The Maldives, which comprises 1,190 small islands in total, is a typical example of the ‘island paradox’ with multi-dimensional development challenges. On the one hand, the country has achieved relative prosperity; Gross National Income (GNI) increased by over 200% between 1990-2015, and human development indicators such as life expectancy at birth improved by 15.6 years. On the other hand, the country grapples with challenging macro-economic fundamentals: a high deficit (19.6% of GDP, 2016), high public debt levels (65.7% of GDP, 2016), a narrow economic and tax base, weak public financial management systems, vulnerability to external shocks due to a high dependence on fisheries and tourism sector (combined at over 30% of GDP), and increased environmental vulnerability due to climate change. The country’s graduation to middle-income status in 2011 has also resulted in a decline of development aid, of around 60% over a 10-year period since 2006.
In this context, how can the Maldives source the finance it needs to meet the UN’s Sustainable Development Goals (SDGs)? And what opportunities are offered by new innovative financing models?
UNDP’s work in the Maldives focuses on addressing democratic governance, gender and climate change challenges. The work also includes assisting the government in improving its access to finance through initiatives such as Tax Inspectors Without Borders which was recently launched in the country and helps tax administrations build their tax audit capacities. This, in turn, helps to mobilize domestic public resources. The recently elected new government's strong commitment to the SDGs will strengthen these efforts.
What can be done? One, as a Muslim country, Islamic financing instruments (Shariah law compliant financial products) like ‘Green Sukuk,’ have significant potential in the Maldives. Earlier this year, Indonesia launched the first sovereign ‘Green Sukuk’, which was oversubscribed, and indicative of the growing market demand for sustainable and responsible investments. Zakat funds (a form of philanthropy where followers of Islam are encouraged to donate at least 2.5% of their accumulated wealth) are another pool of resources that could be strategically tapped into. In May 2018, the Maldives began accepting Zakat proceeds, to support health and livelihoods programmes, however, much remains to be done.
Two, the country could seek to leverage additional finance from the private sector through blended finance (combining public and private investment) and impact investment (investing to generate impact alongside a financial return) in the major sectors of sustainable tourism and fisheries, as well as agriculture and renewable energy. The Maldives could tap into assistance from initiatives such as the SIDS-DOCK sustainable energy initiative for example, that help small island developing states to connect with the global market for finance to transform their national energy sectors into a catalyst for sustainable economic development. Additionally, UNDP is developing several social impact bonds worldwide, that bear potential for replication.
Three, the ‘Blue Economy’ is gaining momentum. The concept refers to a development approach in which ocean resources are harnessed for economic growth while preserving ocean and coastal ecosystem health. It includes economic activities such as marine renewable energy, sustainable fisheries, better management of ocean waste and ocean-related eco-tourism. To finance blue economy investments, new finance models can be explored, such as blue bonds (tapping into capital markets to fund ocean-related environmental projects). Other innovative ‘blue’ financing instruments include blue insurance, to co-finance and discount premia if marine economy protection measures are taken.
There are examples to learn from. Grenada is the first country to develop a vision for ‘Blue Growth’ and to articulate a national ‘Masterplan’ for blue economic development. The Seychelles also champion the blue economy model: It recently announced the issuance of a 10-year blue bond to finance fisheries projects, making it the world’s first country to utilize capital markets for funding the sustainable use of marine resources. Best practices are shared through international events, such as the high-level global conference on Sustainable Blue Economy (26-28 November 2018 in Nairobi, Kenya) organized by the Governments of Canada, Japan and Kenya.
Additionally, the government needs to create an environment that better facilitates sustainable investment such as, strengthening institutions, improving transparency and good governance, improving the ease-of-doing-business, and building a strong policy framework for managing coastal and ocean resources, amongst others.
UNDP as a trusted development partner is assisting the Maldives on a wide portfolio of activities across climate change and governance, through technical expertise, policy advice, advocacy, knowledge sharing, and dialogue. However, it is crucial for the country to explore new innovative financing mechanisms to be able to achieve its development aspirations. As a small island developing state, the country needs to be supported to build capacities in these new financing models and approaches, to enable them to pull in new resources and build new partnerships for sustainable development.