The growing dollar shortage in the Maldives has raised alarm among several commodity import businesses operating in Male’ today, after at least one bank ceased to allow the free transfer of rufiya into dollar accounts.
“The problem we have is that local buyers pay us in rufiya, but our bank has now stopped allowing us to transfer this into our US dollar account,” the manager of one enterprise told Minivan News today.
“Our overseas suppliers have to be paid in dollars. How are you meant to run a business in this place? Surely they can’t go on like this?”
The Maldives grapples with a foreign currency deficit due to a heavy import-export imbalance. Goods from overseas must be purchased with foreign currency, but the Maldives has little ability to earn this outside the resort industry.
This industry typically pays salaries in local currency, while commercial banking is conducted outside the country. As a result the wider Maldives economy sees few of the dollars that tourists bring into the country, aside from what tourists spend in local shops and the little that can be extracted from a compliant bank.
“Currently the resort owners and wealthy businessmen bank overseas,” Press Secretary for the President Mohamed Zuhair explained, adding that this was largely due to a lack of trust in the local banking system.
“There is a lack of trust in the government, insecurity, and fear of things like seizure,” Zuhair said, noting that the government was “trying to promote that trust.”
An unwillingness among the banks to sell dollars for local currency does little to promote this confidence, with many banks imposing withdrawal limits even on dollar accounts. Earlier this week local media reported that average daily withdrawal limits had fallen from US$500 to US$200, effectively denying account holders access to their own money.
This, and a distrust of the banks, leads many Maldivians keep their savings privately – effectively ‘under-the -mattress.’
“A lot of money that should be in circulation is not being circulated, because people keep their savings privately,” Zuhair explained.
Companies forced to deal with suppliers in dollars are compelled to use the black market, which currently sells at Rf13.5-13.35 to the dollar (the rufiya is pegged at 12.85), making access to foreign exchange a matter of ‘friends and connections’. Most people with a local mobile phone will have received circulated text message appeals for dollars in the event of a emergency requiring air travel and overseas hospital fees.
Large currency events such as the donation of Rf9 million in relief aid to Pakistan have a further impact, with one government official observing to Minivan News that the quantity of money raised to assist Pakistan flood victims had reached a size where it would have a visible effect on the economy, even if enough dollars were to be found.
“Given the small size of our economy that amount of money will have an impact. It doesn’t make a difference that it is in dollars,” he said.
“On the one hand we have a currency situation to manage, on the other hand there is a humanitarian cost. Neither answer is politically correct.”
Zuhair noted that the country’s foreign currency income was pegged to foreign grant assistance and foreign investment, “both of which are improving.”
“The government has forecast it will receive $90 million this year in donor pledges, soft loans and grants, which I believe will improve the situation.”
Banks have increased the debit limit imposed on Maldivians travelling overseas, from US$200 to US$600, he said.
Moreover, the dollar shortage was seasonal and typically at a peak before the tourism industry’s high season, he said, due to begin in the next couple of months as winter hits Europe.
But for companies buying in dollars and selling in rufiya, the inability to trade legally in currency is hardly an incentive for further investment. Such companies are forced to rely on the unpredictable black market – or bank overseas, and perpetuate the problem.