The latest economic update by the Maldives Monetary Authority (MMA) for March 2025 points to mixed developments in the country’s monetary landscape, revealing an evolving liquidity dynamic shaped by shifts in both domestic and foreign assets.
After a sharp 11% contraction in January, reserve money (M0) saw a recovery with a 6% year-on-year increase by the end of February. This rebound was largely driven by a rise in net domestic assets, particularly an increase in commercial bank claims and a reduction in central bank placements in the overnight deposit facility (ODF). These movements suggest greater liquidity circulating within the domestic financial system—a notable shift from the previous month’s tightening stance.
However, this domestic liquidity expansion contrasts with continued pressure on the Maldives’ external position. Net foreign assets declined over the same period, due in part to the US$400 million currency swap arranged with the Reserve Bank of India in October 2024. Despite accumulation of foreign assets, the increase in foreign liabilities outpaced gains, underscoring a continued vulnerability in the external sector.
Broad money (M2), a broader indicator of money supply, also saw renewed momentum, rising by 5% in February following a 2% increase the month before. Growth was driven entirely by the domestic side of the balance sheet. A surge in time and savings deposits—in both local and foreign currency—offset a decline in transferable deposits, suggesting shifting depositor preferences toward more stable and possibly higher-yield instruments. Cash held outside of banks also edged higher.
Commercial bank credit to the private sector remained stable at a 7% annual growth rate. The most significant increase came from personal loans, which saw a 28% rise driven by higher usage of credit cards and spending on consumer durables. Credit to the tourism sector—the largest recipient of bank credit—also rose, though modestly, largely to support resort renovations and working capital, rather than new developments. This trend hints at a stabilising tourism sector, with businesses focusing on sustaining operations rather than expansion.
What emerges from these trends is a monetary environment in flux. While domestic liquidity appears to be improving, concerns remain on the external front, particularly the heavy reliance on foreign support mechanisms like currency swaps. Additionally, while consumer credit continues to grow rapidly, corporate borrowing, particularly for capital formation, remains subdued—potentially reflecting cautious investment sentiment amid macroeconomic uncertainties.
As the government and the MMA look to navigate the months ahead, maintaining balance between supporting domestic liquidity and managing external vulnerabilities will be key. The figures signal a system adjusting to new pressures, but with areas of fragility that warrant close attention.
