The Maldives Monetary Authority (MMA) has said it is preparing to issue a refinance green bond and arrange a USD 400 million foreign currency swap with the Reserve Bank of India under the SAARC framework to improve the official dollar reserves.

MMA made the announcement in a statement released after American credit ratings agency Fitch downgraded the Maldives' rating to "CC" with the assumption that the country will not be able to repay foreign debt.

In the lengthy statement, the MMA blamed the former government for the decline in the reserves and said it was taking a number of steps to overcome the situation.

"The Government and the Authority are working together to issue a refinance green bond to improve the situation of the official reserves of Maldives. In addition, all the technical work on a USD 400 million foreign currency swap arrangement with the Reserve Bank of India under the SAARC framework has been completed and the signing of the arrangement is underway," the statement read.

MMA said the main challenge for maintaining the exchange rate in the country’s foreign exchange market is the increase in Rufiyaa surplus liquidity in the banking system due to currency printing to manage the government’s cash flow after the Covid-19 pandemic.

"Thus, surplus liquidity in the banking system averaged MVR 6.7 billion at the end of July. The Authority is preparing to mop up the increased surplus liquidity in the banking system using monetary resources to mitigate the challenges faced in maintaining the exchange rate of the Rufiyaa," it stated.

The authority also stated that changes will be made to the monetary policy instruments to alleviate the foreign exchange liquidity challenges faced by commercial banks operating in Maldives.

The MMA also said that the government's medium-term fiscal and debt strategy is expected to improve the country's financial situation as a result of measures to reduce expenditure and increase revenue.