as education and health facilities. Efforts to develop even the small cultiv- able area in the Maldives (paras 57-58) will be circumscribed by availability of regular and fast transport services between the central atolls, which constitute the main market, and the atolls at the northern and southern extremities of the archipelago, where 60% of the cultivable area is concentrnted. Similarly, sustaining and spreading the benefits from tourism (paras 59-60) will be contingent upon adequate feeder tran- sport between the international airport and other atolls. 1t There would not seem to be any important trade-offs between these two objectives in the Maldives. The major potential sources of growth-- marine resources and new tourism zones--are located precisely in the outer atolls which, at present, are poorer relative to Male only because of past policy neglect. 2/ The World Bank, op. cit.  -24- PROMOTION OF PRIMARY PRODUCTION Fisheries 51. Constraints to the growth potentlal of the fishing sector were noted in the preceding chapter. Solutions to certain problems--notably, navigational aids, fuel distribution, collecting and freezing capacity, storage facilities--are being sought through ongoing government programs, assisted by IDA, the Kuwait Fund, OPEC Fund, IFAD and the Government of Norway. The implementation of related projects on schedule should result in rapid growth of fish landings and exports, as well as higher incomes for the fishing communities, most of whom are located in the poorer outer atolls. At the same time, * .J atoll development program components which upgrade fishing villages, inner harbors and storage should be continued. In addition, other programs mentioned in the NPA's draft five-year fisheries plan for 1982-86, some of which are outlined below, need to be mounted as they are important complements to the ongoing programs. 52. One important program that needs to be undertaken as a matter of priority is bait fish culturing. Fishermen in the Maldives have experienced increasing scarcity of bait fish, which have to be thrown out to hold a school of tuna within reach of the pole and line fishing vessels--the o i a t tuna fishing technique in the Maldives. While quantitative estimates of the importance of this constraint in the Maldives are not available, it is known that, depending on the time of day and the season, bait fishing can take from a few minutes to many hours, thus significantly affecting the time available for commercial fishing. Furthermore, the bait fish must be kept alive and must possess appropriate body color and stay close to the fishing boats when released, to attract tuna effectively. This problem is common to all countries with tuna fisheries, and several countries have tried breeding bait fish. The various brackish water lakes existing on certain islands in the Maldives have been proposed as possible areas for culturing suitable fast-breeding Tilapia species for bait. 1/ In Male atoll, excessive coral mining degrades the habitat of bait fish, and has further contributed to scarcity. There is a need to devise suitable measures to conserve the marine environment. 53. Further support is also needed for trials and installation of fish aggregation devices (floating rafts). These have proven successful in about ten experimental locations in the Maldives. The experiments have demonstrated that migratory tuna and other species aggregating around floating rafts reduce search time, save fuel costs and, by some reports, enable fishermen to catch two instead of one load per day. 54. Another issue which needs to be addressed soon is the absence of a systematic Maldivian fisheries stock research and resources survey. At 1/ Berenschot-Moret-Bosboom, "Project Identification, Programing and Planning in Maldives, Volume 1", December 1980.  -25- present, the main resource areas utilized in the Maldives are the tuna and miackerel surface waters in the inter-atoll basin and waters outside the atolls up to 25 km seaward, leaving che mid- and bottom waters of these areas unexploited, and also leaving the oceanic waters (beyond 25 km seaward) and the reef waters unexploited or lightly exploited. While fishing in oceanic waters would be capital intensive, the subsurface of the inter-atoll basin, and the reef waters, could be exploited economically if there were adequate stock surveys and research. From occasional light catches, it is thought that the reef waters contain many valuable species (barracuda, seer, wahoo, rock cod, snappers, spiny lobsters). The assess- ment of these stocks, and of sustainable economic yields, and assessment of shrimp resources have been proposed and should be undertaken. 