The Peril of "Printing Money" via the Pension Fund: A Macroeconomic Catastrophe in the Making
The Invisible Haircut: How "Printing Money" Could Wipe Out 40% of Your Real Retirement Savings
Ahmed Inaz, the Chairperson of the Pension Office Board, has stepped down. The move was not a normal changing of the guard; it was a protest and a warning about a “huge danger” to the Maldivian economy.
Inaz made it clear in his resignation that the government was pressuring him to use the Pension Fund to pay for state expenses. In simple terms, the government wants to use the money you save for retirement to pay its daily bills. This is a step toward debt monetization in economic terms, and it marks a shift in our monetary system.
The MVR 2.4 Billion Ultimatum: A Case of Fiscal Dominance
The issue at hand is a request for the Pension Fund to buy MVR 2.4 billion worth of Treasury Bills (T-Bills).
This isn’t a normal way to invest; it’s a perfect example of Fiscal Dominance. This occurs when the fiscal authority (the government) forces financial institutions to subordinate their goals to the government’s need for cash. By putting pressure on the Pension Office, the administration wants to roll over old debts and bring in new cash.
Inaz said NO, saying that because of the current state of the economy, especially the lack of foreign currency reserves, monetizing the debt this way is financially irresponsible.We are effectively unbolting a door that responsible monetary policy had kept shut for decades.
The Myth of “Free Money”: What is Quantitative Easing?
We need to look at the tool that the government is trying to mimic, Quantitative Easing (QE), to see how dangerous it is.
The Bank of Japan was the first to use QE as an unusual way to fight stagnation and deflation in 2001. It means that a central bank buys long-term securities, like government bonds, from the open market to make more money available and encourage banks to lend. The US and Europe used it again during the financial crisis of 2008.
But there’s a big problem: only strong economies with reserve currencies (like the Yen, Dollar, or Euro) can use QE. These countries can print more money without hurting the value of their currency right away because the world still needs their money for trade.
The Maldives does not have this privilege.Our country depends on imports and has a fixed exchange rate. We can’t “ease” our way to prosperity. If we print Rufiyaa without getting the same amount of US Dollars, the extra money will just chase the same amount of goods. It doesn’t boost the economy; it kills the currency.
The Ghana Warning: A Lesson in QE Gone Wrong
If you think this is too scary, look at Ghana.
Ghana tried a similar plan to fix its budget problems in 2020. The Bank of Ghana did a lot of deficit financing, which they called “printing money” to lend to the government. This was a type of quantitative easing.
The outcome was not stability; it was economic destruction.
Hyperinflation: Ghana’s inflation rate rose to more than 50%.
Currency Collapse: In just one year, the value of the Ghanaian Cedi dropped by more than half against the US Dollar.
The “Junk” Rating: Investor confidence evaporated, locking the country out of international capital markets.
Ghana learned the hard way that you cannot print prosperity. When a country without a reserve currency (like the Maldives) attempts to monetize debt without rising productivity, it doesn’t create wealth. It destroys the currency. If we go through with this MVR 2.4 billion injection, the Maldives could end up like Ghana, with a falling Rufiyaa and rising living costs.
The Inflationary Spiral: Why It Matters to You
What does “printing money” mean, and why should you care?
When the government injects MVR 2.4 billion into the economy but Real GDP (productivity) or foreign currency reserves don’t go up, the money supply grows faster than the supply of goods and services.
This starts a classic cycle of inflation.
If this deal goes through, the Rufiyaa in your pocket will no longer be worth what it is. Without US dollars to back up this new liquidity, the exchange rate on the parallel market (black market) will go through the roof, making food and other essentil imports much more expensive for the average household.
Fiscal Irresponsibility Over Consolidation
The government’s refusal to carry out Fiscal Consolidation may be the most worrying part of this story.
When a government is short on cash, it should cut waste, put off projects that aren’t necessary, and shrink the deficit. Instead, we see Fiscal Profligacy. The government keeps starting new infrastructure projects, hiring more political appointees to work for the state, and raising operational costs (opex).
Rather than reducing the deficit through discipline, they are attempting to finance it by raiding the fiduciary savings of the public. They are forcing open a “backdoor” to debt monetization that threatens the country’s financial sovereignty.
The “Invisible Haircut”: Financial Repression
The most alarming impact is on the Pension Fund itself. This is a form of Financial Repression, where the government channels funds to itself at the expense of savers.
The Pension Office is in charge of a portfolio worth about MVR 25 billion right now. The number on the screen that shows the nominal value of your pension account may stay the same, but the real value is under attack.
If this injection of cash leads to the expected rise in prices and fall in the value of the currency, your pension pot will lose 30% to 40% of its buying power.
The Math: If your pension balance is MVR 123,000, a 30-40% devaluation means the real-world buying power of those savings evaporates.
This is an invisible tax on the future of every Maldivian worker that was put in place without permission.
A Systemic Failure
The fact that Inaz is leaving shows that institutional independence is no longer working. The Pension Office Board, which is in charge of public savings, is being forced to pay for government deficits.
The Ministry of Finance is ignoring the warnings of experts. Instead of following the advice of economic advisors who say to be disciplined with money, they are putting short-term cash flow ahead of long-term stability.
The government may have a legislative supermajority, but a vote in parliament can’t change the laws of economics. The government is leading the Maldives toward a fiscal cliff by ignoring the need to cut costs and choosing the risk of the printing money instead.