We have heard recently from several industry players that the virus is creating dollar liquidity concerns. To what extent is liquidity tightening in trade? How is trade changing as the world moves into the “new normal” post-COVID?

PUBLISHED August 10, 2020

Yoosuf Riffath
Astrabon Maldives
It’s not about being heard – it is happening. And prices for the end-customers will become very high, as it becomes a challenge for the trading sector to get dollars.
While countries like China has opened up at a crucial time when many remain in lockdown, the Maldives is striving all means to position itself where it used to be, and also create demand as an early opener. But, we are yet to learn on the recovery pace and process since it will be influenced by factors such as how lockdowns are gradually relaxed and the consumer behavior of other countries that are opening up for tourism.
As our imports depend on foreign currency, we very much rely on tourism dollars. Now, it’s extremely difficult to get USDs at an even higher rate, because the dollar-generating tourism industry has been completely at a halt. Therefore, imports are significantly affected. The private sector does not have a USD reserve, and Central Bank does not disperse enough USDs in the market. The trading sector needs a solution for this at earliest.
I believe it is speculation; because of the current situation and uncertainties caused due to the pandemic, no one can say for sure whether the markets will remain steady, or go down drastically. This is what’s creating panic and thus, the speculation affecting the foreign exchange market.
This issue is not a problem of today; every affect to the Maldivian tourism industry will reflect on the whole country, as long as the country uses and accepts dual currency. Even now, if we implement a single currency policy by today, an ordinary citizen or the SME Sector will not be affected due to it, and I believe that a healthier forex market can be established with the country.
- Our dollar demand arises mainly from import requirements and other outflows. - The dollar supply arises mainly from tourism revenues & fishery exports. - Tourism arrivals have been at zero for three months and export volumes also have been down. - Therefore, it is inevitable that there is bound to be a dollar shortfall in the economy. - This shortfall is now manifest in the rise in market prices.
There is an uncertainty in tourism revenue with the bookings being slow – most bookings are in the fourth quarter, with very few bookings in the third quarter. However, we have hope for 2021. Import in the last 3 months has also been low – 50% compared to 2019. Our import cost is USD 3 billion per year (USD 0.75 billion per quarter), but in last 3 months import was USD 0.35billion only. Though resort land rentals deferred, the state will receive the 2019 BPT this month which will give some breathing space. I believe the government will get forex support from financial institutes abroad. Together, we can maintain the forex issue, and limit expenses during these 4 months.