55. The NPA draft plan has also pointed out the need for credit to fishermen for financing the purchase of fishing gear and timber for boat building, the latter being increasingly scarce and expensive; existing mechanization programs provide credit for engines only. The issue of sufficient credit should be examined in the overall context of incentives to fishermen. Last year, the Government effectively reduced the implicit taxation of fisheries and established a Fisheries Advisory Board, which will periodically review and recommend criteria for determining remunera- tive fish prices. Further positive incentives by way of credit, extension and other institutional support should be devised to promote the relative attractiveness of fishing. Neighboring Sri Lanka, for example, has intro- duced comprehensive fishing incentives since 1977, including producer subsidies, credit, and insurance against loss of craft, gear and lives. 56. While devising appropriate incentives, the institutional set up and responsibilities for the design and implementation of fisheries policies and projects could be usefully clarified and strengthened. FAQ and UNDP are providing important assistance in devising an effective instatutional framework and in drafting fisheries legislation. Also, UNESCO is providing assistance in designing fisheries science curricula to be introduced in upper grades of the schools. Agriculture 57. While the meagre agricultural resource endowment, and lack of an agricultural tradition, 1/ limit the scope for agricultural production in the Maldives, there is a potential for substantial improvement in the country's coconut production. The estimated standing stock of one million palms has been largely left to natural regeneration, is overcrowded, and infested with pests (rats, black beetle). Systematic rodent control itself could raise annual production, which averaged 7.8 million nuts during 1978-80, by up to 40%. 2/ In addition, rehabilitation of the standing 1/ These are documented in the World Bank-s previous economic report. 2/ FAo estimate, 1974.  -26- stock could gradually raise both the nut size and average productivity of palms; at present, palm productivity in the Maldives is about 8 nuts/palm, which is 33% lower than the 12 nuts/palm generally considered as a low producJng tree. A sustained longer-term program could result in adequate production of fresh nuts and edible oil for domestic consumption--helping to substitute for imported edible oil--as well as creating opportunities for local milling and soap-making enterprises. The possibility of exporting, for example, copra--which the Maldives used to do before 1971--and coir also cannot be ruled out. 58. The wide variety of tropical fruit, vegetables and tubers grown around homesteads (pars 14), principally to supplement fishing incomes, are an important source of food and nutrition for the poorer atoll population. In the absence of extension, incentives and commercialization, the cultiva- tion practices have remained inefficient and products are generally of low quality. Furthermore, pest damage, and wastage and spoilage rates are high for lack of knowledge of preservation techniques. If the institutional infrastructure of agriculture were strengthened, and improved varieties introduced, both the volume and the quality of production from homestead plots could be raised significantly. This would provide better food availability and nutritional support to the atoll population and, possibly, local substitutes to some fresh and frozen fruit and vegetables currently imported for the tourist industry. In this respect, the Government's modest program of external financing envisaged for the medium term deserves full support. SUSTAINING TOURISM 59. The recent phenomenal growth of tourism and its economic effects were described in Chapter II. The sector still has a considerable growth potential, and it wv1l obviously remain important to the Maldives. Since further expansion of the existing zone, around Male, is limited (para 18), the Government plans to develop new zones, aiming to increase bed capacity from about 4,000 at the end of 1982 to 10,000 by 1990 or later, in a stepwise, flexible and controlled development adjusting to market conditions. In this report, it has not been possible to include an analysis of the tourism raster plan, which was prepared last year. 1/ 60. If designed to provide maximum local benefits, additional tourism projects could help the development of new areas in the atolls. At the same time, complementary investments in the existing zones are also needed as, for example, accommodation at or near the Male International A4.port, fast feeder transport between the airport and the resorts, and provision of water supply and sanitation facilities in Male. This latter area is criti- cal in any event to the health of the local urban population, but would 1/ Tourism Development Plan: Republic of Maldives, Draft Final Report, in two volumes; prepared by Dangroup International, July 1982.  -27- also guard against loss of tourist traffic by minimizing the chances of disease outbreaks. DEVELOPING SOCIAL INFRASTRUCTURE 61. The low level of human rasources development in the Maldives, as well as the problems and suggested priorities for medium- to long-term development, were documented in the World Bank's first economic report and in the Government's presentation at the 1981 UN Conference on the Least Developed Countries. 1/ The Government has made substantial efforts at expanding the educati7on and health infrastructure in the country over the past five years, but the physical difficulties, and the attendant costs, of delivering services to the widely dispersed population pose very serious constraints. In this situation, difficult choices have to be made in setting priorities in human resources development. Fortunately, the country has a tradition of countrywide, community-supported educational facilities--the Makthabs and Madrasahs whiich teach the young of both sexes the Koran, basic literacy in Dhivehi and simple arithmetic. This tradition is credited for the high adult literacy rate (82%) in the Maldives, which could be turned to considerable advantage in spreading health, family planning and nutrition education among the population. There are also the Dhivehi-medium primary schools providing formal schooling in the atolls for a wide range of age groups (between 5 and 24). The more formal, English-medium primary and secondary schools, and a vocational training center are located in Male. 62. Governmezit priorities in human resources development appropriately emphasize primary education; some secondary and vocational training to meet the growing demand for skilled manpower; high level training abroad; and primary health care. The delivery of these services, however, needs to be carefully designed so as not to impose a heavy burden on tlie Government's budget in future. This could be accomplished by qualitative improvements of the atoll primary schools (upgrading teachers skills, currictila improvement, maintaining community contributions, provision of school materials); and by provision of water supply and sanitation facilities which, with initial material and technical assistance, can be constructed and maintained by local communities. Such approaches would allow sus- tainable programs of broad-based human resources development to be instituted early, while enabling Covernment to devote resources to the provision of equally important infrastructure projects, such as Male water supply and sewerage facilities, and maternity and child health programs. 63. With a population density of about 19,000/sq km, Male is seriously overcrowded relative to its virtually non-existent basic urbian infrastructure. There is no piped water supply system.. The town popula- 1/ Government of Maldives, "Programs and Prospects for 1980's", prepared for: United Nations Conference on Least Developed Countries held in Paris, September 1981.  -28- tion depends on polluted groundwater and on rain water for drinking purposes. The absence of a sewerage system, lack of storm water drainage, and a polluted shoreline resulting from the absence of a solid waste dis- posal system, pose a serious health hazard. External assistance is needed to provide a detailed town plan and some minimum infrastructure, including improved water supply, electrical power supply and telephone network; paved main roads and storm water drainage; and a solid waste disposal system. 64. In addition to maintaining assets and servicing debt, the invest- ments suggested in paragraphs 50 to 63 will require increasing levels of budgetary expenditures. In view of the rapid growth of investments in the recent past, as well as ongoing programs, current price expenditures on operations and maintenance, and debt servicing may be expected to grow at about 40% per annum over the next few years. The present system of current revenues, however, is limited (para 26) and, by optimistic assumptions, might provide revenue growth of about 30% per annum. With such trends, the current budget would be in deficit, estimated at Rf 40-45 million by 1985, compared to a deficit of less than Rf 1 million in 1982. Therefore, it