Maldives has implemented new regulations to tighten control over foreign currency transactions, particularly within its tourism sector in response to a critical shortage of foreign currency. The Maldives Monetary Authority (MMA) introduced the regulation on October 1, mandating that all foreign currency revenues generated by the tourism industry must be deposited in local banks. This policy aims to channel vital foreign exchange into the domestic banking system to ease the country’s ongoing dollar shortage.
Under the new rules, most transactions within the Maldives are restricted to the local currency, the Maldivian Rufiyaa (MVR), with few exceptions for specific international transactions. The regulation prohibits invoicing in foreign currencies for domestic transactions, including payments for goods, services, wages, and rent. Exemptions are granted for certain sectors, including exports, remittances, and specific legally required payments in US dollars.
Tourism operators, including resorts and guesthouses, must exchange a minimum of $500 per tourist into MVR through licensed banks for their operational needs. Non-compliance could lead to hefty fines, ranging from MVR 5,000 to MVR 1 million. This move follows an earlier decision in August by the MMA to cap dollar transactions as part of the government’s efforts to manage the foreign currency shortage.
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The Maldivian economy, already grappling with financial pressures, faces additional challenges from a growing debt burden and potential disruptions in its tourism sector. A recent call for Indian tourists to boycott the Maldives, in response to President Mohamed Muizzu’s ‘India Out’ campaign, has further strained relations with the country’s key tourism market.
Last month, the Maldives narrowly avoided defaulting on an Islamic bond payment with the help of a $50 million interest-free loan from India. With external debt estimated at 110 per cent of its GDP, the country is facing mounting repayment obligations. Fitch Ratings estimates that the Maldives will need to meet $557 million in debt payments by 2025 and $1 billion by 2026. Moody’s has issued a similar warning, while the International Monetary Fund (IMF) has flagged the possibility of a looming debt crisis.
The new regulation also requires tourism businesses to register with the central bank and deposit their foreign currency earnings into a registered local bank account within 87 days of the end of each month. This is the first time such stringent foreign currency controls have been imposed in the Maldives, which attracted 1.8 million tourists last year.
The MMA hopes the regulation will improve the availability of foreign currency from the tourism sector, providing a much-needed boost to the country’s economy.
