How a $400 Million Currency Swap is Transforming Maldives' Economy

Boosting Foreign Exchange Reserves

On Saturday, India expressed its contentment regarding the $400 million currency swap agreement with the Maldives, which has significantly bolstered the island nation's foreign exchange reserves.

The Indian High Commission in the Maldives made this announcement following Fitch's recent affirmation of the country's sovereign rating at 'CC', attributing this to the rise in Forex reserves.

In a statement shared on X, the Indian High Commission highlighted that the increase in the Maldives' FX reserves was primarily due to the $400 million drawdown from the currency swap between the Reserve Bank of India (RBI) and the Maldives Monetary Authority (MMA) in October 2024.

This currency swap has effectively mitigated immediate external liquidity pressures, as noted by Fitch's credit rating assessment for the Maldives.

Fitch indicated that the rise in FX reserves is a result of robust tourism revenues, the newly enacted Foreign Currency Act, which requires tourism-related businesses to convert 20% of their monthly foreign currency earnings, and the RBI's support, which has eased liquidity challenges.

Despite the growth in the tourism sector and the increase in gross FX reserves due to RBI assistance, the agency warned that ongoing external and fiscal vulnerabilities could complicate the Maldives' ability to manage its substantial external debt obligations in the coming year.

Fitch forecasts that the Maldives' fiscal deficit will expand to 14.5% of GDP in 2025, up from 14% in 2024, driven by high recurrent expenditures, particularly due to anticipated increases in public wages and delays in necessary fiscal reforms related to subsidies and healthcare spending, largely influenced by political factors.