is very important for the Covernment to consider feasible measures for mobi- lizing additional revenues, while at the same time exploring ways to con- tain expenditures. RESOURCE MOBILIZATION 65. First of all, there is scope for mobilizing additional revenue froLl import duties. As noted earlier on in this report, the use of the OAR for determining the duty base for customs levies deprives the Government of sizable additional revenues. In fact, while the average nominal import duty rate is about 20%, 1/ the effective rate, at about 8%, 2/ is less than half the nominal rate. If the use of the OAR for this purpose were eliminated, and the nominal rates for essential and non-essential items adjusted in line with the policy to minimize incidence on essential imports, substantial additional revenues could be realized. The Government is already considering this measure and reviewing the relevant legislation. 66. Second, there are no income taxes in the Maldives and the administrative machinery for instituting an income tax system does not exist. However, the services sector, constituting about 55% of GDP in 1982, does realize considerable income that goes untaxed. The only taxes and charges that are levied on tourism, for example, (the _ourism tax and the airport departure tax) are paid directly by the tourists or the tour operators. Yet, it should be possible to introduce some taxes and charges, such as for example, turnover taxes on businesses and flat rate taxes on rental property. As such establishments are congregated around Male, the 1/ Based on f.o.b. value of merchandise imports, calculated at the OAR. 2/ Based on f.o.b. value of merchandise imports, calcitiated at the MER.  -29- administration of the taxes should not be very difficult. In this regard, the measures introduced in the 1983 budget (see para 29) are a step in the right direction. 67. Third, revenues could be raised from charges on commercial exploitation of natural resources, such as coral mining and coconut felling. The current free market price of coral is Rf 3,000 per cube, 1/ but no charges are levied even on commercial-scale mining and sales. 2/ Apart from raising revenue, economic charge on coral mining could also be an important means of promoting conservation of marine environment, par- ticularly where mining has been excessive. Similarly, economic charges could be levied on commercial felling of coconut palms and the revenues used, for example, to finance coconut rehabilitation. Current felling regulations only require payment of a stamp duty at the rate of Rf 0.5 per palm, while the market price of coconut timber is about Rf 250 per palm equivalent. 68. Fourth, expenditures on food subsidies might be contained by a combination of selective price increases and better targetting to involve only the indigent sections of the population. In 1982, a combination of lower import prices and retail price increases on rice and wheat flour enabled the Government to contain the amount of subsidies at the 1981 level. The 1983 budget provides for still lower expenditures on food subsidies (Rf 10 million, compared to Rf 22 million in 1982). Nevertheless, the lower expenditures envisaged in 1983 still represent about 8% of estimated revenue. Moreover, the system of subsidies across the board could raise expenditures if import prices rise again. Hence better targetting remains an important issue of policy decision. 69. Fifth, new capital expenditures should be undertaken with careful consideration of the resources required to maintain the additional assets. The past practice of undertaking capital expenditures only when foreign financing had been secured served to maintain overall budget balance. This practice should be applied selectively now as past investments are expected to increase current expenditure requirements. 70. In meeting the budgetary gap, dollar-denominated commercial bank loans as in the past (para 40) should be avoided as much as possible. In fact, the Maldives needs to build up foreign exchange reserves rather than incur further short-term debts in foreign exchange. Establishment of an appropriate exchange rate and reserves management policy should be a high 1/ A "cube" is a local measure denoting 75x20x2 feet. 2/ One exception is that investors contracting coral loads for resort construction are required to deliver equivalent amounts of coral to the Government, free of charge. Coral thus acquired by Government is used in public works. Occasionally, the Government sells excess loads to the public at a fixed price of Rf 1,500 per cube.  - 30- priority issue for the recently created MMA as it seeks to discharge its broad and complex functions. 