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May 23, 2024

India and China to Enable Maldives’ Import Payments in Local Currencies

The Maldives announced on Wednesday that India and China have agreed to facilitate import payments in their respective local currencies, a strategic move expected to halve the island nation’s annual $1.5 billion import bill from these two countries. This initiative, championed by Maldives’ Economic Development Minister Mohamed Saeed, aims to significantly reduce reliance on the US dollar and bolster the country’s economic stability.

Minister Saeed revealed that he had discussions with the Indian High Commissioner, Munu Mahawar, who confirmed New Delhi’s support for settling import payments in Indian Rupees. Similarly, Saeed received a formal assurance from China’s Commerce Ministry, agreeing to allow payments for imports in Yuan. This development follows a proposal by President Mohamed Muizzu to streamline import transactions and conserve foreign exchange reserves.

The Maldives imports approximately $780 million worth of goods from India and $720 million from China each year. By settling these payments in Indian Rupees and Yuan, the Maldives expects to save nearly 50% on the annual import bill. This initiative marks a significant departure from the prevalent use of the US dollar in international trade, reflecting a growing trend towards localized currency usage.

In July 2023, the Government of India included the Maldives among the 22 countries permitted by the Reserve Bank of India to open Special Rupee Vostro Accounts (SRVAs). This measure aims to promote bilateral trade in local currencies, reinforcing economic ties between India and the Maldives.

During a conversation with state-run PSM Media, Minister Saeed emphasized the potential savings and reduced dependency on the US dollar. “We are negotiating with both sides to make arrangements where, for instance, for imports from China, payments can be settled by converting Maldivian Rufiyaa to Yuan through banks, bypassing the need for US dollars,” he said. This move could eliminate the need for up to $700 million in US dollar transactions annually, significantly easing the demand for the US currency.

Saeed attributed the Maldives’ current financial difficulties to the previous administration, noting ongoing challenges and skepticism from foreign entities. However, he expressed optimism about the nation’s economic trajectory, citing strong fiscal reforms implemented by the new administration to stabilize the economy, including halting the printing of money.

In April, during the parliamentary election campaign, Saeed promised that securing a majority in Parliament would enable the ruling party to stabilize the dollar rate within two years. Following the elections, President Muizzu’s People’s National Congress (PNC) secured a majority in the 87-member People’s Majlis, setting the stage for implementing these economic reforms.

The strategic shift to local currency transactions with major trading partners India and China is a crucial step for the Maldives in mitigating external economic vulnerabilities. This cooperation not only strengthens bilateral relations but also enhances economic resilience by reducing the nation’s dependence on volatile foreign exchange markets.

Jhumpa Lahiri

Jhumpa Lahiri

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