Maldives Central Bank Confident in Policy Reforms and Economic Recovery Amid Financial Challenges

The Maldives Monetary Authority (MMA) has expressed confidence in its ability to reform policies and achieve the desired economic outcomes, despite the ongoing challenges facing the country's financial system. In a recent press release, the central bank emphasized its commitment to working closely with the finance ministry, relevant government departments, and financial institutions to address the nation's economic issues.

The MMA's statement came in response to Fitch Ratings' recent adjustment of the Maldives' credit rating, highlighting the nation's financial vulnerabilities. To tackle these challenges, the MMA is preparing to extract surplus liquidity from the banking system to stabilize the Maldivian rupee's exchange rate. Additionally, the central bank is working to ease the foreign exchange liquidity challenges faced by commercial banks operating in the Maldives. The MMA's board has decided to make changes to monetary policy instruments to support these efforts.

The MMA also pointed to the positive outlook for the country's economy, driven by growth in tourism and other key sectors. As of August 27, the number of tourist arrivals had increased by 11% compared to the previous year. The central bank noted that the total number of bed nights from January to July 2024 had risen by 7% year-on-year, leading to an expected national output growth of 4.9% for the year. Looking ahead, the MMA projects a 6.5% growth in national manufacturing by 2025, largely due to the anticipated increase in tourist arrivals following the inauguration of the new terminal at Velana International Airport.

Despite the positive outlook, the MMA acknowledged the ongoing challenges related to the balance of payments and foreign exchange reserves. The balance of payments current account deficit was 21.4% in 2023 and is projected to remain at 19.9% in 2024. As of July 2024, the country's official reserves stood at USD 395 million, with usable reserves at USD 45 million. Total reserves, including a USD 100 million swap from the Reserve Bank of India, amounted to USD 594 million.

The Sovereign Development Fund (SDF) has also shown improvement, with US dollar holdings in custodian accounts rising from USD 5 million at the end of November 2023 to USD 65 million in July 2024. The MMA attributed this increase to the inclusion of dollars allocated for the SDF, bringing the total usable reserves to USD 105 million as of July 2024. The central bank projects that by the end of the current fiscal year, the country's official reserves, including usable reserves and sovereign development funds, will exceed USD 606 million, as outlined in the 2024 budget.

To further bolster the country's official reserves, the government and MMA are collaborating on the issuance of refinance green bonds. Additionally, all technical preparations have been completed for a USD 400 million foreign currency swap arrangement with the Reserve Bank of India under the SAARC framework, with the signing process currently underway.

The MMA remains optimistic that these efforts will lead to a strengthened financial position for the Maldives, enabling the country to navigate its current challenges and achieve long-term economic stability.