World Bank Credits Tightened Regulations for Maldives' Rebounding Foreign Exchange Reserves

The Maldives has seen a significant improvement in its foreign-exchange (FX) position, according to the World Bank's latest 'Maldives Development Update 2026.' The global financial institution attributes this recovery to the government's implementation of stricter FX regulations and a series of aggressive fiscal tightening measures. A key driver of this rebound is the amended Foreign Exchange Act. Under the new rules, banks must market tourism-generated foreign currency at a fixed per-tourist rate, ensuring a larger portion of hard-currency earnings flows directly into the national pool. The World Bank also noted that a reciprocal currency-swap arrangement with the Reserve Bank of India, concluded in late 2024, provided critical support to the nation's reserves. Fluctuations in reserves remained evident throughout the first half of 2026. Official FX reserves reached USD 1.3 billion in March; however, this figure dropped to USD 717.9 million by May following a scheduled debt-repayment operation. Despite this dip, the government's broader fiscal reforms have successfully narrowed the revenue-expenditure gap to USD 330.6 million, representing approximately 4.3 percent of the GDP. The progress is further reflected in the budget deficit. The 2024 deficit of USD 700.4 million has been significantly reduced as the government curtailed spending to 37.1 percent of GDP—an 8.3 percentage point drop from the previous year. Simultaneously, national revenue rose to 33 percent of GDP, marking a 12 percent year-on-year increase. Beyond internal reforms, the Maldives has maintained its international credibility by meeting all obligations on sovereign sukuk issuances, State Bank of India (SBI) loans, and currency-swap repayments. These actions have collectively strengthened the country's debt profile. While the World Bank praised these reforms as positive steps toward long-term macroeconomic stability, it issued a caution to policymakers. The report emphasizes that sustained vigilance and disciplined fiscal management will be essential to prevent the fiscal gap from widening once again.