Maldives enters USD 100 million currency swap with India

The Maldives’ central bank has entered into a cross currency swap of USD 100 million with India’s central bank in a move to maintain the former’s US Dollar reserves, marking its first ever currency swap with a foreign nation.

Maldives Monetary Authority (MMA) entered the currency swap over the corporate bond of USD 140 million it had sold to Maldives Airports Company Ltd (MACL).

A currency swap is a foreign exchange derivative between two parties to exchange a payment in one currency for its equivalent amount in another currency. MMA had exchanged MVR 1.5 billion as a guarantee in exchange for the USD 100 million from India.

An official of MMA told Mihaaru that the central bank formed the currency swap with India last December, to be repaid within three months at an interest rate of approximately three percent.

The official elaborated that the main reason for forming the currency swap was to arrange the corporate bond for MACL to settle its compensation with GMR Group of India.

MACL had settled MVR 271 million with GMR last November 15 over breaking the contract awarding operations of the country’s main airport to GMR for 25 years. Of the total, USD 140 million was paid via the corporate bond purchased from MMA.

According to MMA’s monthly Economic Review of December 2016, its usable reserves had dropped to USD 110.6 million last November due to the bond sold to MACL. However, the central bank’s statistics show that the reserve was USD 200 million by the end of December.

MMA’s official said that as MACL has been repaying the bond payment at an interest of 4.9 percent every month, the bank will make a sizeable profit in time. The official added they will continue the currency swap for an estimated period of nine months until the reserves reach a comfortable level again.

MMA had previously attempted to enter a currency swap with Sri Lanka’s central bank, but the plan fell through as Sri Lanka’s conditions had been too high.

Meanwhile, the government has submitted the case of MMA’s hefty guarantee for the currency swap with India, and the guarantee given to MMA as securities for the corporate bond sold to MACL to the parliament’s finance committee. The committee is to discuss the cases at a sit-down on Tuesday.