71. Donor support will continue to be important in sustaining and strengthening the Maldives' sound development potential. The sizable past commitmeuts on account of Male International Airport have been virtually disbursed now, and fnrther development will be contingent on obtaining fresh commitments. Donors need to consider improving not only the volume but also the quality of assistance, which should include capital aid as well as initial financing of incremental current expenditures resulting from new investments. With assistance from the Government, donors also need to inform each other of their separate activities so as to avoid duplication. Recent institutional developments in the country have strengthened Government machinery to handle external assistance. Additional support could be provided with technical assistance aimed at further improvements in the country-s project preparation, coordination and implementation capabilities. Given the Maldives resource constraints, donors should continue providing aid on concessional terms. This is essen- tial if the debt service burden is not to rise sharply with a sizable increase in commitments.  MALDIES Sure dtheGovwmment 1/ IOC~ ~ ~ ~ ~ ~~~~I E - . [ < 9 {<CT | i lDC CAb - , 4 I-~~~~~wws^ 1 Monld lote; areI autono bodi TheMalive Moetry Auhoit ante Mlive ShpigLmtd mou [~. q A.B I C Y r 01 1/ AC of tSsrch, 1933 .Note; The Haidives Monetary Authority and the Maldives Shipping Linited are autonomous bodies. BEST CO0PY AVAILABLE  .ls 9 3 2i - .X s pl@56 < -- Plj } Se K  -33- STATISTICAL APPENDIX Table No. 1.1 Population Estimates, 1977-82 1.2 Distribution of t . Population, 1967-77 1.3 Employment in Government and Private Sectors by Industry, Primary Occupations and Sex in 1977 1.4 Employment Classified by Industry and by Sex, 1977 and 1980 1.5 Unemployment Rates by Age, Sex and Location 2.1 Gross Domestic Product, 1977-82 3.1 Balance of Payments, 1978-82 3.2 Composition of Exports, 1977-82 3.3 Exports by Country of Destination, 1978-81 3.4 Composition of Imports by end use, 1977-82 3.5 Unit Values for Selected Exports and Imports, 1976-81 3.6 Price and Quantum Indices for Selected Exports and Imports, 1976-81 4.1 External Public Debt Outstanding including Undisbursed as of Dec. 31, 1982 4.2 Service Payments, Commitments, Disbursements and Outstanding Amounts of External Public Debt as of December 31, 1982 5.1 Summary of Government Financial Operations, 1979-83 5.2 Government Revenue, 1979-83 5.3 Adjusted Government Revenue, 1979-83 5.4 Central Government Expenditures, 1979-83 5.5 Adjusted Government Expenditures, 1978-82 5.6 Implicit Tax on Fish Exports 5.7 Implicit Subsidy on Basic Foodstuffs, 1978-82 6.1 Monetary Survey, 1979-83 6.2 Assets and Liabilities of Commercial Banks, 1981-83 6.3 Commercial Bank Lending by Main Economic Sector, 1979-82 6.4 Commercial Bank Interest Rates, 1980-82 7.1 Production, Exports and Local Consumption of Fish, 1971-81 7.2 Fish Catch, classified by Atolls (Locality), 1977-81 7.3 Average number of Fishing Vessels and number of Fishing Trips Classified by Atoll, 1980-81 7.4 Prices of Fresh Skipjack Exports, 1977-82 7.5 Lessees of Unoccupied Islands Classified by Atoll of Residence, 1979-81 7.6 Cultivable Area, Fish Landings and Indicative Income Distribution from Fishing, by Atolls ir 1981 7.7 Rents Received from Unoccupied Islands, 1979-81  -34- 8.1 Tourism Statistics, 1978-82 8.2 Capacity and Rates of Tourist Resorts, 1979-81 8.3 Monthly Tourlsm Resort Capacity Utilisation, 1980-82 8.4 Maldives Shipping Livmited - Fleet Particulars, 1976-81 8.5 State Trading Organization Operational Accounts, 1979-81 8.6 Male Port Statistics, 1974-81 9.1 Structure of Government Wages and Salaries, June 1982 9.2 Retail Pricea of Selected Products, 1978-82 10.1 Health Indicators, 1977-81 10.2 Availabllity and Distribution of Essential Commodities by State Trading Organization, 1977-81  -35- Table 1.1: POPULATION ESTIMATES, 1977-82 (End YeaT) Locality and Year Both Sexes Male Female Entire Republic 1977 /a 142,832 75,224 67,608 1978 147,000 77,400 69,600 1979 150,000 79,000 71,000 1980 153,000 80,600 72,400 1981 156,000 82,200 73,800 1982 160,200 84,400 75,800 Male' b 1977 /a 29,522 16,635 12,887 1978 31,000 17,500 13,500 1979 32,500 18,300 14,200 1980 34,200 19,300 14,900 1981 35,900 20,200 15,700 1982 37,700 21,200 16,500 Atolls except Male 1977 /a 113,310 58,589 54,721 1978 116,000 59,900 56,100 1979 117,500 60,700 56,800 1980 118,800 61,300 57,500 1981 120,100 62,000 58,100 1982 122,500 63,200 59,300 /a 1977 Census figures. 