MDP warns Maldives economy faces risk of collapse amid dollar shortage

The opposition Maldivian Democratic Party (MDP) has warned that the Maldives economy faces a risk of collapse, citing low foreign currency reserves, continued dollar shortages and what it described as the absence of a government plan to address the situation.

In a statement issued on Thursday, the MDP raised four main concerns: the impact of the foreign currency shortage on Maldivian businesses, declining investor confidence, the need for economic and fiscal reforms, and the risk to the wider economy.

The party said the dollar shortage was affecting businesses ranging from resorts and importers to contractors, shops and home-based businesses.

It also argued that sudden changes to policies under which investors had entered the Maldives, including changes introduced without consultation, could reduce investor confidence and affect future investment.

The MDP said reforms were required to address the country's economic position, but accused the government of failing to introduce the measures it considered necessary.

“With reserves this low, dollars unavailable and no plan in place, the Maldivian economy faces the real prospect of collapse,” the party said.

The MDP said large external debt repayments had placed pressure on the country's foreign currency reserves. It referred to the repayment of a USD 400 million currency swap facility with the Reserve Bank of India and the maturity of a USD 500 million sukuk in April, as well as the repayment of the USD 150 million State Bank of India Treasury Bill facility.

The party cited figures showing gross official reserves at USD 718 million in April, equivalent to about 1.4 months of imports.

It also cited two estimates for usable reserves. According to the statement, Fitch's measure placed usable reserves at USD 244 million, while the World Bank's measure put the figure at USD 148 million. The MDP said these levels represented between nine days and two weeks of import cover.

The party argued that the government was attempting to address the foreign currency shortage by increasing the amount of foreign currency obtained from businesses earning dollars.

It criticised the requirement for resorts to convert 40 per cent of their monthly foreign currency revenue through the domestic banking system, as well as tax changes applying to overseas tour operators and booking platforms.

The MDP said more than 600 tour operators had raised concerns over the tax changes, with some warning that they could stop promoting the Maldives and shift business to other destinations.

“These measures place difficulties on the main industry bringing foreign currency into the Maldives and reduce confidence in investing in the Maldives,” the statement said.

The party also challenged government claims that the unofficial dollar exchange rate had fallen to around MVR 19.

The MDP argued that the decline was the result of regulatory measures governing foreign currency trading rather than an improvement in foreign currency availability.

It referred to penalties for unauthorised foreign currency trading and requirements imposed on licensed money changers regarding the rates at which dollars can be bought and sold.

“The dollar rate has fallen because of these measures and instructions. It is not because the country's foreign currency position has improved,” the MDP said.

The party said that although the government was receiving more dollars from foreign currency-earning businesses, businesses were continuing to face difficulties obtaining foreign currency through the banking system.

According to the MDP, uncertainty over when foreign payments will be processed and whether dollars will be available has made it difficult for businesses to plan ahead.

It said some businesses were unable to make payments to overseas suppliers, resulting in shipment delays. Small and medium-sized businesses without their own dollar income were among those most affected, the party said, adding that the effects could ultimately be reflected in consumer prices.

The MDP also pointed to restrictions on overseas card and e-commerce transactions, saying the foreign currency shortage was affecting households as well as businesses.

It blamed the economic situation on what it described as government spending, financial mismanagement and corruption. These allegations were not independently established in the statement.

“This crisis is the result of the government's own failures,” the MDP said.

The party said measures introduced in the name of stabilising the economy were creating additional difficulties for businesses and the public, while arguing that the government had yet to present a long-term economic plan to address the foreign currency shortage.

The government has rejected claims that the Maldives is heading towards bankruptcy. Economic Development Minister Mohamed Saeed has said the government’s measures have helped reduce the unofficial dollar rate and that efforts to address the foreign currency situation will continue.