The newly enacted Foreign Exchange Act (Forex Act) has provided a much needed boost to Maldives' foreign currency reserve, central bank figures have shown.
The new law was designed to mitigate the ongoing foreign currency shortage in the Maldives came into effect from 1 January.
The new law, which mandates tourism facilities to exchange a portion of their foreign earnings through local banks was ratified by President Dr Mohamed Muizzu in December.
According to the figures shared by Maldives Monetary Authority (MMA), tourist establishments had exchanged over USD50 million in the first month.
Over 90 percent of tourist resorts have complied with the new law, MMA said.
MMA said the country's official reserves have also improved with a large amount of foreign currency being exchanged to local banks.
In that regard, MMA said the official foreign reserve by the end of January was at USD708.1 million which is a five percent increase from the previous month.
In addition, the country had also recorded a 12 percent increase in tax and other revenue during the period, MMA added.
The law has introduced a framework for businesses operating under Maldivian law to exchange foreign currency obtained from realised sales proceeds. These businesses are required to exchange their foreign currency with banks operating in the Maldives, which, in turn, must sell a specified percentage of these exchanges to the MMA.
Businesses are mandated to register at the MMA and submit regular sales reports on guests.
The law aims to establish clear guidelines for managing foreign currency transactions in the Maldives and regulate currency exchange practices. The legislation mandates that all domestic transactions must be conducted in Maldivian Rufiyaa, prohibiting the use of foreign currencies except under specific circumstances defined by law.
It also forbids charging Maldivian nationals for any services provided or acquired within the Maldives in any currency other than the Rufiyaa.
Based on their operations and revenue, businesses are categorised into three distinct groups and must exchange foreign currency as follows:
• Category A: Establishments such as resorts, integrated tourist resorts, private island resorts, resort hotels, or any such business that falls under this category must exchange either USD500 per tourist per month or 20 percent of their gross monthly sales with banks.
• Category B: Establishments such as tourist hotels, tourist guest houses, and tourist vessels are required to exchange USD25 per tourist per month or 20 percent of their gross monthly sales with banks.
• Category C: This category includes businesses not falling under Categories A or B but with annual sales or purchase transactions exceeding USD15 million in foreign currency; they must exchange 20 percent of their gross sales with banks.
The Act further requires businesses operating in the tourism sector or those exceeding the USD15 million thresholds in foreign currency transactions annually to register with the MMA and transfer their realised foreign currency sales proceeds to a local bank.