Abandoning control of the US dollar exchange rate in the Maldives will not be in the best interest of the people, Governor-designate to the Maldives Monetary Authority (MMA), Ahmed Munawar has explained, adding that more ways to retain and circulate the currency within the local banking system should be found.
Munawar made his comments in response to a question from Ahmed Azaan Marzooq, the Member of Parliament (MP) for Central Hithadhoo, during a meeting of the Public Accounts Committee of the Parliament on Monday. Marzooq queried President Mohamed Muizzu’s nominee for Governor about releasing central bank controls on the US dollar exchange rate.
“The fixed exchange regime is still important for the Maldives at the moment. It is the mechanism of foreign exchange inflows to the Maldives. If floated, it will be a huge challenge for the MMA to manage stability to deliver [maximum] benefits to the people… The exchange rate saw a change in 2009/2010, with the advice of the IMF [International Monetary Fund]. People did not benefit greatly from the change. Such changes have to be made after adjustments have been implemented in terms of macro balances,” he said.
While the Maldives is heavily dependent on the tourism industry and local banks should build their capacity to provide sufficient loans for resort development, some businesses currently seeking loans have had to maintain their accounts in foreign banks until the loans are repaid, he said.
“We cannot use the law to force businesses to bring the money in. The Maldives does not have banks that provide this service. If development banks and international banks can be brought in to provide this service, they [businesses] will want to deposit money [locally],” he said.
Foreign investment will increase through ‘pro market’ or more business-friendly approaches, he said.
He noted that, while tourists spend a lot of money via credit cards, the benefits of those are mostly going to neighbouring countries. Card operations can be established locally and the MMA is already working to add to their ‘Favara’ services, he said.
“Expatriates are remitting US$580 million every year. This is sending a lot of funds overseas. Expatriates need to be regulated within the [financial] system. Expatriates will be needed as the economy expands,” he said.
Noting that expatriates are involved in the parallel US dollar market, he commented that US dollars are sold via the black market through some resort or business. Munawar stated that such activity should be stopped.
“Currency exchange licences should be further strengthened and existing licenses should be further reviewed. Curreny exchanges should be properly maintained to the extent that the MMA can monitor them,” he said.
US dollar stagnation is a major problem in the Maldives with the exchange rate controlled, by the MMA, at MVR 15.42 to US$1. Many, however, have to resort to purchases from the black market where prices have been known to fluctuate between MVR 16 and MVR 19 per US$1.
Even as economists and observers have called for regulatory changes to address the issue and eliminate the parallel black markets, a comprehensive solution remains elusive, with the MMA also coming under fire for a perceived lack of adequate action in comprehensively addressing the issue.
Munawar, during the Public Accounts Committee vetting process, also stated that, while he would not be a hindrance to efforts that will benefit the Maldivian people, he would offer his opinion, express his dissatisfaction, and, should matters call for such action, resign in the event the administration attempts to push through measures that work against greater national and public interests. He will not accept the practice of debt monetisation at the behest of the administration and believes laws need to be changed in order to facilitate business growth and increase the amount of money in circulation within the banking system, he said.
The Public Accounts Committee, after Tuesday’s sessions, decided to move forward with approving President Muizzu’s nomination of Munawar as Governor. The appointment will next be put to a floor vote in Parliament, where the legislature will debate the issue and cast their votes for or against.
Munawar has previously, from 22 June 2016 to 16 November 2018, served as the Minister of Finance during the Abdulla Yameen Abdul Gayoom administration. He has also been an advisor to the Minister of Finance under the current administration.