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Note on Foreign Aid Mobilization in Maldives

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					                                              Confidential

                      Note on Foreign Aid Mobilization in Maldives

                                            Antony J. Dolman
                                            UNDP Consultant




I. INTRODUCTION

The purpose of this note is to suggest possible ways in which Maldives could, given negative trends in the
aid environment, seek to defend more actively its interest as a distinctive developing country and its need
for concessional assistance. The initiatives suggested are linked to the next Round Table Meeting between
Maldives and its Development partners, which is provisionally scheduled for early 1998.

The note has been prepared in haste and its arguments and positions could be elaborated if required.

II. ISSUES IN AID MOBILIZATION

In the area of foreign aid mobilization, there are a number of issues that should be – and undoubtedly are -
a matter of concern to the Government of Maldives. Some of these can be subsumed under two main
headings: (i) the quality of aid; and (ii) the perceptions of some donors.

1. Quality of Aid

According to figures published by the Ministry of Finance and Treasury, the quality of assistance received
by Maldives is in measurable decline. There has, for example, been a sharp reduction in the level of grant
assistance, which fell from US$21.9 million in 1991 to US$14.0 million, with grants as a percentage of
total government revenues declining over the same period be nearly one-half, from 13.4% to 7.1%.

At the same time, it has recently been recommended by the UN that Maldives be 'graduated out' of the
category of Least Developed Countries. While this can be regarded as formal recognition of the
impressive progress recorded by Maldives in the social and economic fields, it does mean that access to
grant aid in the years ahead, especially after 2000 when 'graduation' would take effect, will become even
tighter than it already is and that Maldives will have to work even harder to remain where it already is and
harder still if it is to prevent a further decline in both the volume and quality of external assistance.

2. Perceptions of Donors

There is no doubt that the donor community is genuinely impressed by the nation's growth performance.
However, it is probably fair to say that many bilateral donors have an imperfect picture of Maldives – far
less complete than many other countries in which they have assistance programmes. Without permanent
representation in Male', they are typically dependent upon infrequent short visits that seldom take them
beyond the capital island and its neighbouring tourist resorts, a modus that prevents them acquiring any
real familiarity with the part of the country that is home to nearly three- quarters of the population.

Lack of familiarity with a country has never prevented donors from expressing views on its development
process. This is the case with Maldives. Donors, especially bilateral donors, often grumble about
Maldives among themselves in Colombo, as indeed they do about all the countries in which they have
assistance programmes. Comments not infrequently heard about Maldives include the following:

0       'There is a lack of direction'. While acknowledging the impressive progress recorded by Maldives
        in the social and economic fields, some donors appear to harbour doubts about the viability of
        Maldives as a nation-state in the next century. Their position finds expression in a statement like
        'You have to give Maldives credit for what it has achieved, but you are not telling me that
        Maldives is a viable entity in the twenty-first century'. Such a statement is sometimes linked to a
        perceived lack of direction in the nation's development efforts. 'Where is it all supposed to be
        leading to? Where is Maldives trying to get to and how does it intend to get there? ' The three-
        year periods selected for past national development plans have been unable to provide the
        perspective to answer this question, and it is to be regretted that such recent initiatives as the
        Maldives 2005 project and Regional Development Strategy have, so far at least, not resulted in an
        acceptable answer.

0       'They do not really need us'. Some donors, especially those with a strong emphasis on poverty eradication,
        increasingly hold the view, quite incorrectly, that 'there is nothing for us to do in Maldives'. While
        acknowledging that the nation has real assistance needs, some also seem to subscribe to the view
        that these can more or less be met by Japan and India, the two largest donors with assistance
        programmes that overshadow those of all other donors. 'They don't really need us. What can we
        do that the Japanese and Indians can't do?

0       'They do not tell us what they want'. Some donors evidently feel that Maldives could be more
        explicit and communicative in terms of both its development priorities and assistance needs.
        Some point to an apparent lack of familiarity on the part of Maldives with the donor's assistance
        priorities and programmes, which can give rise to difficulties in matching assistance needs with
        sources of external assistance.

It is probably reasonable to assume that the positions expressed above can be linked to the decline in both
the level of grant assistance and to the reduction in the number of donors with sizable programmes in
Maldives: the number of OECD/DAC donors with programmes has, according to UNDP records, fallen
from 11 in 1989 to only 2 in 1995.

II. PROPOSALS

The above raises questions about whether Maldives does enough to represent its interests and defend its
needs in the donor community and whether new initiatives that would help to articulate interests and
needs should not be considered. Three such initiatives would seem worthy of consideration:

1. Vision Statement

The interests of Maldives would be served by the preparation of a vision statement for Maldives in 2010
or 2020. Such a statement, if well-prepared and persuasive, could provide an answer to the question of
'where is it all supposed to be leading to?' Without going in to unnecessary detail, it would outline a sense
of direction towards a future, which is not only desirable but also feasible.

Such a statement could also contribute to national purposes of consensus-building on the main aims and
directions of development. For this reason it is difficult to imagine a better occasion for the publication of
the vision statement than next year's elections, when H.E. President Gayoom will present his vision of the
future to the nation. The statement would have even greater validity if, in outlining a perspective for the



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next 20 years, it inventorized the progress recorded in the past two decades.

