Local fishermen will bear the brunt of graduation’s economic impact.

Photo by Yassin Hameed. Courtesy Portrait Gallery, Maldives

In the worlds of economics, foreign policy and social issues, there is one matter which unarguably unites all Maldivians: the UN’s threat to upgrade their international economic status. The nation is at present classified as a Least Developed Country (LDC), but is in danger of making the abrupt leap to a Developing Nation instead.

The forcible graduation of the country by the UN is dreaded because it threatens all the international economic protections that have made the Maldives’ progress possible: access to markets, development assistance and concessional finance. Aside from the fact that the archipelago depends on imports for almost all its requirements, the two main sources of fiscal revenue (tourism and fisheries) depend on world market conditions for sustainability. Furthermore, it is primarily the assistance of the international development community that has created the conditions and infrastructure for socio-economic growth.

“Our economy is very fragile, based on tourism and fishing, and both sectors are very sensitive to external shocks,” explains President Maumoon Abdul Gayoom. “We are very vulnerable to adverse global developments,” he warns. “These are the things we want the world to understand, especially the UN when they talk about graduating us. Any such shock can send us back several years.”

Minh H. Pham, the UN’s Resident Coordinator, points out that the news is not all bad. “Graduation can in fact be perceived as a very positive step. Maldivians should be proud that the country has qualified for a medium development status, which directly reflects the fruitfulness of government efforts of the last two decades to improve the lives of the people.”

President Gayoom wants to make it clear that his country is not aiming to remain poor. “I want to say that it is no credit to be termed a ‘least developed country’,” he says. “We would like to graduate, but we would like to do so in a way that would not harm our prospects for development. We are not yet ready for that.” Gayoom says that without establishing a new process for graduating nations, the step will only constitute a punishment for those who achieve it.

Officially a nation should graduate when it surpasses even one of the UN’s three criteria (which relate to per-capita GDP, the strength of its human resources, and its level of economic diversification): Maldives was judged in 1997 to have improved in all three areas, the only nation to have done so. “However they are generally among the most economically vulnerable nations and among the least prepared to face the impact of graduation from concessionary treatment,” says Pham.

At stake is much of the Maldives’ prosperity, from low-interest loans and debt write-offs to preferential market access and development aid. Concessional finance, too, is an issue. At present it amounts to about 15% of the country’s GDP, but it would be entirely wiped out upon graduation. Moreover, the Maldives would have to take out any future loans at a commercial rates of interest, imposing an untenable debt burden.

In terms of the country’s GDP, the fishing industry is especially endangered by the putative graduation, which would lose the Maldives its access to the European Union Market for canned tuna by imposing a 24-percent import duty, the Common External Tariff, on such exports to Europe. “I have very strong feelings regarding graduation,” says Abdul Rasheed Hussain, Minister of Fisheries, Agriculture and Marine Resources. He stresses that the higher costs of production, due to natural geographic limitations, and the resultant high costs of production infrastructure in the Maldives, make its fish products non-competitive in international markets without concessions based on its LDC status.

Minister of Planning and Development Ibrahim Hussein Zaki explains why the Maldives’ situation deserves special consideration, despite its economic achievements. “One of the most pervasive handicaps faced by the Maldives is the geophysical fragmentation facing the country,” he says, “accompanied by the dispersal of the population into very tiny communities, exacerbating diseconomies of scale, intensifying economic and environmental vulnerability, deepening poverty and increasing aid dependence.”

The international development community has played a crucial role in the development of the country’s economy. According to the government (in Country Presentation 2001), more than 80 percent of total expenditure in socio-economic services came in the form of concessional loans and grant aid from the international donor community.

President Gayoom says that 30 percent of the national budget comes from foreign assistance in the forms of either grants or soft loans. “We live on separate islands with a large stretch of sea in between, so traveling is very difficult and the provision of basic services very costly, and the initial investment required is very great. For these reasons, we still have to depend a lot on foreign assistance.”

The Maldives’ reaction (unprecedented in the history of the UN) has been powerful and effective. In 1999 the UN's Economic and Social Council agreed to undertake a study of the possible effects on the nation of a change in status, in response to a letter from President Gayoom. Nevertheless in 2000, despite protests, the UN announced that it would graduate the Maldives.

In response to various states’ attempts to draft a resolution to graduate it, the Maldives introduced its own draft resolution; the first of three which have made the UN agree that the issue must be re-examined. Thanks to the Maldives’ efforts, the criteria for graduation have been revised in a manner that would favor its case, and the members of the Committee for Development Policy now include experts in the economic peculiarities of small island states.

The Maldives will likely be graduated in the future, given its rate of development and progress; in fact President Gayoom estimates that the step could be taken with many positive results in just five or six years. But its insistent negotiations with the UN have ensured that when the time comes, it will not be forced to career off a cliff-edge in terms of access to markets and assistance. Its David and Goliath struggle, the nation is convinced, will pay off.