The Maldives has implemented new regulations to strengthen controls on foreign exchange transactions, particularly in the tourism sector, in response to a critical shortage of foreign exchange. The Maldives Monetary Authority (MMA) introduced the regulation on October 1, requiring all foreign exchange earnings generated by the tourism industry to be deposited in local banks. The policy aims to channel vital foreign exchange into the domestic banking system to alleviate the country’s current dollar shortage.

Under the new rules, most transactions in the Maldives are limited to the local currency, the Maldivian Rufiyaa (MVR), with some exceptions for specific international transactions. The regulation prohibits invoicing in foreign currencies for domestic transactions, including payment for goods, services, salaries and rent. Exemptions are granted for certain sectors, including exports, remittances and specific legally required payments in US dollars.

Tourism operators, including resorts and guest houses, must exchange a minimum of $500 per tourist in MVR through licensed banks for their operational needs. Failure to comply with these rules could result in hefty fines, ranging from MVR 5,000 to MVR 1 million. The move follows an August decision by the MMA to cap dollar transactions as part of the government’s efforts to manage the foreign exchange shortage.

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The Maldivian economy, already grappling with financial pressures, faces additional challenges from a growing debt burden and possible disruptions in the tourism sector. A recent call for Indian tourists to boycott the Maldives, in response to President Mohamed Muizzu’s “India Out” campaign, has further strained relations with the country’s main tourist market.

Last month, the Maldives narrowly avoided defaulting on an Islamic bond thanks to a $50 million interest-free loan from India. With an external debt estimated at 110 percent of its GDP, the country faces increasing repayment obligations. Fitch Ratings estimates that the Maldives will need to repay $557 million in debt by 2025 and $1 billion by 2026. Moody’s has issued a similar warning, while the International Monetary Fund (IMF) has flagged the possibility of a looming debt crisis.

The new regulations also require tourism businesses to register with the central bank and deposit their foreign exchange earnings into a registered local bank account within 87 days of the end of each month. It is the first time such strict foreign currency controls have been imposed on the Maldives, which attracted 1.8 million tourists last year.

The MMA hopes that the regulations will improve the availability of foreign exchange from the tourism sector, thereby providing a much-needed boost to the country’s economy.