Fayyaz welcomes changes, but urges gov to reconsider USD rate per tourist policy

Fayyaz Ismail, the chairperson of the main opposition Maldivian Democratic Party (MDP), said on Wednesday that the recent changes mandated by the government to address the foreign exchange crisis will relieve some pressure and is commendable, but the manner in which it has been implemented is problematic.

On Tuesday, the Maldives Monetary Authority formulated new regulations requiring all tourism revenues to be deposited in the Maldives and imposing a mandatory surrender of USD for each tourist. MMA’s governor Ahmed Munawwar said the changes will create a demand for MVR within the tourism sector – the country’s biggest source of foreign currency revenue.

In a post on X on Wednesday morning, Fayyaz, who served as the economic minister during the previous administration, said the changes represent “the most consequential decision taken by the current administration to address the foreign currency crisis.”

He said that while this move will relieve some pressure and is commendable, the manner in which it has been implemented is problematic.

Fayyaz said that in 2022, the cabinet passed a requirement to surrender a percentage of revenue received, while providing certain guarantees to foreign exchange earners that their specific needs would be met.

But he said the decision was not implemented by the central bank due to a number of factors.

“Unfortunately, this decision was not implemented by the MMA due to various factors, such as the TGST rate hike and the ongoing recovery from COVID-19, which left the industry unprepared for such a change,” he said.

Fayyaz stressed that this measure alone will not resolve the issues in the dollar market.

He called on an urgent need to continue working towards restoring macroeconomic balance by implementing measures such as reducing wasteful government expenditure, aligning monetary policy, and improving the monitoring of money exchanging institutions.

Fayyaz called on the government to review its decision to mandate tourist establishments to exchange USD per tourist at a fixed rate from a local bank. He said that the government should instead adjust it to a percentage of foreign currency earnings.

“The government needs to review this decision and, instead of imposing a USD rate per tourist, adjust it to a percentage of foreign income received,” he said.

Fayyaz said the policy will devastate guesthouses and lower-tier resorts.

“In its current form, this policy will devastate guesthouses and lower-tier resorts, which are increasingly receiving MVR from tourists,” he said. “The discrimination between guesthouses and safaris will significantly impact the liveaboard industry and middle-market resorts.”

Fayyaz urged the government and the central bank to initiate broader discussion among stakeholders and review the current regulation, as it may affect the survival of small and mid-range establishments.

“I urge the government and the MMA to initiate broader discussions among stakeholders, review the current regulation, and reach a strong consensus on the way forward, as this may have unintended consequences, affecting the survival of small and mid-range establishments and the future inflow of foreign investment,” he said.

The new regulations published on Tuesday requires ‘Category A’ tourist establishments - tourist resorts, integrated tourist resorts and resort hotels – to exchange USD from a local bank at the rate of USD 500 per tourist for all monthly arrivals before the 28th day of the third month following each respective month.

Meanwhile, ‘Category B’ tourist establishments – tourist guesthouses and hotels in residential islands with registered rooms of 50 or under - must exchange USD in the same manner, but at the rate of USD 25 per tourist.

Tourist establishments can apply to exchange USD at a lower rate under certain circumstances.