DTIS, Volume I - Enhanced Integrated Framework (EIF)

government, and lawmakers are elected according to universally accepted democratic
principles for a term of five years. Each atoll is represented in the country’s legislature.
Over the years, the country has been politically stable, and in May 2005, the first steps
for introducing a multiparty system were taken.
Buoyant GDP growth of up to 6 – 9 per cent year with negative or very low levels of
inflation is a distinctive feature of the economy in recent years. Significant progress has
also been achieved in human and social development over the past two decades. Prudent
macroeconomic and public investment policies as well as a largely favourable external
environment has facilitated this progress, lifting the Maldives from being one of the 20
poorest countries in the 1970s to one that shares many characteristics of a lower middleincome
country today. The GDP per capita was Rf 30,733 (US$ 2,401 equivalent) in
2004. As a result, the Maldives’ graduation from LDC status is a real possibility.
However, the government would prefer to delay graduation so as not to lose foreign
assistance – including participation in the Integrated Framework – that is critical to the
country’s recovery from the divesting tsunami that hit the Maldives and other countries in
the region on 26 th December 2004. It is understood that the United Nations Economic
and Social Council (ECOSOC) is sensitive to the government’s need for a carefully
managed graduation programme with appropriate transition arrangements.
Though liberalization of the economy is advanced and economic growth rates are
nominally high, a significant proportion of the jobs created have gone to foreign workers
due to rigidities in the local labour market. For a variety of reasons that is elaborated
upon in the DTIS, relatively high levels of unemployment and underemployment are a
distinctive characteristic of the economy. Flexibility in macro-economic policy is
somewhat limited as the country’s currency, the Rufiyaa, is pegged to the US dollar.
Recent developments have had a negative impact on trade and economic performance. In
particular, there has been a dramatic change in 2005 following the tsunami. This resulted
in a downturn in the tourism sector which contributes substantially both to GDP and to
foreign exchange earnings. In addition, the garment and apparel industry literally
collapsed during 2004 as the end of the Multi-Fibre Agreement (MFA) quota system
approached. Rising oil prices throughout 2005 and during the first half of 2006 has
brought about a downward spiral in the terms of trade. The boom years that Maldives
has experienced in recent years up to 2004 may now be at an end. There is therefore an
urgent need to address this situation so that measures can be taken to mitigate the
problems that are now being experienced. To this extent, the DTIS exercise for the
Maldives has been more than timely.
III. Social Conditions and Human Development
The recent economic shocks that the country has experienced have exposed the
constraints of an economy that is dependent essentially on the tourism sector and the
limited intra- and inter-sectoral linkages. Moreover, lack of employment opportunities
and insufficient provision of secondary and tertiary education facilities on the atolls, has
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