2. Special Case Argument

The interests of Maldives would be served by the preparation of a special case argument that
demonstrates that traditional indicators used to estimate a nation's need for external assistance are not
particularly relevant for Maldives. To carry any weight, the special case argument would need to go
beyond such generalities as 'highly dispersed population', 'diseconomies of scale' and so on – these are
already known – to include concrete examples of, for example, the high costs of providing and
maintaining the physical infrastructure required to achieve sustainable increases in standards of living and
well-being. It would also need to make clear reference to leakage effects and factor payments and the
apparently growing differences between GDP and GNP (the estimation of these differences will be
greatly facilitated when the new methodology for the estimation of national accounts becomes operational
in early 1998 at MPHRE).

The special case argument could also include a comparison of assistance flows to other small island
countries, especially in the Pacific. Available evidence suggests that some Pacific SIDCs with GDP per
capitas twice that of Maldives have received twice the level of assistance, measured on a per capita basis,
than has been received by Maldives. None of these countries have a growth performance that even
approximates that of Maldives, suggesting that the aid received by Maldives has been put to good use. At
a time in which aid policies are themselves under pressure in many OECD countries, this is a point that is
surely worth stressing.

3. Policy on Foreign Economic Cooperation

The interests of Maldives may be served by the preparation of a more explicit policy on Foreign
Economic Cooperation that provides an answer to the donor question of 'what does Maldives want from
us?' Without going into detail, this document would specify the main objectives of the nation's foreign
economic cooperation policy, priorities for the mobilization of both grant and loan assistance, and the main
instruments and mechanisms to be used for the management and coordination of external assistance.1


1
  A slight diversion. In addition to responding to donor concerns, such a policy document could be helpful to
Maldives in other ways. Maldives does not figure as a programme country in the development cooperation
programmes of any major donor, and it enjoys no 'special relationships', for example with a 'mother country'.

This greatly reduces opportunities for establishing durable relationships with donors and for introducing a
programmatic approach to development financing. The residual position that Maldives is compelled, against its will,
to occupy in the aid environment tends to confer upon the country the status of 'taker' rather than real 'partner',
requiring it, in the absence of more durable relationships, to 'shop around' in the search for project funding. This
position is one that places heavy burdens on the nation's aid mobilization and management machinery, further
exacerbated by the small size of many projects financed by donors with very modest assistance programmes.

This situation almost inevitably means that the lowest cost development financing alternative is not always selected
in Maldives. The preparation of the policy on foreign economic cooperation could appropriately be used to review
current arrangements and to identify ways in which the aid mobilization and management machinery could be
strengthened. Outputs from the exercise could include the formulation of criteria for assessing the cost effectiveness
of development financing alternatives, and guidelines, for use by government agencies, on the use of different
financing modalities to achieve sectoral and sub-sectoral priorities and objectives. They could also include
guidelines for matching different types of assistance with varying degrees of concessionality with assistance needs at
the sectoral and sub-sectoral levels.

Work in this area would be made even more productive by an analysis of bilateral economic relations. At present, it


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III. FOLLOW-UP

A Round Table Meeting will soon need to be prepared. As Maldives knows only too well, these meetings
tend to be routine, with documentation that is predictable – a summary of government policies and
programmes supported by the PSIP and profiles of 20 or so high-priority projects – and is seldom read in
any detail by the donor community.

Maldives could consider breaking this mould. It would be broken if Maldives were to go to the RTM with
the three documents proposed above – the vision statement, special case argument, and policy on foreign
economic cooperation. Such documents, if well considered and prepared, could help capture the attention
of the donor community, providing evidence that Maldives was 'on the ball' and 'had got its act together'.2

Such perceptions could prove instrumental in helping to reverse some of the negative developments in the
foreign aid environment.



AJD

July 1997




is known what a donor country 'gives' to Maldives; much less is known about how much Maldives

'gives' to the donor country, either through the provisions of aid that is tied to the procurement of goods and services
(with much never even reaching Maldives) or through normal commercial transactions, including, for example,
export receipts, air line revenues, banking and transaction charges, etc. A balance sheet could be drawn up for each
major donor country. The preparation of such balance sheets should not be regarded as confrontational. They simply
contain information that a country needs to know, especially a country that has the status of a 'taker' as it enters
bilateral consultations.

The results of such analyses would, of course, be used internally and would not necessarily be reproduced in the
policy statement.


2
 Other supporting initiatives might also be considered. These could include the preparation of an annual report on
development cooperation. Despite the importance of external assistance in development financing, Maldives does
not produce on a regular basis documents that are of direct use to the donor community and which help to provide an
answer to the question 'they do not tell us what they want'. Such a report could consist of a 10-15 page statement on
economic developments in the preceding year and an assessment of prospects in the coming year, together with an
'aid brief' that would indicate urgent assistance priorities. Such a document could be useful in bilateral consultations.
Several government departments, notably the Department of Finance and Treasury and MMA, already produce
documents that could, without too much difficulty, serve as the basis for such a report.

Perhaps more importantly, the annual report would establish a direct line of communication between the
Government and the donor community. At present too many donors are dependent upon out-dated World Bank
Memoranda and leaked copies of Article IV Consultations with the IMF for their views on Maldives. It would be in
the interests of Maldives to seek to ensure that the views of donors take more fully into account its own thinking.



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