Maldives appears to be headed towards a forex crisis as the Maldives Monetary Authority, MMA, reported a drastic decline in the archipelago nation’s foreign reserves. The forex reserves fell to USD 395.4 million by the end of July 2024, marking a 33% year-on-year drop. The drop appears even more pronounced when compared against May 2024 figures of USD 492 million. This steep decline comes amid rising government debt and increasing fears of a potential default on the country’s Sukuk bonds.

As per MMA, non-tax revenues fell, and government recurrent expenditure rose by 6%. Development projects across the islands have stalled, further exacerbating the fiscal strain. The MMA also noted an 8% decline in exports, primarily driven by reduced exports of locally produced goods like frozen skipjack tuna.

Simultaneously, panic has spread among investors as many rushed to offload Maldivian Sukuk bonds, fearing the country may default on its debt obligations. Media agencies reported that the price of these bonds fell to a record low of under 70 cents per dollar. The bond market turmoil has been intensified by recent moves by the Bank of Maldives to impose additional limits on dollar transactions, and by downgrade of the Maldives’ credit rating by Fitch to ‘CC’ from ‘CCC+’, citing increased risk of default. The credit ratings provider said there was 557 million dollars of external debt servicing due in 2025 and 500 million dollar islamic bond due in 2026.

Experts warn that without foreign assistance, the Maldives could fail to meet its obligations, further destabilising the nation’s economic outlook.