Male, Oct 20 (PTI) The dollar-hungry Maldives has launched new foreign currency regulations, limiting the types of transactions allowed in foreign currencies and imposing mandatory exchange controls on tourist establishments and banks.

The Maldivian economy appears to have taken a hit after calls for Indian tourists to avoid the picturesque island nation in response to President Mohamed Muizzu’s “India Out” campaign last year.

The Maldives avoided a possible default on an Islamic bond last month after India provided a $50 million interest-free loan.

With its foreign exchange reserves falling short of its import bill, the island nation’s central bank, the Maldives Monetary Authority (MMA), introduced new regulations on October 1 requiring that all foreign exchange earnings generated by the tourism industry be deposited in local banks.

MMA, which imposed a strict dollar limit in August as the Maldives faced a dollar shortage, published the new rules in the local language, Dhivehi.

The Foreign Currency Regulations (Regulation No. 2024/R-91) stipulate that all transactions in the Maldives must be carried out in Maldivian Rufiyaa (MVR), except those explicitly permitted in foreign currencies.

It also provides that the payment of goods and services, the value of works, fees, charges, rents and salaries be made in local currency and prohibits the invoicing of these transactions in foreign currencies, according to the new regulations and the FAQ published by MMA.

Exempt transactions include payments for exports, international transactions, remittance service providers, and those legally required to settle in U.S. dollars.

All proceeds from sales of resorts and guest houses, etc., must be deposited into the foreign currency account held in an approved bank in the Maldives, as per the rules.

Additionally, each resort, tourist vessel or tourist establishment operator (among others) must exchange a minimum of USD 500 in MVR per tourist (through a licensed bank in the Maldives), the proceeds of which can be used by the tourist operator for its operations. .

Failure to comply with the regulations can result in a fine of between MVR 5,000 and MVR 1,000,000.

The Maldives’ debt is estimated at 110 percent of its gross domestic product. While Fitch Ratings estimates that the country’s total external debt obligations will increase to $557 million in 2025 and to $1 billion by 2026, Moody’s estimates that its total external debt obligations will be between 600 and $700 million in 2025.

The International Monetary Fund (IMF) has also warned of a potential debt crisis.

The new MMA rules require providers of tourism goods and services to register with the central bank within 30 days.

Foreign exchange earnings must be deposited into a local bank’s foreign exchange account, registered with MMA, within 87 days of the end of each month.

The regulation specifies that transactions within the country must be carried out in Maldivian rufiyaa, with certain exceptions.

Any transaction made in foreign currencies outside the exempt categories will be subject to fines ranging from MVR 10,000 to MVR 1 million.

This is the first time that the Maldives, which welcomed 1.8 million tourists last year, has made such an exchange compulsory.

The MMA expects the new regulations to result in an increase in foreign exchange from the tourism sector.