President says 40% dollar conversion rule won't cause difficulty for resorts

President Mohamed Muizzu on Monday said resorts will not face difficulty meeting the new requirement to convert 40 per cent of their monthly foreign currency revenue through local banks, rejecting concerns that the measure could affect loan repayments, salaries and operating expenses.

Muizzu made the remarks after ratifying amendments to the Foreign Exchange Act passed by Parliament last Wednesday. The amendments will take effect on Tuesday.

Speaking at a ceremony at the President’s Office where seven bills were ratified, Muizzu said the 40 per cent requirement was introduced after research and technical assessments.

“This change was brought after thorough research. This wasn’t done on a whim. Highly educated, technical, and competent experts carried out all the work on this,” Muizzu said.

“I want to state with utmost respect that we know with absolute certainty that exchanging 40 per cent will cause no difficulty for resorts. Surrendering 40 per cent will not hinder paying off resort development loans, employee salaries, or operational expenses. That is a certainty.”

The President said increasing the amount of foreign currency entering the banking system would allow more dollars to be used for imports and other domestic requirements.

According to figures cited by Muizzu, the tourism industry generated USD 5.6 billion last year, while USD 3.8 billion entered the Maldivian banking system. He said 21 per cent of the foreign currency was deposited with banks.

Muizzu said foreign currency obtained through the 40 per cent conversion requirement would be used by banks to issue telegraphic transfers for imports, including essential goods.

He also said foreign currency was being traded in the parallel market at rates above the official exchange rate because dollars remained outside the banking system.

Under the amended Foreign Exchange Act, resorts must convert 40 per cent of their monthly foreign currency revenue through local banks by the 28th day of the following month.

The amendment removes the previous option for resorts to meet their obligation by converting USD 500 per tourist. The earlier revenue-based conversion requirement was 20 per cent.

Tourist hotels and guesthouses will be required to convert either USD 25 per tourist or 20 per cent of their monthly foreign currency revenue.

Businesses outside the tourism and financial sectors earning at least USD 15 million annually in foreign currency will also be subject to a 40 per cent conversion requirement. For businesses that are fully Maldivian-owned and fall within the relevant requirements, the conversion rate is set at 7 per cent.

The amendments also introduce penalties for selling or attempting to sell foreign currency outside rates or trading bands determined by the Maldives Monetary Authority (MMA). Fines range from MVR 25,000 to MVR 1 million.

Advertising or promoting exchange rates outside those set by the MMA can result in fines ranging from MVR 25,000 to MVR 500,000 for individuals. Legal entities and registered businesses that publish or disseminate such rates can face fines ranging from MVR 100,000 to MVR 5 million.

Businesses providing foreign currency exchange services will also be required to obtain a licence from the MMA and operate through authorised accounts.

The Maldives Association of Tourism Industry (MATI) has raised concerns over the 40 per cent conversion requirement, arguing that resorts have foreign currency obligations including salaries, service charges, supplies, fuel, logistics, taxes, land rent and loan repayments.

Muizzu, however, said on Monday that the government was certain the requirement could be met without affecting resort operations or their financial obligations.