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PROGRAM INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: 52128
Maldives Economic Stabilization and Recovery Credit
Operation Name
SOUTH ASIA
Region
General public administration (25%); Financial management
Sector
(25%), Public enterprise management (25%) Social protection
(25%)
P114463
Project ID
GOVERNMENT OF MALDIVES
Borrower(s)
MINISTRY OF FINANCE
Implementing Agency
November 23, 2009
Date PID Prepared
December 1, 2009
Estimated Date of
Appraisal Authorization
Estimated Date of Board January 26, 2010
Approval
1. Key development issues and rationale for Bank involvement
The new Government of Maldives faces the challenge of urgently reducing an unsustainable fiscal
deficit while managing the macroeconomic consequences of the global financial crisis. In the
absence of any adjustment, the fiscal deficit is expected to reach nearly 33 percent of GDP in 2009.
A crisis-induced drop in government revenues from the tourism sector (down 25 percent year-overyear) exposed a legacy of post-Tsunami fiscal mismanagement. With external financing sources
limited by the ongoing global crisis, over 20 percent of this deficit is being monetized.
The new Government is committed to a reform program that has at its core a sharp fiscal adjustment.
The Bank has worked closely with the Government, the International Monetary Fund (IMF) and the
Asian Development Bank (ADB) to design a program that would stabilize the situation through a
significant fiscal adjustment and a scaling-up of external financing. The authorities have reached an
agreement with the IMF on a 36-month combined Stand-By Arrangement and External Shocks
Facility ($90 million or 700 percent of quota, expected Board date December 4, 2009). The ADB is
proposing a US$35 million budget support operation with half being disbursed in 2009 and a
roughly equal amount planned for mid-2010.
This proposed operation is to support the government’s determined efforts to put in place a program
of reforms to combat the effects of the global financial crisis and to put government finances on a
sustainable path. The main aims of the government’s program are to achieve a smaller and more
efficient public service, institute a reliable source of tax revenues, improve institutional
arrangements for fiscal policy and reduce the role of the state in the economy, while effectively
protecting the vulnerable groups of society. The Bank’s proposed operation is the first of a twooperation programmatic series and is being processed under the IDA Financial Crisis Response FastTrack Facility.
2. Proposed objective(s)
Policy actions supported by this proposed operation will concentrate on helping to ensure that the
government’s fiscal austerity measures are sustainable. The focus on public financial management
by addressing key institutional shortcomings in budget preparation and implementation aims to
enable the Ministry of Finance and Treasury to recognize budget overruns early so that they can be
addressed in advance. The public service reform will endeavor to help the government implement
redundancies and wage cuts in a way that will not lead to their subsequent undoing or in a way that
compromises the delivery of essential government services. The public enterprise reform program
will direct its support towards the government’s ambitious public private partnership program, while
underpinning fiscal sustainability. The social protection measures will help cushion the impact of
what is to be a significant structural change in the economy.
3. Preliminary description
This operation is envisaged to provide US$12 million in early 2010 and a second proposed operation of a
similar amount in late 2010 or early 2011. The final amount of the second proposed operation will be
determined in further consultations with management and Government. The second Development Policy
Credit (DPC) would depend on a deepening of the reform program.
A policy program matrix describes the ongoing reform efforts of the Government of Maldives (GoM), as well
as next steps before the end of 2009 and 2010. The GoM’s initiatives are noted in four broad areas:
macroeconomic stability, public financial management, public service reform, public enterprise
reform, and social protection.
4. Risks and Mitigation
The main risks include political risk, fiscal and macroeconomic sustainability, vulnerability to external
shocks, and limited technical capacity.

Political risk. Democracy in the Maldives is very much in a nascent stage and the Government of
President Nasheed lacks a parliamentary majority which could significantly constrain the
Government’s plans going forward. Political risks are likely to be a feature for the entire length of
the proposed program period.

Fiscal sustainability. Given the size and form of the fiscal adjustment that the government is
undertaking there are significant implementation risks. Less than satisfactory implementation of the
fiscal consolidation measures could put the fixed exchange rate regime under pressure. The proposed
program aims to mitigate these risks by not proceeding to the second proposed operation should
macroeconomic imbalances not improve through lack of Government reform effort.

Exogenous shocks. As a small, open, and undiversified economy, the Maldives is vulnerable to the
adverse effects of external shocks such as an oil price shock. The focus on Government revenue
generation measures in the IMF and ADB programs of support will help mitigate the risk of external
shocks translating into large macroeconomic imbalances.

Capacity constraints. Limited technical capacity is one of the leading development constraints in
the Maldives. Capacity constraints significantly impact all aspects of government functions. GoM
in the recent past has sought increased interventions from multi-lateral donors such as the World
Bank, IMF and the ADB on various aspects of technical assistance (TA). Specific TA policies have
not been built into the program, but capacity constraints were reflected in the program design.
(US$m.)
Source:
BORROWER/RECIPIENT
IDA Credit
Total
5. Contact points:
Francis Rowe
Title: Senior Economist
Tel: (202) 473-6682
Fax: (202)-522-0356
Email: [email protected]
Kirthisri Wijeweera
Title: Economist
Tel: (9411) 5561342
Fax: (9411) 2440357
Email: [email protected]
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