The Maldives is taking urgent steps to address the current economic challenges and will be able to maintain an upwards trajectory, accumulating more than US$606 million in reserves by the end of this year, the Maldives Monetary Authority (MMA) has said.
While acknowledging that the nation’s credit rating had been downgraded by Fitch Ratings from CCC+ to CC, the MMA said on Thursday that maintaining the Maldives’ current pace and moving forward with sustainable development plans will bring about a positive economic shift.
The tourism industry, as well as other key industries, is growing, the central bank noted. The number of tourist arrivals as of 27 August increased by 11 percent over the same period last year with bed nights increasing 7 percent from January to July. GDP is expected to grow at 4.9 percent this year and 6.5 percent next year, with productivity expected to increase as the new passenger terminal at Velana International Airport (VIA), which opens later this year, is expected to further boost arrivals.
The balance of payments current account deficit is expected to reach 19.9 percent this year — it was at 21.4 percent in 2023.
Conditions that affected the official reserves over July last year and the same period this year were different, the central bank said, going on to details some considerations when making reserves comparisons.
According to the MMA, as of July-end this year, official reserves stood at US$395 million, with usable reserves at US$45 million. Total reserves over the same period last year stood at US$594 million—including US$100 million in swaps with the Reserve Bank of India—with usable reserves at US$129 million. This included funds apportioned to the reserves from the Sovereign Development Fund (SDF).
As per the central bank, the SDF’s US dollar account stood at a mere US$5 million at the end of November 2023, but this figure has now increased to US$65 million. The main reason attributed to the change was maintaining the principle that US dollars entering the Sovereign Development Fund should be held within the fund.
Total reserves as of July 2024 stood at US$105 million and are expected to increase to more than US$606 million by the end of the year, the MMA said.
The MMA is working with the administration to issue a refinance green bond, with a view towards increasing the nation’s reserves.
Meanwhile, all technical work on a US$400 million foreign currency swap arrangement with the Reserve Bank of India, under the SAARC framework, has been completed and is in the final sign-off process, the central bank said — Fitch, while addressing the Maldives’ most recent downgrade had also suggested a currency swap to address the country’s foreign exchange shortage.
According to the MMA, the surplus liquidity in the banking system averaged MVR 6.7 billion at the end of July. With the increased surplus liquidity in the banking system, monetary instruments have been used to mop-up the surplus from the banking system to mitigate the challenges of maintaining the exchange rate of the Rufiyaa.
The administration’s medium-term fiscal and debt strategy is expected to improve the country’s financial situation and despite the challenges facing the financial system, the MMA is confident that the joint efforts of the Ministry of Finance and relevant government ministries, as well as all financial institutions, will lead to the desired outcome, the central bank said.