7% Includes employed population in tourist resorts. Source: Ministry of Planning and Development.  Table 1.2: DISTRIBUTION OF THE POPULATION, 1967-77 /a 1967 1972 lb 1977 Total Male' Female Total Male' Female Total Male Female Total 103,801 55,346 48,455 122,673 64,924 57,749 142,832 75,224 67,608 Male 11,760 6,141 5,619 15,279 7,831 7,448 29,522 16,635 12,887 Atolls, except Maleg 92,041 49,205 42,836 106,933 56,834 50,099 113,310 58,589 54,721 Haa Alifu 7,148 3,742 3,406 8,361 4,412 3,949 8,601 4,416 4,185 Haa Dhaalu 8,386 4,425 3,961 9,282 4,924 4,358 9,923 5,133 4,790 Shaviyani 4,892 2,602 2,290 5,805 3,116 2,689 6,363 3,293 3,070 Noonu 5,187 2,818 2,369 5,919 3,198 2,721 6,282 3,306 2,976 Raa 6,743 3,607 3,136 7,803 4,172 3,631 7,904 4,076 3,828 Baa 4,605 2,568 2,037 5,191 2,797 2,394 5,758 3,080 2,678 Lhaviyani 5,245 2,904 2,341 5,828 3,159 2,669 5,655 2,977 2,678 Kaafu 3,033 1,679 1,354 3,512 1,903 1,609 4,153 2,258 1,895 Alifu 4,731 2,617 2,114 5,470 2,975 2,495 6,219 3,365 2,854 1 Vaavu 818 452 366 931 519 412 1,078 595 483 % Meemu 2,559 1,392 1,167 3,066 1,630 1,436 3,095 1,610 1,485 Faafu 1,498 835 663 1,692 900 792 1,986 1,070 916 Dhaalu 2,695 1,497 1,198 3,076 1,659 1,417 2,999 1,538 1,461 Thaa 5,534 2,922 2,612 6,409 3,346 3,063 6,214 3,174 3,040 Laamu 4,721 2,548 2,173 5,350 2,896 2,454 6,090 3,232 2,858 Gaaf Alif 4,128 2,113 2,015 4,817 2,490 2,327 4,977 2,572 2,405 Gaafu Dhaalu 6,612 3,351 3,261 7,815 4,002 3,813 7,717 3,805 3,912 Gnaviyani 3,405 1,819 1,586 3,987 2,120 1,867 4,202 2,128 2,074 Seenu 10,101 5,314 4,787 12,619 6,616 6,003 14,094 6,961 7,133 /a The 1977 population data for Male and for the individual atolls is not strictly comparable with earlier census data due both to the pool quality of the earlier data and differences in methodology. /b The regional population totals for 1972 do not add up to the national population totals for reasons which are not known. Sources: Census, 1967, 1972, 1977.  -37- Table 1.3: EMPLOYMENT IN GOVERNMENT AND PRIVATE SECTORS BY INDUSTRY, PRIMARY OCCUPATIONS AND SEX IN 1977 Principal Occupation Employed Population Type of Employment Total Male Female Government Private Agriculture 6,347 2.970 3.377 29 E.318 la of which: Production of Cereal Crops 1,735 730 1,005 1 1,734 Production of Roots and Tubers 2,361 607 1,754 1 2,360 Toddy Tapping and Related Activities 1,253 1,170 83 1 1,252 Fishing 27,173 20,509 6,664 118 27,055 of which: Pole and Line Fishing 19,269 18,757 512 10 19,259 Services and Other Activities Related to Fishing 6,965 1,047 5,918 105 6,860 Manufacturing 13,051 2.927 10,924 34 13,817 of which: Coir and Coir Products 7,066 222 6,844 1 7,065 Cadjan, Mat and Other Textile 3,934 629 3,305 - 3,934 Products Structural Timbers, Furniture 1,205 1,195 10 11 1,194 and Fixtures Construction 1,885 1,834 51 491 1,394 of which: Rousittg and Other Buildings 959 959 25 934 Electricity, Water and Sanitary Services 209 206 3 133 76 Commerce and Banking 1,890 1,668 222 277 1,613 of which: Wholesale and Retail Trade 1,341 1,183 158 74 1,267 Banks and Other Financial Institutions 195 174 21 170 25 Transport, Storage and Communications 3,301 3.208 93 1,476 1,825 of which: Water Transport Not Connected with Tourism 2,336 2,315 21 882 1,454 Tourism 411 385 26 58 353 Services 4,823 3,375 1,448 22282595 of which: Public Administration and Defense 1,335 1,237 98 1,176 159 Education and Health 987 578 409 467 520 Personal Services 1,184 427 757 52 1,132 Total /la 60,259 /b 37,391 22,868 9 55,320 Nil or negligible s Including others not stated. __ Including 3,000 workers under the age of 15. Source: Census, 1977. BEST COPY AVAILABLE  -38- Table 1.4: EMPLOYMENT CLASSIFIED BY INDUSTRY AND BY SEX, 1977 AND 1980 1977 1980 /a Total Male Female Total Male Female Agriculture 6,347 2,970 3,377 6,700 3,000 3,700 Fisheries 27,173 20,509 6,664 29,200 21,500 7,700 Manufacturing 13,851 2,927 10,924 14,500 2,900 11,600 Construction 1,885 1,834 51 3,100 2,950 150 Electricity 209 206 3 210 210 - Commerce 1,980 1,668 222 2,000 1,700 300 Transport & Storage 3,301 3,208 93 3,300 3,200 100 Tourism 411 385 26 2,000 1,950 50 Services 4,823 3,375 1,448 5,300 3,500 1,800 Total 59,890 37,082 22,808 66,310 40,910 25,400 Population (age group 15-59) 72,529 38,433 34,096 81,993 43,464 38,529 /a Preliminary estimates. Source: Ministry of Planning & Development.  -39- Table 1.5: UNEMPLOYMENT RATES /a BY AGE, SEX AND LOCATION Entire Atolls - Age Groups Republic Except Male Male 15 - 19 Both Sexes 12.3 7.9 33.9 Male 15.2 9.5 35.4 Female 7.9 5.8 28.6 20 - 24 Both Sexes 6.6 3.9 15.7 Male 7.5 4.2 14.8 Female 5.1 3.4 20.4 25 - 29 Both Sexes 4.7 2.9 10.5 Male 5.1 2.8 9.7 Female 4.2 2.9 14.8 30 - 34 Both Sexes 4.1 2.6 9.7 Male 4.0 2.6 7.3 Female 4.3 2.7 22.6 35 and above Both Sexes 3.8 2.6 10.7 Male 3.9 2.6 9.3 Female 3.6 2.5 17.6 Total Both Sexes 5.8 3.7 15.3 Male 6.4 4.0 14.2 Female 4.7 3.3 20.6 /a Unemployment as a percentage of economically active population. Source: Census, 1977.  -40- Table 2.1: GROSS DOMESTIC PRODUCT, 1977-83 (Rf million at 1980 market prices) Est. 1977 1978 1979 1980 1981 1982 1983 Primary Sector /a 103.6 101.3 100.6 117.0 118.5 125.0 134.2 of which: Fis-hing 64.2 60.7 59.6 65.7 63.0 68.0 73.5 Secondary Sectors /b 20.9 37.1 48.7 44.4 58.5 66.1 70.1 Services Sec.tors /c 111.8 132.6 150.6 194.2 207.0 227.3 255.6 of which: Transport 12.8 15.5 18.4 22.9 28.0 29.9 33.0 Distribution 21.3 31.0 38.2 49.0 54.0 61.7 69.1 Tourism 16.1 25.3 28.6 44.3 55.0 60.8 69.5 Government 48.6 46.6 47.2 48.5 49.0 53.1 58.5 Gross Domestic Product 236.3 271.0 299.9 355.6 384.0 418.4 459.9 /a Agriculture, Fisheries, and Coral and Sand Mining. 7T Construction, Manufacturing, Electricity. 7,c Transport, Distribution, Tourism, Rental Services, and other services. Source: Ministry of Planning and Development.  -41- Table 3.1: BALANCE OF PAYMENTS, 1978-82 ($ million) Prov. 1978 1979 1980 1981 1982 Exports Goods & NFS 11.9 44.7 68.2 74.7 76.4 Merchandise, f.o.b. /a 6.9 10.1 127 15.8 17.3 Non-factor services 5.0 34.6 55.5 58.9 59.1 of which: Tourism (4.7) (8.2) (9.4) (14.5) (20.6) Shipping /b ( ) (25.5) (45.?) (43.5) (34.4) Imports Goods & NFS 16.6 49.1 89.1 91.8 96.2 Merchandise, f.o.b. 14.8 21.7 44.0 41.7 46.0 Non-factor services 1.8 27.4 45.1 50.1 50.2 of which: MSL expenditures ( ) (26.3) (41.5) (45.1) (44.9) Net Factor Income 0.81 -1.6 -2.7 -3.5 -5.3 Receipts 1.03 - - - 0.4 Payments 0.22 1.6 2.7 3.5 5.7 Other Services t.net) .. -0.5 -1.0 -2.0 -2.3 Net Current Transfers .. - -0.2 -0.3 -1.3 Current Account Balance -3.9 -6.5 -24.8 -22.9 -28.7 Capital Account (net) 4.1 6.6 25.0 23.2 28.2 Public Sector (net) 7.4 9.4 17.8 18.2 10.7 Grants (5.0) (1.7 (2.6) (2.7) (4.6) Long-Term Disb. (2.4) (2.8) (18.1) (13.0) (6.1) Amortization ( -) ( -) ( -) (0.2) (0.8) Short-Term (net) ( ) (4.9) (-2.9) (2.7) (0.8) Commercial Banks (net) -2.7 0.5 -1.0 11.2 4.4 Dther Capital (net) /c -0.6 -3.4 8.1 -6.3 13.1 SDR Allocation - 0.1 0.1 0.1 - Overall Balance 0.2 0.1 0.2 0.3 -0.5 /a Includes re-exports and MSL ship sales. 7S Includes cargo earnings. /c Private capital, and errors and omissions. Source: Maldives Monetary Authority.  Table 3.2: COMPOSITION'I OF EXPORTO 1977-82 la. (In metric tons) (in thousands of US$) 1977 1978 1979 1980 1981 1977 1978 1979 1980 1981 1982 Exports b3y STO 2,1 2,5 3.367 5,8 7,273 8,36 Dry skipjack (Maldive fish) 990 251 75 75 12 820 210 62 82 23 88 Fresh skipjack 10,787 10,673 12,646 14,076 13,790 1,780 2,540 3,288 4,763 5,240 3,563 Other fresh fish 57 511 10 . .6 90 2 Fresh lobsters 8 11 5 .10 10 6 - Dry salted fish *,9 - Dry salted skipjack .. . . 518 975 . 338 674 1,010 Garments - - - - 1,336 3,229 Other - --- - - - - - - 471 Exports by Private Sector 854 1,243 1.218 2.595 1,376 1L437 Dry salted fish 756 1,566 1,973 650 ..310 670 850 385 Dry shark fins 20 25 20 2 15 310 340 146 347 226 345 Dry salted reef fish .. . . 1,590 1,031 .. . . 887 692 753 Tortoise shells 6 2 5 ...210 50 86 Black ambergris .. . . . . 140 117 410 3i9 5 Cowrie shells 45 45 25 40 42 24 20 12 61 24 Red coral ..17 44 25 . .3 5 - Fish dust * 13 . .. ..2 Live tropical fish (no.) .. . .43,929 .. . 4 54 61 Shark oil (litres) .. . . - 27,200 .. 15 88 . Other marine products ... . ..... . .. - 15 Fabricated mica ..38 .. -4 .20 444 211 144 GarmentsTh .. . . .b . . 6 27 89 Other .. . . . .- - - - - 40 Total 3_.47 4,.093 4,585 7,778 8_.649 9_79 Data not available - Nil or negligible /a Excluding re-exports and MISL ship sales. Jjb Includes woolen dresses and suits, and cotton blouses. Source: Ministry of Planning and Development.  Table 3.3: EXPORTS /a BY COUNTRY OF DESTINATION, 1978-81 1978 1979 1980 1981 Percentage Percentage Percentage Percentage $'000 of Total $ 000 of Total $000 of Total $'O0O of Total Japan 2,302 56.2 3,360 73.3 4,869 62.6 5,338 61.7 Sri Lanka 904 22.1 918 20.0 1,625 20.9 1,481 17.1 Singapore 665 16.2 159 3.5 425 5.5 204 2.4 Others 222 5.5 148 3.2 859 11.0 1,626 18.8 Total 4,093 100.0 4,585 100.0 7,778 100.0 8,649 100.0 /a Excluding re-exports. Source: Customs.  