A stack of Maldivian Rufiyaa at a bank counter.

MMA concerned as budget lacks proposal to repay printed money

The MMA has pointed out that this is leading to a growing financial crisis.

11 November 2022

By Ahmed Naaif

Central bank on Thursday expressed concern over the continued suspension of the Public Finance Act and the lack of plans in the proposed budget for 2023 to repay the overdrawn or printed money from public bank account. 

Overdrawing of public bank accounts involves the release of funds from the Maldives Monetary Authority (MMA) to meet state expenses even if the state does not have money in its main bank account. It is a form of printing money. 

  • Public bank account overdraw was first allowed in 2020 for a period of one year due to Covid-19

  • The printing of up to MVR 4.4 billion a year was approved by parliament

  • Since then, the permission has been extended twice

  • It became difficult to repay the money printed earlier and it was converted into a bond of MVR 2.5 billion

  • The purpose is to allow the government to distribute and return the amount to the Maldives Monetary Authority (MMA)

One of the concerns raised by the central bank in its recommendation for the proposed budget is that the public bank account overdraw has been maintained and even the money printed earlier has not been paid back to MMA by the government. The MMA has pointed out that this is leading to a growing financial crisis.

In the recommendation, MMA noted:

  • Government will likely overdraw around MVR 4.4 billion next year as well

  • However, the government has not paid the amount that was overdrawn or printed in the past

  • Reiterated MMA's refusal to convert the overdrawn amount into a bond next year as well without any repayments

"If government finances are adjusted by overdrawing the domestic market and the public bank account, the liquidity of excess Rufiyaa circulating in the economy is likely to increase, which will in turn increase demand for foreign exchange and adversely impact the exchange rate," the MMA said.

MMA further said that it will have to take steps next year to open market operations or to reduce the excess Rufiyaa flowing into the economy due to printing of money. The move will reduce the amount available to banks to invest in T-bills sold to the domestic financial market to meet government expenses, the central bank said. 

The MMA has also suggested the government to sell T-bills at higher interest rates.