Recent data released by the Maldives Association of Travel Agents and Tour Operators (MATATO) projects increases in tourism revenue, spotlighting the potential for significant economic growth in the Maldives. However, a closer examination reveals a critical challenge: a substantial portion of this income fails to circulate within the local economy, exacerbating a dollar shortage crisis.
The Maldives anticipates earning approximately US$1.02 billion in state revenue from tourism in 2024, based on an occupancy rate of 77 percent across 61,518 operational beds and an 11.6 percent increase in tourist arrivals.
Despite these optimistic revenue projections, the Maldives currently faces a severe US dollar shortage, with banks struggling to process overseas payments, and the current administration struggling to deliver on a pledge of increasing the limit of USD transactions for students studying abroad.
In October 2024, Member of Parliament (MP) for Kendhikulhudhoo, Ahmed Easa highlighted during a parliamentary debate on amending the tourism act that even though the Maldives earns an estimated US$4-5 billion a year from tourism, less than 20 percent of this sum circulates within the Maldivian economy. A significant factor contributing to this issue is the practice of remitting a large portion of room sale revenues to foreign bank accounts by resort owners or operators, limiting the local benefits of foreign exchange earnings.
To mitigate these challenges, Easa proposed legislative reforms aimed at retaining more foreign exchange earnings within the country. These include requiring businesses to deposit foreign currency income in a Maldivian bank before any remittance abroad and mandating a certain period for keeping foreign currency in local banks. Such measures, he argues, are necessary to close loopholes that currently allow for the rapid outflow of funds, thereby denying the local economy the full benefits of its primary revenue source.
President Mohamed Muizzu, during his campaign trail, acknowledged the adverse effects of inadequate foreign currency retention on the national economy, including the exacerbation of dollar shortages and the proliferation of black market activities.
He committed to legal and regulatory changes ensuring that a portion of the dollar revenue from tourism is circulated within the Maldivian financial system, a move seen as critical to addressing current fiscal challenges.
Amid these discussions, MATATO has expressed its concerns about the ongoing dollar crisis, underscoring the urgency for administration action to stabilise the economy. MATATO’s warnings about the negative impact of the dollar shortage on the tourism sector and the broader economy add a layer of urgency to the calls for legislative and regulatory reforms.
The association’s emphasis on the need for immediate interventions to support local businesses and promote sustainable economic growth aligns with the broader discourse on enhancing the economic benefits of tourism for the Maldives.
This situation highlights a pivotal moment for the Maldivian executive and regulatory bodies to implement strategic measures that will not only address the immediate concerns raised by MATATO, and others, but also ensure that the projected increase in tourism revenue translates to tangible benefits for the local economy.