The Ameer Doctrine: Licensed to print
The actions of Parliament and government raise serious questions on the independence of the central bank.
Source: People's Majlis
On 17 November, the public finance committee of the Maldivian Parliament passed a resolution extending the open credit line to the government from the Maldives Monetary Authority (MMA). Although the committee reduced the credit line from the requested MVR3.5 billion to MVR2.5 billion, it extended the overdraw until the end of December 2023. The Maldives has its next presidential election scheduled for September 2023, and the new President will be sworn-in by 17 November 2023.
On 26 April 2020, at the request of the government in view of the revenue shortfalls due to the economic impact of the COVID-19 pandemic, the Parliament suspended sub-sections (a), (d) and (e) of Section 32 of the Fiscal Responsibility Act. These sections prevent the government from utilising the printing press and borrowing from the central bank. This suspension, which allowed the government to borrow MVR4 billion from the central bank, ended in April 2021, but was extended another year until April 2022, at the government's insistence.
On 14 November 2021, Minister of Finance Ibrahim Ameer again requested the Parliament to further extend the exemption for another year — to end in April 2023. The Public Finance Committee went several steps ahead and Ameer got much more than he asked for.
As per the resolution of the Public Finance Committee, the outstanding credit by the end of this year, will be securitized, and converted into 50-year bonds, with a 2.5 percent annual interest to be paid to the MMA. This means that the Minister of Finance may overdraw up to MVR4 billion by the end of 2021, securitise it, and then borrow an additional MVR2.5 billion next year, and beyond, until the end of the current government term.
In the Committee deliberations, Ameer argued that there will be no inflationary pressures from these measures and threatened the committee that failure to grant his request could result in getting the budget reduced to MVR26 billion, reduce civil servant salaries, and even terminate some civil servants.
The committee summoned the Governor of MMA Ali Hashim to share his views on the proposed measures, although incredulously the only resistance apparent from the central bank against this measure was to request for a higher interest on the outstanding borrowings than the one passed.
The dog and pony show aside, the government has now leveraged the majority the people have given them in Parliament to essentially write itself a blank cheque in terms of funding their next big project — the 2023 elections where ministers and other political appointees, as well as party parliamentarians, jet off to different constituencies for "consultations" and "inaugurations" where any verbal exchange is for show and new flashy projects are completed, coincidentally of course, just before the next presidential run at costs that are always comparatively eye-watering.
What is this really costing the lowly citizens of the nation you ask? Inflation and exchange rate pressure, the likes of which the nation has previously never seen is imminent, policies that prioritise re-election instead of long term public good will be even more rampant and the passing of the buck to the people, in terms of higher and harsher state levies and fees is all but a given.
Insofar as the government, and publications all around, declare the third year of this administration a resounding success; there are reasons for the people to be weary. This administration has always talked a good game but behind the shiny curtain it presents to the world, inconsistent and incompatible policies reflecting the views of different ministers with nary a collective vision from up top are quickly taped together to create a veneer of progress and achievement. Even if the current administration manages to hold it together for another term, in continuing on the current trajectory, there is a potent fear that things will buckle and fall under the weight of these misguided actions — and the people will be left holding the ball with not even a way to elbow themselves out of the dire situation they find themselves in.
