The Maldives Monetary Authority (MMA) has stated that loan repayment expenses from the official reserve have increased by 60% compared to last year, following the implementation of the Foreign Currency Law.
One of MMA’s main responsibilities is to formulate and implement the country’s monetary policy. Sharing the measures taken to implement this policy over the past year, the central bank said that positive changes have occurred in the official reserve.
The official reserve is an important criterion considered by credit rating agencies in determining the Maldives’ credit rating. The MMA emphasized the need to maintain an adequate level of reserves. The central bank said that after COVID-19, despite the tourism industry slowing down and significantly affecting foreign currency income, tourism has been recovering and income increasing since 2021. However, this did not positively impact the reserve, and pressure on the rufiyaa exchange rate or the dollar value increased, according to the MMA.
Official Reserve Declined After COVID-19
The central bank said that expenses for oil have increased since 2022. Under the foreign currency selling policy, the proportion of foreign currency sold was 33% in 2022, but increased to 49% last year, according to the MMA. They also noted an increase in dollar sales to SOEs through banks and to businesses and the public for their needs.
As a result, the reserve has been declining since 2021, falling to $371.2 million in September 2024, as noted by the MMA. With the decline in state reserves, the debt-to-GDP ratio has increased over the past years, making it difficult for the government to obtain foreign aid in the last two to three years, the MMA said.
With the state reserve so low, the MMA took measures to address this, resulting in an increase in the official reserve. The amount rose to $832.4 million last June, according to the MMA. With positive changes to the official reserve, foreign rating agencies have maintained the Maldives’ most recent credit rating without changes. MMA statistics show that as the reserve amount increased, expenses for debt repayment also increased.
Reasons for Reserve Increase:
- Increase in foreign currency income from tourism
- Implementation of the Foreign Currency Law
- Currency swap signed with the Reserve Bank of India under the SAARC Framework
As the number of tourists visiting the Maldives increases year by year, foreign currency income also increased last year. As a result, foreign currency income up to July this year has increased by 30% compared to last year, according to central bank statistics.
Under the Foreign Currency Law, 90% of dollars remitted to banks are sold to the MMA. Of this, 50% is used to strengthen reserves and for debt repayment and purchasing essential goods. The remaining 40% is sold to banks weekly for distribution to businesses. Since the law’s implementation in January this year, the MMA has received $247.2 million from dollars remitted to banks, according to the central bank.
Additionally, state debt repayments have increased. By the end of July this year, $212.6 million was spent from the reserve for debt repayment alone. This is a 60% increase compared to the same period last year. The central bank’s statistics also show that $274.3 million was sold to STO during this period for importing oil, staple foods, medicine, and medical equipment.
The central bank aims to increase the proportion of dollars sold to banks from foreign currency received through the Foreign Currency Law to 50%.
