Dollar shortage

The Maldives has recently been faced with an acute dollar shortage. There are people queuing near Bank of Maldives the largest bank in the country for hours.It is argued that this is due to the higher supply of Rufiyya in the market. So that the dollar demand is higher than the supply of dollar being held by the central bank.This leads to the domestic banks to come knocking on the doors of the central bank.However even the central bank is not able to supply the dollar to meet the demand.This problem can be solved by increasing the foreign reserves of the country. It is very difficult to do so because of the depleting foreign reserves in the country.Recently in a press conference the Maldives Monetary Authority announced that the net foreign reserve is US$ 67 million. Which is not even enough to cover the imports of three months.Another way to increase the foreign reserves is to obtain loans and aid from abroad.However due to the international recession it is very difficult task to obtain funding from other countries.The only option left for the government is to cut spending until we come out of this recession. The main sector we earn hard foreign currency is from tourism and fisheries. So if we are to increase investments in these two sectors we can increase the foreign currency which flows into the country. Some businessman have argued that we need to implement some controls on capital outflows. This however can be detrimental for an open economy like Maldives which relies heavily on international trade. If we are to introduce capital controls foreign investors will think twice before coming to Maldives.Sometimes if the government intervene it can have the effect of worsening the problem.According to many economists minimal intervention by the government is necessary for economic growth.One of the campaign promise of President Mohamed Nasheed was to raise USD300 million from abroad.This has not been realized so the government has to find other ways to raise this money.The government has been able to raise USD100 million from India which is a good start. Recently the government has an agreement with the Indian government to open a credit facility. This measure will alleviate the dollar shortage to some extent.Recently Bank of Maldives has also reduced the daily amount of cash taken from its POS systems linked to foreign banks from US$3000 to US$300 for Visa Debit cards. These measures are likely to reduce the problems of dollar shortage, but to bring a long term solution the government has to increase the foreign reserves of the country and attract grants and foreign direct investment into the country.