Maldives is heading towards crisis, says former FM as usable dollar reserves run out

Amid reports of usable dollars running out, Maldives’ former Finance Minister Ibrahim Ameer on Sunday said that Male was heading towards failure and that the root cause of the island country’s current financial crisis was relying on expected revenues. Ameer said credit rating agencies such as Fitch and Moody’s were likely to downgrade Maldives’ credit ranking soon.

The former finance minister also alleged the Muizzu government makes decisions based on the response they get at negotiations to raise money. The government “does not understand” the diplomatic responses, he said. “The state’s fiscal policy and financial affairs cannot be shaped that way. This is what will happen if we leave the affairs of this country to depend on the expected revenue of MVR 16 billion,” he said, adding that the government has now realised that things are not going well.

Earlier this week, it was reported that the state’s usable dollar reserve had run out just days after the Maldives Monetary Authority (MMA) sent a warning letter to the Finance Ministry. This is the first time in the country’s history that the reserves have fallen to minus, Male-based Adhadhu reported. 

Sources told Adhadhu that the usable dollar reserves were currently at a minus. The government had a $25 million oil bill due today (Aug 21) and that the reserves could run out and be at a minus if the bill was paid, an official had told Adhadhu. “If it reached minus, today the reserve reached a minus because of the $25 million oil bill. That payment cannot be delayed.” 

Days after this, the Bank of Maldives (BML) on Sunday blocked dollar transactions with Rufiyaa cards and reduced the limit of previously issued credit cards to $100. The country’s national bank said that these changes were effective immediately and were in response to the escalating usage of foreign currency spend on cards and the static sale of foreign currency to the Bank.

BML CEO and MD Karl Stumke said that this year, the national bank had purchased approximately $60 million in foreign currency from its customers, but card usage was three-fold higher than that. “The card usage impacts our ability to provide foreign currency support to our business customers and we have this anomaly where the Bank provides 75 percent less foreign currency to the economic sector than we do for discretionary spend on cards dominated by travel and online shopping. We have to get the mix correct and ensure we are not squandering a scarce resource.”

However, within hours, the BML reversed the decision based on instruction from the regulator.

Amid this flip-flop, former President Mohamed Nasheed called for more transparency in the state’s financial situation. The former Speaker said the people should be informed in clear terms how the financial situation has reached this point, what is expected to happen next and what is planned to be done to overcome it.

The former finance minister suggested that higher revenue expenditure caused the current crisis. “Without any reforms, hiring as many employees as they want for political purposes, paying them as much as they want, after saying companies have been mismanaged and then hiring even more staff to those companies. Everyone is watching this. International parties are watching,” Ameer said.