Sri Lanka has urged the Maldives to consider using local currencies for cross-border transactions, Foreign Minister Vijitha Herath stated, following concerns from Sri Lankan expatriates in Malé about difficulties in sending their earnings home.
Sri Lanka plays a key role in the Maldivian workforce, especially in the hospitality sector, where a significant number of its citizens are employed.
Many Sri Lankans in the Maldives, including executives, laborers, and domestic workers, earn salaries in Maldivian Rufiyaa (MVR), sometimes amounting to $3,000 per month.
However, due to restrictions imposed by the Maldivian government to limit dollar outflows and prevent foreign exchange shortages, these workers face challenges in remitting money through official banking channels.
During a meeting with Maldivian Foreign Minister Abdulla Khaleel, Minister Herath requested that both Maldivian Rufiyaa and Sri Lankan Rupees (LKR) be allowed for cross-border transactions, benefiting migrant workers.
This request follows a prior appeal from the Maldivian government to revisit the existing limits on foreign currency remittances, which impact Sri Lankan workers in the Maldives.
Due to these restrictions, many Sri Lankan workers rely on informal money transfer networks, such as the “Undiyal” system, to send their earnings home.
The Maldivian expatriate community, mainly employed in hospitality and education, has found it increasingly difficult to transfer funds through official banking networks, as banks have imposed strict dollar limits.
According to a Sri Lankan legislator, banks like Commercial Bank and Bank of Ceylon only allow remittances of $250 to $300 per month, forcing workers to resort to informal channels.
Economic data suggests that the Maldives Monetary Authority (MMA) has experienced reserve losses due to rising domestic assets, which in turn has increased demand for US dollars.
The Maldivian economy is partly dollarized, but restrictions on foreign exchange availability have led to a growing reliance on black market transactions.
Reports indicate that while the official exchange rate remains at 15.40 MVR per US dollar, the kerb market rate fluctuates between 16 and 18 MVR per dollar. Additionally, banks have struggled to process telegraphic transfers on time due to ongoing dollar shortages.
The situation in the Maldives highlights broader monetary policy challenges.
The MMA, unlike some South Asian central banks, traditionally maintains a stable policy framework. However, recent liquidity injections and monetary policy adjustments have led to foreign exchange shortages.
The country’s official reserves, which stood at $795 million in February 2023, had dropped to $588 million within months as the government issued new money. This trend, if continued, could put additional pressure on the Maldivian currency and economic stability.
Sri Lanka’s proposal to enable local currency transactions could alleviate some of these challenges while benefiting both nations. The Maldivian government’s response to this request remains to be seen, but the issue continues to be a key concern for Sri Lankan workers in the Maldives.
