The Maldives cannot transition to a market-driven, flexible exchange rate until usable foreign exchange reserves reach at least USD 1 billion, Maldives Monetary Authority (MMA) Governor Ahmed Munawwar stated today.
Responding to queries from South Hulhumalé MP Dr Ahmed Shamheed during a parliamentary budget review committee meeting, Munawwar cautioned that floating the Maldivian Rufiyaa under prevailing market conditions would trigger severe economic fallout.
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A primary obstacle, the governor explained, is that the central bank currently lacks effective control over the domestic foreign exchange market. Much of the currency flow remains dominated by external actors outside the official regulatory orbit.
“The reason we cannot float the currency right now is that the central bank does not dictate the foreign exchange market,” Munawwar told lawmakers. “A substantial share of the foreign exchange market remains in hands other than the MMA. Therefore, unless our usable reserves reach USD 1 billion, I would strongly advise against taking such a step.”
Munawwar, who previously served as finance minister, warned that floating the exchange rate prematurely would hit the public hardest, likely driving the open-market price of the US dollar to unprecedented heights.
To address the chronic shortage of foreign exchange, the central bank is formulating a comprehensive roadmap. Part of this strategy involves revisiting statutory arrangements so that certain tourism sector taxes can eventually be paid in local currency.
“Over the next two to three years, through consultation, we must decide whether some of these taxes should be payable in Maldivian Rufiyaa,” Munawwar noted. “I entirely agree with that proposition.”
The governor also reiterated the need for rigorous audits of luxury resort properties to help resolve currency bottlenecks. He highlighted that while the tourism sector generates roughly USD 5.9 billion annually, only about USD 3.8 billion actually flows through the domestic banking system.
Emphasising that every dollar generated within the economy ought to be captured by local financial institutions, Munawwar confirmed that the central bank is tightening its surveillance framework to enforce greater repatriation of foreign earnings.
