Countries of the World/COUNTRYS.BIN/dp/0234/02346.txt

Text File | 1991-06-25 | 29KB | 456 lines

$Unique_ID{COW02346}
$Pretitle{354E}
$Title{Maldives
Chapter 1B.   The Economy}
$Subtitle{}
$Author{Rinn-Sup Shinn}
$Affiliation{HQ, Department of the Army}
$Subject{percent
maldives
government
foreign
fish
maldivian
total
male
bank
fishing}
$Date{1983}
$Log{Figure 16.*0234601.scf
}
Country:     Maldives
Book:        Indian Ocean Countries, An Area Study: Maldives
Author:      Rinn-Sup Shinn
Affiliation: HQ, Department of the Army
Date:        1983

Chapter 1B.   The Economy

     At the start of the 1980s Maldives was still among the twenty poorest
countries in the world. According to a tentative study by a World Bank (see
Glossary) mission, in 1978 the GDP at current market prices was estimated at
the equivalent of US$22.5 million and the gross national product (GNP-see
Glossary) of US$23.3 million. GNP per capita in 1978 was placed at US$158. The
country had no known mineral resources, and its cropland-small and scattered
over 162 tiny islands-was hardly adequate for the subsistence of a burgeoning
population. In 1977 the country was among the most densely populated in the
world, having 479 persons per square kilometer or 3,500 persons per square
kilometer of agricultural land. Manufacturing industry using modern technology
was still in the nascent stage. Nearly all essential goods were imported, as
were oil, for the nation's fishing fleet, and rice, the staple food of the
Maldivians.

     The economic system relied on the two relatively well-endowed sectors:
fishing, the traditional lifeblood of the country, and tourism, which since it
opened in 1972, has grown rapidly and may in time become the nation's
paramount industry. Until the worldwide slump in 1977, shipping was an
important source of government revenues and foreign exchange earnings, but its
recovery was expected by the early 1980s.

     In the 1974-78 period (the latest years for which information was
available) GDP grew by 12.5 percent annually (at constant 1978 prices) and GNP
by an average of 9.0 percent. The impressive growth was attributed to
increased fish landings after 1976 and the remarkable expansion of tourism. By
sector, primary production (mainly fishing) accounted for 39.7 percent of
GDP; secondary production, 6.0 percent; and the predominantly Male-based
services sector, 54.3 percent. In terms of the occupational structure of the
labor force, 56 percent was engaged in fishing and agriculture; 26 percent in
cottage industries, handicrafts, small-scale fabrication, construction, and
utilities; and 18 percent in services including tourism and government. The
proportion of total employment between the private sector and the government
was 92 percent to 8 percent.

     Traditionally the economy was characterized by free enterprise with
limited intervention by the state. But of late the government has played a
growing role in development planning and investment and has participated
directly in economic operations. This was best exemplified by the
establishment in December 1978 of the National Planning Agency (NPA) as part
of a concerted effort to rectify what had long been the ad hoc, haphazard
nature of the government role in the economy. The NPA, subordinate to the
Office of the President, was to serve as the arm of the latter in establishing
investment priorities and as the coordinator of overall economic activities.
Important economic organs included the State Trade Organization (STO), the
government vehicle for foreign trade and the controller of foreign exchange;
its profit turnover to the state was about 14 percent of the total estimated
government revenues for 1979. Also significant was Maldives Shipping, Limited
(MSL), the national shipping line, which accounted for 22 percent of
government revenues and 14 percent of gross foreign exchange earnings in the
1974-78 period.

     Banking and monetary affairs as well as budgetary operations came under
the purview of the Department of Finance and the Maldives Monetary Authority,
which was established in late 1981. The Maldivian rupee (for value of the
Maldivian rupee-Mal Re-see Glossary) is the official currency, issued by the
Department of Finance. It circulates alongside the United States dollar, which
has since 1976 replaced the British pound as a secondary currency. As of 1980
there was no central bank. There were, however, two branches of foreign
commercial banks in Male-the State Bank of India, set up in 1974, and the
Habib Bank (Pakistan), established in 1976.

     In 1978 total government expenditures were Mal Rs41.2 million, an
equivalent of US$10.5 million at the official accounting rate. The proposed
outlays for 1979 were estimated at Mal Rs39.5 million. The 1978 expenditures
consisted of both nondevelopmental and developmental categories, the former
covering general administration, internal security, and debt servicing
functions. The latter category was for fishing and agriculture, economic
services, communications and transport, education, and health services. Under
the Maldivian budgetary practices, however, the developmental classification
was actually related to many current rather than capital expenditures. In the
1974-79 period government spending increased by 12 percent per annum; much of
this increase was for the social sectors and infrastructure, reflecting the
growing official recognition that the past neglect of social and economic
services at the grass-roots level, especially in the atolls outside Male, must
be remedied as soon as possible.

     On the revenue side, total receipts in 1978 were Mal Rs11.7 million, of
which 66 percent were derived from profit transfers by public sector
enterprises, such as the STO, the MSL, the Electricity Department, and the
Telecommunications Department. Import and export duties and the sale of stamps
accounted for 26.5 percent, and other unspecified income rounded out the
remainder. The 1978 revenue dropped sharply from the 1977 total of Mal Rs20.7
million, owing to the decline in profit turnovers by MSL and STO. In an
attempt to narrow the growing post-1974 budget deficits, new taxes on tourism
and airport departures were introduced in 1979; and customs duties were raised
in 1980. Ordinary revenue was estimated to cover only about 40 percent of the
proposed 1979 outlays but, according to a World Bank report in 1980, the
actual size of the deficit was smaller in that dollar-denominated revenues
were calculated at the low official accounting rate rather than the higher
market exchange rate. Part of the deficit was covered by the issuing of
currency, the circulation of which increased at an annual rate of 15 percent
after the mid-1970s.

     Fishing remains the most important sector. In 1978 it contributed nearly
one-third of GDP, was the primary occupation for 55 percent of employed males
and 29 percent of employed females (44 percent of the employed labor force),
and accounted for almost all visible export earnings. The fisheries sector is
vulnerable to environmental factors, however, and to fluctuations in foreign
demands for the famous "Maldive fish"-the dried, salted, and smoked tuna, used
as a delicacy in Sri Lanka and as a supplement to curry and rice in India. For
a variety of reasons fish landings, an important yardstick for Maldivian
economic performance, had grown slowly since the late 1970s. Furthermore,
after 1972 Sri Lanka, the principal importer of the Maldive fish, sharply
reduced its purchase because of its foreign exchange crisis; it was not until
mid-1979 that exports to Sri Lanka began to pick up.

     The post-1972 export crisis brought about a significant shift in
Maldivian fishing. For one thing, the government invited foreign companies to
collect fresh fish for freezing and export, which was, however, less
profitable compared with the export of processed fish. In 1978 exports through
three foreign firms constituted 66 percent of total fish exports and 44
percent of total fish landings (25,800 tons). For another, motorization of the
country's 2,300 sailing vessels was intensified; by mi