The MVR 8 billion remittance 'trap'

The amount of money slipping out of the economy due to foreigners is increasing at an alarming rate. (Photo/Sun/Mohamed Afrah)

While the total population of Maldives currently stands at 372,739, the government has estimated that the number of expatriates or foreigners living in the country to stand at around 250,000. The fact that the number of expatriates living and working in the Maldives stands at nearly 67 percent of the total Maldivian population is alarming, and these statistics only get worse with the numbers expected to rise to 500,000 in the next 30 years according to the authorities.

The biggest issue that is created by such a huge population of foreigners in the country is the impact it has on the economy and the mammoth amount of money slipping out of the country. 

That number currently stands at MVR 8 billion!

The central bank of Maldives, Maldives Monetary Authority’s (MMA) statistics show that the amount of remittance by foreigners in the last six years has increased by almost 118 percent. 2018 saw the total remittance rise to USD 531.7 million (MVR 8.2 billion). This is an alarming statistic.

“Money that does not persist in the economy and goes out of the country is best described as Maldivian economic power being taken away by other countries. This is money that can be used for other financial and economic activities in the Maldives. This results in difficulties for economic growth and pressure on the foreign currency and monetary market.” Former Finance Minister Ahmed Munavvaru stated.

Around 39 percent of the exported money ends up in Bangladesh, while 15 percent goes to neighboring India. 8 percent goes to Sri Lanka while Nepal takes in about 7 percent. Southeast Asian countries of Indonesia and the Philippines take about 6 percent.

Around 250,000 foreigners are estimated to be living in the Maldives. (Photo/Sun/Mohamed Afrah)

MMA estimates that if this trend keeps continuing, the total number of exported money will rise to USD 578.9 million (MVR 8.9 billion). This is an alarming rate and an economic red line that is being crossed.

Mr. Munavvaru, who has also headed top positions at the MMA further stated “This is only the official figures, the real danger is with the illegal migrants living in the country. The amount of money that they export cannot even be estimated. They are involved in almost all aspects of the economy, and this can only be resolved with a long term strategy.”

Immigration records show that there are around 60,000 illegal migrants living in the country and that they are estimated to export around USD 500 every month. If this is the case, then illegal migrants would be exporting around USD 30 million per month and USD 360 million per year. If that number is added up to the previous figure of MVR 8 billion, the total amount of money slipping out of the Maldivian economy would rise to more than MVR 9 billion. 

It should also be noted that these illegal migrants in the country resort to sending money back to their homelands in shady and unlawful manners, while the Remittance tax introduced in 2016, has seen foreigners living legally also preferring these methods.

It is estimated that there are 60,000 foreigners living illegally in the Maldives. (Photo/Sun/File)

A Bangladeshi worker who has been living in the Maldives for nearly five years stated under the condition of anonymity, “I have to send money back home, but if I have to pay tax, it eats up a huge amount of money, so to avoid this I either send money through a friends shop or whenever a friend of mine goes back home.”

He explained that the money he wants to send back to his homeland is delivered to a friend of his, who runs a business in the Maldives. After a small commission, the money is injected into the business and deposited to another companies’ bank account in his homeland under the name of the business run by his friend in the Maldives. After this process, the money is finally delivered to his family by the company in his homeland. 

The alternative to this method is to give money in cash to a friend who is traveling back, who then delivers the money to his family. He stated that they choose these methods because it’s cheaper and easier than paying the 3 percent remittance tax imposed on them legally. Few such cases of illegal money transfers have been busted by the police in recent years, however, it has still not deterred those from attempting these means. 

The month of June saw MIRA take in 53.5 million MVR in remittance tax. However, this only goes on to show that the amount of money going out of the country is still on an all-time high.

The recently introduced Remittance Tax has led to foreigners resorting to unlawful methods of money transfers. (Sun/Mohamed Afrah)

What is the solution to this?    

Such actions by foreigners lead to economic issues such as the rising demand for foreign currency and difficulties in accessing dollars. Since the Maldives is a country that is very much dependent on imports, it can all end up in an increase in inflation and a black market being created if foreign currency is not circulating the economy.

The solution to these issues is trying to get more and more Maldivians employed, according to Mr. Ahmed Munavvaru. The number of foreigners employed in the country must be drastically reduced and there needs to be a plan to keep the benefits that the country gains from the economy, inside the country. Mr. Munavvaru believes that income and incentives for working Maldivians must be improved and training Maldivians in industries where they currently lack the necessary skills to be employed needs to be given more focus.

“I believe that the financial sector must be improved. There are not enough skilled labor in that sector. Maldivians in professional posts in the tourism industry are also not being created. These are two of the areas that need to be focused on. The only way these issues can be addressed is by giving Maldivians more reasons to be employed.” said Mr. Munavvaru.

Maldivians cannot just stand by idly while MVR 8 billion is dragged out of the country on a yearly basis. The solution is also in our hands. Employment opportunities for foreigners must be reduced, while more and more Maldivians need to enter into the job market. If not, the Maldivian economy might see itself fall victim to this money trap for life!