Several pro-government news outlets have been reporting in the past three daye that the State’s foreign currency reserves have grown larger than it ever had in recent memory. Pro-government activists claim that this was evidence of the “economic boom” which the President had promised and had wisely brought about.
According to data published by the Maldives Monetary Authority (MMA), the State’s reserves had accumulated USD$ 984.8 million.
Although the MMA no longer publishes details on how much of these reserves are usable, estimating the value of usable reserves from the MMA’s published statistics is straightforward.
According to the MMA’s datasheet, the State’s usable reserves amount to USD$ 173 million, as of December 2020. This is an amount sufficient for approximately three months' worth of imports into the country.
The remaining USD$ 811.8 million is not usable.
The State's foreign currency reserves amount to USD$ 629.9 million by the end of November. The value quickly shot up to USD$ 984.8 million in December. It would seem unlikely to any casual observer that the Maldivian economy, still struggling through the COVID 19 pandemic, did so well as to bring in some USD$ 300 million into the foreign reserves.
The sudden spike came about when the MMA had received USD$ 250 million through the currency swap agreement that the Maldives had signed with India.
A currency swap is not "free money", but rather a loan that is to be repaid with interest.
India had paid USD$150 million back in April, which had bumped the national foreign currency reserves up to USD$ 889.6 million. Even then, the usable reserves had amounted to USD$ 227.4 million.
Over the past year, the State's foreign currency reserves appear to have spiked only in April and December.
As of December 2020, the State's usable reserves are no more than USD$ 173 million, which is a 45% drop from what it had been at the end of December 2019 when the State had had a usable reserve of USD$ 314.9 million.
The main channel for the inflow of foreign currency for the Maldives has been tourism, on which the country is over-dependant. Once the high-season passes, it is likely that the current shortage of United States dollars would still remain.
The MMA's foreign currency plays an important role in maintaining the exchange rate and in providing foreign currency for imports. A reduced usable reserve would result in reduced imports.
Depending on Indian loans to fill in the gaps in the foreign currency reserve is not a sustainable economic policy. However, even if the USD$ 400 million limit on the Indian loans has been passed, the MMA is currently considering extending the repayment period, according to sources.
The main reason for the depletion of the foreign reserve has been the COVID-19 pandemic. The collapse of the tourism industry in the Maldives in 2020 severely reduced the amount of foreign currency that flowed into the country, thereby depleting the reserves.
The depletion is unavoidable.
However, the government's attempts to push a narrative of flush reserves and an imminent boom is highly deceptive.
When the media help to further push this narrative with headlines claiming that foreign currency reserves are at a record-high, several people are confused as to why the Bank of Maldives still maintains a USD$ 250 cap on foreign currency transactions, and why people have to resort to buying United States dollars on the black market at MVR19.30 to USD$1.
Even though the Solih Administration had claimed that an "economic boom" is imminent, and even though the government and the media outlets they sponsor attempt to push a deceptive narrative of a healthy economic recovery: the difficult truth is that the Maldivian economy is in dire straits. The situation is likely to get worse after the tourism high-season passes.
The reserves are depleted, and the reserves are being replenished by accumulating debts from India. These are not signs of a healthy economy, and there may only be very few who would believe otherwise.