The Maldives Monetary Authority (MMA) has expressed confidence in achieving positive economic outcomes despite recent challenges to the Maldivian financial system. This statement comes in response to the change of Maldives' credit rating from CCC+ to CC by international rating firm Fitch.
Addressing Fitch's decision, the MMA emphasized the importance of considering the country's economic growth, sustainability, and the strong strategic changes implemented by the Maldivian government. The central bank noted that the Maldivian economy is poised for continued growth, supported by the resilience of the tourism sector and other key industries.
According to MMA, tourist arrivals in August increased by 11% compared to the previous year, and bed nights rose by 7% between January and July. These developments have led the MMA to project a GDP growth of 4.9% and a national productivity increase of 6.5% for this year. The balance of payments current account deficit is also expected to improve, decreasing to 19.9% in 2024 from 21.4% in 2023.
The MMA reported that official reserves stood at USD 395 million for the first seven months of this year, with usable reserves at USD 45 million. Including USD 100 million in swaps from the Reserve Bank of India, total reserves amounted to USD 594 million. The central bank highlighted that this brings the usable reserves to USD 129 million, reflecting efforts to bolster the reserves after the previous government had withdrawn funds from the Sovereign Development Fund (SDF).
The SDF, which had been reduced to USD 5 million due to custodian marking, has now increased to USD 65 million. Usable reserves stood at USD 105 million at the end of the first seven months of the year, and the MMA expects to boost this amount to over USD 606 million by the end of the year, including both SDF and usable reserves.
In a bid to improve the fiscal situation, the MMA is working with the government to issue a refinance green bond. The central bank also announced the completion of technical work for a USD 400 million foreign currency swap arrangement with the Reserve Bank of India under the SAARC framework, with the agreement currently in the signing process.
The MMA acknowledged that maintaining exchange rate stability in the foreign exchange market is challenged by surplus liquidity in the banking system due to money printing. To address this, the MMA has decided to adjust its monetary policy instruments to ease foreign exchange liquidity challenges faced by commercial banks operating in the Maldives.
The central bank reiterated its confidence that the government's medium-term fiscal and debt strategy, which aligns with spending cuts and revenue increases, will achieve the desired outcomes. The MMA believes that through the combined efforts of the MMA, the Ministry of Finance, and other government entities, the challenges facing the financial system can be successfully overcome.