Compact banking sector hinders retaining foreign currency: Munawar

Compact banking sector was hindering foreign currency retention in the Maldives economy, said Governor-to-be Ahmed Munawar.

While speaking at the Parliament's Public Accounts Committee on Monday, Munawar emphasized the need for austerity measures to lower state expenditure proportionate with the earnings.

President Dr. Mohamed Muizzu nominated Munawar's name as Ali Hashim's successor last Tuesday. Muizzu officially dismissed Hashim according to the recommendations made by the parliament.

The Public Accounts Committee convened on Monday to interview Munawar.

While speaking about foreign currency issues, Munawar said local banks should have the fiscal strength to provide loans for resort development projects, which is currently impossible owing to the compact nature of the banking sector.

Munawar said he will prioritize expansion of the sector in his role as the Maldives Governor.

He also highlighted the macro-economic challenges the Maldives currently faces and noted the decline in tourism receipts and the close to MVR 8 billion overdraft from public accounts as significant setbacks.

The former Finance Minister also noted that out of the printed money, MVR 6 billion are still with the commercial banks.

Munawar said currency exchange black market rates rise when the Maldivian Rufiyaa circulating in the economy is not proportionate with US dollars in the market.

As a resolution, Munawar suggested cutting state expenditure to level it with earnings and highlighted that the government spent eight percent of the state budget to service debts back in 2017, which has since risen between 11 and 12 percent.

"Majority of the dollar revenue has to be redirected to pay external loans," Munawar said.

"The first step to resolve this would be to lower state expenses at a macro-level and bring the expenditures to the same levels as the state's earnings. If the currency reserve does not expand, there will be obstacles to eliminating black market exchange rates."

Munawar also highlighted that several state-owned enterprises (SOEs) have successfully diversified their business activities.

"We need to explore the possibilities by which foreign currency revenue from tourism receipts can be retained within local banks, and I believe MMA's role in ensuring this is huge. I also believe we require legal reforms as well," Munawar said.

He said legal reforms are necessary to ensure better monitoring of dollar circulation in and out of the Maldivian economy, as well as identifying the parties involved in such transactions.

Foreign currency issues have been intensifying in the Maldives recently, with the majority of foreign currency earnings redirected to service external debts.

The World Bank had cautioned the Maldives to take prompt measures to rectify its current debt-related issues.

US dollar is currently exchanged above MVR 18 per dollar in the black market.

After Munawar's interview, Parliament Deputy Speaker Ahmed Nazim said the Governor nominee achieved an average score of 70 marks, and subsequently proposed recommending his name to the President as the next Governor.

Nazim's submission was approved with a unanimous vote at the Public Accounts Committee's Monday meeting.