Dollar-starved Maldives has floated a new foreign currency regulation, limiting types of transactions allowed in foreign currency and imposing mandatory foreign currency exchange controls on tourism establishments and banks. Maldivian economy appears to have taken a hit after calls to Indian tourists to avoid the picturesque island nation as a response to President Mohamed Muizzu’s ‘India Out’ campaign last year.
Maldives last month averted a potential default on an Islamic bond payment after India extended a USD 50 million interest-free loan. With its forex reserves not matching its import bill, the island nation’s central bank, Maldives Monetary Authority (MMA) on October 1 introduced a new regulation, requiring all foreign currency income generated by the tourism industry to be deposited in local banks.
MMA, which had in August imposed a strict dollar limit as Maldives found itself in a dollar shortage, published the new rules in the local Dhivehi language. The Foreign Currency Regulation (Regulation No: 2024/R-91) mandates that all transactions within Maldives must be conducted in Maldivian Rufiyaa (MVR), except for those explicitly allowed in foreign currency.
It also provides for payment for goods and services, value for works, fees, charges, rent and wages be made in local currency and prohibits invoicing for these transactions in foreign currency, according to the new regulation and FAQ released by MMA.
Transactions exempt include payments for exports, international transactions, remittance service providers and those that are legally mandated to settle in US dollars. All realised sales proceeds of tourist resorts and guesthouses, etc, are required to be deposited to the foreign currency account held at a licensed bank in Maldives, as per the rules.
Also, every tourist resort, tourist vessel or tourist establishment operator (amongst others) have to exchange a minimum of USD 500 to MVR per tourist (through a licensed bank in Maldives), proceeds of which can be utilised by the tourist operator for their operations. Failure to comply with the regulation may lead to a fine of between MVR 5,000 and MVR 1,000,000.
Maldives’ debt is estimated at 110 per cent of its gross domestic product. While Fitch Ratings estimates the country’s total external debt obligations growing to USD 557 million in 2025 and USD 1 billion by 2026, Moody’s Ratings sees its total external debt obligations at about USD 600 million to USD 700 million in 2025.
The International Monetary Fund (IMF) has also warned of a potential debt crisis. The new MMA rules provide for tourism goods and service providers registering with the central bank within 30 days. The foreign currency earnings must be deposited into a local bank’s foreign currency account, registered with MMA, within 87 days after the end of each month.
The regulation specifies that transactions within the country must be conducted in Maldivian Rufiyaa, with certain exceptions. Any transaction made in foreign currency outside of the exempted categories will face fines ranging from MVR 10,000 to MVR 1 million.
This is the first time the Maldives, which saw 1.8 million tourist arrivals last year, has made such an exchange mandatory. The MMA expects the new regulation to lead to an increase in foreign currency exchanges from the tourism sector.
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