Monetizing: A Scheme in Motion by MMA and Pension Fund

In healthy economies, the central bank ensures monetary stability. Pension funds protect long-term savings. Governments raise capital through competitive markets. But in the Maldives, that order is being quietly reversed. A carefully engineered arrangement is unfolding to monetize public debt through the pension fund, circumventing the Fiscal Responsibility Act and institutional safeguards.

It begins with the Maldives Monetary Authority purchasing government bonds from the Maldives Pension Administration Office in the secondary market. MPAO is then expected to use that cash to buy fresh bonds directly from the government, likely via private placements. There is no indication of any other buyer, and given how shallow the market is, there may be no other choice.

This setup creates the illusion of a functioning financial system. But the reality is simple. The state is injecting liquidity while manipulating the retirement savings of workers.

This week, the Ministry of Finance announced the listing of over MVR 2.37 billion in bonds on the Maldives Stock Exchange. These carry yields between 5.10 and 5.80 percent, with remaining maturities ranging from two to eight years. If MPAO is the buyer, as widely assumed, it will simply be recycling its existing exposure to the government by selling older securities while taking on unknown reinvestment and duration risk. This also implies potentially higher refinancing costs for the government at a time of rising debt service obligations.

Mandates of Institutions Compromised
The MPAO is not a liquidity provider or a financial intermediary. It exists to preserve wealth and provide retirement benefits adjusted for cost of living for its beneficiaries. These responsibilities are not optional. They are legally mandated.

Yet over 90 percent of the pension fund is already invested in government securities. Treasury bills and bonds alone account for more than MVR 16.7 billion. Domestic equity exposure is under MVR 1 billion. There is virtually no diversification. Every month, around MVR 158.7 million in contributions are collected from over 187,505 active members. That capital is supposed to be managed with caution and independence. Two of the stated core investment objectives of the fund are to preserve purchasing power in real terms and provide stability in the years leading to retirement. This transaction undercuts both.

Instead of finding new, productive investments, MPAO’s only real options are limited to short-term Treasury bills that continue to be repriced lower. Unless the government privately offers higher-yield bonds, the fund will be forced to accept weaker returns. Either way, the real value of members’ savings will erode as inflation and currency pressures rise, undermining the fund’s ability to provide meaningful cost-of-living adjustments.

As of 2025, MPAO’s fund under management has exceeded MVR 21.7 billion, placing even more importance on safeguarding the long-term purchasing power of contributors and retirees.

Signals at Odds: A Contradictory Monetary Policy 
The MMA, for its part, continues to send contradictory messages. It regularly conducts open market operations to absorb liquidity. In recent weeks, over MVR 1 billion has been mopped up, ostensibly to reduce monetary pressure and stabilize the MVR-USD exchange rate.

Yet at the same time, the central bank is injecting liquidity through secondary market purchases. This is either new money being created or balance sheet liquidity being redirected. Either way, it is not neutral.

Between November 2023 and September 2025, the Maldives’ broad money supply (M2) rose from MVR 58.31 billion to MVR 66.28 billion. Currency in circulation increased from MVR 4.0 billion to MVR 4.51 billion. That includes the notes and coins physically used in the economy. In a fractional reserve banking system, not every rufiyaa must be printed. But monetary expansion is still real even if it is electronic.

The contradiction is clear. MMA cannot mop up liquidity one week and quietly reflate it the next through backdoor financing.

A Pattern Emerges
This is not the first attempt to inject funds through indirect channels. Earlier this year, MMA sought to acquire land for an international financial center as a way to justify cash injections of a rumored MVR 15 billion to the Treasury. That fell apart amid high public scrutiny, not least because the Maldives lacks even the basic regulatory infrastructure to support such a center.

Now the strategy has evolved. Instead of headline transfers, the operation is hidden within the shell of secondary bond trading.

But institutions are buckling. One MPAO board member resigned in protest. The Chief Financial Officer stepped down shortly after. Earlier in the year, multiple MMA board members left their posts. The Deputy Governor exited warning of instability.

These are not isolated moves. They point to a deeper pattern. When technocrats exit, it is often because they are being pushed to abandon their mandate.

The Cost of Convenience
The fiscal picture is grim. The 2026 budget has been proposed at MVR 64.2 billion, of which total expenditure is MVR 49.2 billion while total revenue and grants forecasted for the year ahead only amounts to 40.4 billion. Revenue growth is weak. Debt repayments are surging. The government needs to raise record sums to avoid defaulting on its obligations.

But rather than restore market discipline, authorities are creating parallel systems of funding. The tools of financial stability are being used to bridge budget gaps.

This administration already amended the Fiscal responsibility Act to expand its short-term drawdown facility from 1 percent to 2.5 percent of the government’s three-year rolling revenue, giving itself access to nearly MVR 1 billion of leeway. Yet this latest scheme seeks even more liquidity through the backdoor. It is about bypassing scrutiny, not solving structural imbalances.

MPAO has not published the full details of its secondary market trades. MMA does not disclose which counterparties are involved in its monetary operations. And the public is left with rising inflation, a weakening currency, and the slow erosion of retirement value.

Institutions Under Pressure
MDP Chairperson Fayyaz Ismail raised early warnings about the politicization of MPAO and the creeping loss of institutional independence. The government has responded with silence. The public, meanwhile, is left to watch decisions made in boardrooms turn into losses on their balance sheets.

This is not reform. It is regression. Not innovation but desperation.
The rules are being bent. The mandates are being blurred. And the walls between monetary authority and fiscal desperation are being eroded one transaction at a time.

No amount of financial engineering can hide what this really is. It is monetization. And if it continues, the long-term costs will be borne not by the architects of the scheme, but by the very people who entrusted these institutions to safeguard their future.