MoU signed with China for transactions in local currency for imports

The government of Maldives has signed a Memorandum of Understanding (MoU) with the People’s Bank of China (PBOC) which establishes the framework for the settlement of current account transactions and direct investment in local currencies.

With Maldives facing a shortage of US Dollars, the current administration is undertaking efforts to execute such agreements with friendly nations.

The MoU signing with China’s central bank was announced by the Economic Ministry via a statement on Friday. As per the Ministry, it sets the framework for cooperation at promoting the settlement of current account transactions and direct investments in local currencies.

The Ministry states the MoU will pave way for smoother trade and investment relations between the two countries.

In this regard, the Ministry detailed that the agreement is expected to facilitate more efficient currency settlements in local currencies and thus, enhancing convenience for traders engaged in imports from China and promoting increased cross-border investments between the two countries.

The Ministry said the MoU reflects President Dr. Mohamed Muizzu’s strategic vision to enhance economic openness and strengthen bilateral trade relations with key international partners.

China is one of Maldives' largest trade partners with bilateral trade exceeding USD 700 million. Moreover, China continues to be the largest source market for tourists to the Maldives.

In their statement, Economic Ministry underscored that President Muizzu’s state visit to China back in January further elevated the relationship between the two countries. It was noted that President Muizzu and his Chinese counterpart, Xi Jinping had held discussions focused on strengthening comprehensive strategic cooperative partnership between the Maldives and China during which the mutual commitment to deepening bilateral economic collaboration was expressed.

The MoU was described as a result of the visit and the discussions.

Notably, the government of Maldives is undertaking efforts to execute a similar agreement with neighboring India.

Maldives' external debt remains extremely high while the nation also faces a shortage in US dollars. As part of measures to alleviate the US dollar shortage, the government has amended tax regulations in order to tax individuals earning revenue in US dollars to pay tax in the currency.