The Maldives is in the grip of a severe foreign-exchange crisis centered on a shortage of U.S. dollars. This has been a persistent challenge for the country, especially since it is heavily dependent on imports for basic goods, from food and fuel to medicine and construction materials.
At the heart of the shortage is a debt burden accumulated across successive governments, with $1.7 billion in external debt service falling due in 2026 alone, placing enormous pressure on the foreign-currency reserves needed by the wider economy.
President Mohamed Muizzu’s administration argues, with some justification, that much of this burden predates his government. These include loans taken for the Sinamalé Bridge under President Abdulla Yameen, and the Greater Malé Connectivity Project and COVID-19 support under President Ibrahim Mohamed Solih. The Muizzu government has, however, continued major projects of its own, including the Ras Malé reclamation scheme.
The government has arguably taken the responsible course of prioritizing debt repayments to avoid sovereign default, a risk international experts repeatedly warned was plausible. In 2024, Fitch downgraded the Maldives to CC, warning that there was a high risk of the Maldives defaulting on its debt repayments. It upgraded the country to CCC in June following repayment of a $500 million sukuk (Islamic bond), which helped avert that danger.
But the sukuk repayment, together with the central bank’s settlement of a $400 million currency swap with India in April, drained the same foreign currency reserves needed at home. At present, the Maldives’ reserves are only enough to cover approximately a month and a half of imports compared with the three-month buffer the IMF recommends.
The consequences continue to reverberate across the economy. Businesses report waiting as long as two to three weeks to pay overseas suppliers, delaying imports and imposing additional costs, while others have increasingly turned to the parallel market, where the dollar climbed as high as 23 Maldivian rufiyaa (MVR) against the official rate of MVR 15.42 – a premium of roughly 50 percent.
The soaring black market rate has prompted the government to restrict foreign exchange trading to licensed businesses and criminalize sales above permitted rates, although these measures do little to nothing to address the underlying shortage of dollars.
Meanwhile, the external environment has also remained unfavorable, with the ongoing conflict between Iran and the United States marked by intermittent flare-ups in hostilities. Disruptions to West Asian air travel contributed to tourist arrivals in the Maldives falling by more than 20 percent in March and April compared with the same months last year, reducing the tourism earnings that bring dollars into the country, while higher fuel prices simultaneously increased the cost of essential imports. Against this backdrop, the World Bank expects inflation to average 6 percent in 2026 and has warned that continued dollar shortages could threaten access to essential imports.
With tourism being the main source of foreign currency earnings, the administration has responded by trying to bring more tourism dollars into the domestic banking system. A controversial measure that took effect on September 1 requires the larger resorts and other major tourist establishments to convert 40 percent of their monthly foreign currency revenue through local banks. The government argues this will make more dollars available domestically, but industry leaders warn that forcing resorts to convert revenue while they still face substantial dollar-denominated costs and debts could hurt a vital sector of the Maldivian economy.
The government has also sought external support, including notably from India. Muizzu campaigned on an “India Out” plank in the 2023 presidential election. Economic necessity pushed Malé toward rapprochement with New Delhi. India has since provided currency swaps, treasury bill rollovers and other financial assistance. Nonetheless, India reportedly declined a government request for a further rollover of a $150 million budget support facility held by the State Bank of India, and on September 17, the Maldives repaid the final $50 million instalment. The facility was repaid in three $50 million instalments since 2024.
Beyond the danger to the country’s economic health, the dollar crisis is increasingly putting political pressure on the Muizzu administration. It only has to look to the recent history of neighboring Sri Lanka for an extreme warning. In 2022, depleted reserves left Sri Lanka unable to finance essential imports, contributing to shortages, soaring inflation and mass protests that culminated in President Gotabaya Rajapaksa’s resignation.
The Maldivian opposition has increasingly made the dollar shortage an issue of government competence. Former President Mohamed Nasheed, elected chairperson of the main opposition Maldivian Democratic Party (MDP) in June, has blamed the crisis on the government’s debt management and warned that its latest $50 million repayment to India would further deplete reserves.
Nasheed also alleged that the government had made the payment using dollars deposited by the public and businesses at the Bank of Maldives. The government denies this, insisting the money came from its Sovereign Development Fund, even as businesses report being unable to transfer tens of thousands of dollars held in their own bank accounts.
Criticism has also come from the other side of the political spectrum, from former President Abdulla Yameen, under whose administration Muizzu served as housing and infrastructure minister. Yameen has blamed the government for the dollar black market and criticized its handling of the shortage, leaving the administration under attack from both the main opposition and an erstwhile ally.
As the country approaches the penultimate year of Muizzu’s term, ahead of the next presidential election in 2028, the political battle is already taking shape. Muizzu secured the presidential ticket of his People’s National Congress (PNC) at its September congress without a primary. Meanwhile, several senior MDP figures, including former foreign minister Abdulla Shahid and former economic minister Fayyaz Ismail (with Nasheed’s backing), are positioning themselves for their party’s nomination. Yameen has also announced his intention to contest for the presidency again.
With a competitive electoral landscape on the horizon, Muizzu’s handling of the dollar crisis could be a defining part of his record before he returns to the voters to seek a second term.
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