Table 3.4: COMPOSITION OF IMPORTS /a BY END USE, 1976-82 (In thousands of US dollars) (As percentage of total imports) Prov. Prov. 1977 1978 1979 1980 1981 1982 1977 1978 1979 1980 1981 1982 Food 3 q75 2.476 6.497 10_015 8.659 7.819 43.6 20.0 33.3 38.4 27.6 19.9 Rice 1,82; 88 2,841 2,953 3,736 756 20.0 0.7 14.6 11.3 13.0 1.9 Wheat flour 634 560 996 1,110 939 1,164 7.0 4.5 5.1 4.3 2.2 3.0 Sugar 970 854 1,058 3,706 1,585 1,948 10.6 6.9 5.4 14.2 3.2 5.0 Others 545 974 1,602 2,246 2,399 3,951 6.0 7.9 8.2 8.6 9.2 10.0 Other consumer goods 3.326 7.015 7.253 7 464 6.406 11,708 36.5 56.9 37.1 28.7 28.6 29.8 Petroleum products 657 463 2.457 4.156 4.682 2.177 7.2 3.8 12.6 16.0 12.9 5.5 Intermediate and capital go9ds 1,156 Z.384 3.317 4.393 8.106 17578 12.7 19.3 17.0 16.9 30.9 44.7 Paper 8 17 26 37 360 243 0.1 0.1 0.1 0.1 1.4 0.6 Cement 50 136 163 374 416 365 0.5 1.1 0.8 1.4 1.1 0.9 Steel 117 138 58 554 542 2,149 1.3 1.1 0.3 2.1 5.6 5.5 Others 981 2,093 3,070 3,428 6,788 14,821 10.8 17.0 15.7 13.3 22.8 37.7 Total Imports 69114 12.338 19.,524 26.028 27.853 39.282 100.0 100.0 100.0 100.0 100.0 100.0 Note: Due to rounding off, components may not add to totals Customs data do not iuclude imports made under developmert project loans. Ia c.i.f. Source: CustomsiReventje Branch. BEST COPY AVAILABLE  -45- Table 3.5: UNIT VALUES FOR SELECTED EXPORTS AND IMPORTS, 1976-81 (US$ per MT) 1976 1977 1978 ].979 1980 1981 Exports Dry skipjack 959 828 837 827 1,093 1,917 Fresh skipjack 155 165 238 260 338 380 Dry salted fish /a 317 410 428 431 619 691 Dry shark fins 13,750 15,500 13,600 7,300 12,852 15,067 Imports Rice 169 122 343 232 293 290 Wheat flour 163 193 153 243 250 265 Sugar 395 294 240 275 649 527 /a Other than skipjack or reef fish - Nil or negligible Source: Customs/Revenue Branch.  -46- Table 3.6: PRICE AND QUANTUM INDICES FOR SELECTED EXPORTS AND IMPORTS, 1976-81 (1975 = 100) 1976 1977 1978 1979 1980 1981 Exports Dry skipjack Quantum 72.7 50.4 12.8 3.8 3.8 - Price 112.8 97.4 98.5 97.3 128.6 225.6 Fresh skipjack Quantum 160.1 201.2 199.0 235.8 262.5 257.2 Price 106s9 113.8 164.1 179.3 233.1 262.1 Dry salted fish /a Quantum 420.0 5,040.0 10,440.0 1,315.3 433.3 - Price 95.2 123.1 128.5 129.4 185.9 207.5 Dry shark fins Quantum 266.7 666.7 833.3 666.7 900.0 500.0 Price 412.5 465.0 408.0 219.0 385.6 452.0 Imports Rice Quantum 138.5 382.9 6.6 312.4 257.1 374.5 Price 54.8 39.6 111.4 75.3 95.1 94.2 Wheat flour Quantum 33.6 110.5 123.5 138.1 149.6 160.1 Price 56.4 66.8 52.9 84.1 86.5 91.7 Sugar Quantum 10.7 54.1 58.3 63.1 93.7 74.5 Price 162.5 120.8 100.0 29.1 66.6 84.3 /a Other than skipjack or reef fish - Nil or negligible Source: Customs/Revenue Branch; Bank staff calculations.  BESt w9PY AVAIUBLE Table 4.1: EXTERNAL PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DEC. 31, 1982 DEBT REPAYABLE IN FOREIGN CURRENCY AND GOODS (IN THOUSANDS OF U.S. DOLLARS) D E B T o U T S T A N O I N G : I N A R R E A R S TYPE OF CREDITOR ------ CREDITOR COUNTRY DISBURSED ;UNDIS8URSED: TOTAL ; PRINCIPAL INTEREST SUPPLIERS CREDITS UNITED KIN$jOOM 017 - 917 TOTAL SUPPLIERS CPEDMtS 917 - 917 F INANCIAL ItNSTITUTIONS UNITED KINGDOM 906 - 906 TOTAL FINANCIAL INSTITUTIONS 906 _ 906 NVULTILATERAL LOANS ASIAN DEV. 8ANK 24 976 1.000 - - IDA 2,168 1.032 3,200 - - ISLAMIC DEV. BANK 9.805 1.844 11.649 - - OPEC SPECIAL FUND 4,227 1.023 5.250 - - TOTAL MULTILATERAL LOANS 16,224 4.875 21.099 - - BILATEPAL LOANS 41 CHINA _ 1'300 1.300 KUWAIT 15.258 7.430 22.688 SAUDI ARABIA 8.916 2.859 11.775 UNITED ARAB EMIRAtES 2,849 105 2.954 TOTAL 5ILATERAL LOAN5 27.023 11,694 38.717 TOTAL EXTERNAL PUBLIC DEBT 45.070 16.569 61.639 NOTES: (1) ONLY DEBTS WITH AN ORIGINAL OR EXTENDED MATURITY OF OVER ONE YEAR ARE INCLUDED IN THIS TABLE. (2) DEBT OUTSTANDING INCLUDES PRINCIPAL IN ARREARS BUT EXCLUDES INTEREST IN ARREARS. Source: External Debt Division; World Bank.  Table 4.2: SERVICE PAYMENTS, COMITMENTS, DISBURSEMENTS AND OUTSTANDING AMOUNTS OF EXTERNAL PUBLIC DEBT PROJECTIONS BASED ON DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF DEC. 3, 1982 DEBT REPAYABLE IN FOREIGN CURENCY AND) r2ODS (IN THOUSANDS OF U.S. DOLLARS) TOTAL YEAR : DET OUTSTANDING AT T R A N S A C T I O N S D U R I N G P E R I O D OTHER CHANGES : BEGINNING OF PEFIOD : DISBURSED INCLUDING COMMIT- DISBURSE- S E R V I C E P A Y M E N T S CANCEL- ADJUST- : ONLY UNOISBURSED MENTS MENTS ____ ----------- -----------: LATIONS MENT . PRINCIPAL INTEREST TOTAL * (1) (2) (3) (4) (5) (8) (7) (8) : 9) 19?8 14.758 .c 8t 12.233 2.102 - 44 44 428 1n 1~ 7 Cl3.908 i9.542 4.000 2.907 - 77 77 -107 VMiO 6.834 23.425 22.097 17.299 283 283 - 219 19e1 24.800 45.741 13.981 13,127 216 454 670 - -1.561 1182 36,915 57.945 5.634 9.743 779 778 i.SS7 - - 1G2 1983 45,070 61.638 * ^ * * * * THE FOLL.OWING FIGURES ARE PROJECTEO * * * D t t 1923 45.070 61.638 - 7,272 4,684 911 5,595 - 19P4 47.658 56.955 - 4,145 4,358 1,124 * 5,982 - 1985 46.949 52.098 - 2,817 4,758 980 5,738 - - 1)36 45.008 47,340 - 1.380 5.243 841 6.084 -