New foreign exchange rules with reforms will be positive, governor says

Governor Ahmed Munawwar said on Tuesday that the positive impact of the changes in foreign exchange regulations will start to be seen when the fiscal policies are also changed and the government starts implementing its plans.

Speaking on PSM's Raajje Miadhu programme, he emphasised that the full impact of these changes will materialise once the government aligns its fiscal policies with the new monetary framework.

The central bank has introduced two key rules aimed at enhancing the circulation of foreign exchange and alleviating current difficulties in the market.

Munawwar highlighted that the previous administration's approach—printing MVR 8 billion—has contributed to an excess of MVR 5-6 billion in circulation compared to the dollar, creating challenges in the banking system.

“Our goal at the Maldives Monetary Authority (MMA) is to address this surplus Rufiyaa under a unified monetary policy,” Munawwar said.

He revealed plans for an active monetary policy by November, which will include the launch of an open market operation. This move aims to regulate the excess liquidity that has accumulated in the banking sector.

Current statistics show that only 25% of the foreign exchange entering the Maldives is channeled through banks, while the remaining 75% is held through alternative means. This disparity indicates a significant opportunity for enhancing the efficiency of foreign exchange management in the country.

Munawwar underscored the importance of aligning macroeconomic strategies, stating, “The key challenge is to ensure government expenditures are met with adequate revenue.”

He believes that the recent changes will contribute to a more stable macroeconomic framework, essential for sustainable growth.

However, he cautioned that merely adjusting monetary policy will not suffice. Comprehensive reforms are needed in fiscal policy, including targeted subsidies, the reform of the Aasandha health insurance system, and restructuring government enterprises.

Munawwar expressed hope that a coordinated approach between monetary and fiscal policies will effectively address the ongoing economic issues in the Maldives.