Government launches issuance of US dollar treasury bills

The government today launched the issuance of US$100 million worth of treasury bills to the State Bank of India (SBI).

At a ceremony this morning, Aishath Zahira, deputy governor of the Maldives Monetary Authority, said it was the first time a security denominated in US dollars was being issued.

“This ceremony marks a new beginning, the first issuance of treasury bonds (t-bonds) in the history of Maldives and hopefully a new chapter in the Maldives’ securities markets and the finance market as a whole,” she said.

“Treasury bonds are to be issued to the commercial banks licensed in the Maldives. The treasury bonds are securities issued for a longer term, one to 15 years and beyond. The bonds will be coupon bearing bonds and hence some of the bonds will be sold at discount and others at a premium.”

She added that issuing the bonds marked an important step for the country’s financial evolution and graduation beyond the status of a ‘least developed’ country.

In August, the MMA began open market operations – selling government securities to control the money supply – to alleviate the dollar shortage.

“As a result of the open market operations, the amount of money circulating in the economy will decline, aggregate demand will fall, inflation will decline and the dollar shortage will be eased,” said MMA Governor Fazeel Najeeb in a statement to the press in September.

The main purpose of the operation was to remove the excess local currency in the economy, he said, which resulted from the MMA printing money to give out loans and overdrafts to the government to plug the budget deficit.

Zahira said today the MMA was the government’s agent for raising funds for financing the budget through the issuance of government securities.

“In Maldives, treasury bills were first introduced on 10 September 2006, as the first government security and with a minimum face value of Rf1 million.

At present, treasury bills are issued on a tap system with maturities of one month and three months at a fixed interest rate of 6 and 6.25 per cent per annum,” she said.

“Presently, the t-bills market is open to all commercial banks in the Maldives and state owned enterprises and their subsidiaries. The MMA acts as issuing and paying and advisory agent for the government and carries out weekly issuance of treasury bills on every first day of the week with the settlement process carried out on the next day.”

Zahira said the present securities market of the Maldives was not yet fully developed and the MMA was currently working towards issuing t-bills and t-bonds on an auction basis.

“MMA hopes that this would establish a market rate for securities which could then be used in financial transactions. MMA also hopes to expand the investor base for government securities by introducing lower denominated t-bills and t-bonds and allowing other private institutions and individuals to participate in the primary and secondary market in the near future. This could create a competitive market for t-bills and t-bonds and also encourage public savings.”

At present, the SBI was the sole subscriber for the treasury bills.

The Male’ branch of SBI began operations in February 1974 as the first commercial bank in the country.

It currently has branches in Addu atoll Hithadhoo and Alif Dhaal Maamigili. It is also the second largest bank in the country in terms of assets.

In his remarks, D M Muley, the Indian High Commissioner, said there had been a “qualitative and quantitative upward swing” in India-Maldives relations since the new government came to power last year.

The SBI was “an unsung hero” in the bilateral relations between the two countries, he said.

“I must at this moment remember the vision of Mrs Gandhi, who said before I visit Maldives, I would like my bank to be present there,” he said, adding today was a celebration of her vision over 44 years ago.

At the function, the award of service to SBI was presented by Ahmed Assad, state minister of finance.

At a press conference after the function, Assad said the main purpose of the sale of t-bills was to cease obtaining loans and overdrafts from the MMA to finance the budget deficit in favour of debt instruments.

The other objective was to ensure that fiscal and monetary policy was independent. “Because of this the MMA will get the space to implement the monetary policy,” he said, adding MMA will now be able to use monetary policy to control inflation.

Treasury bonds and bills will expand the financial market, allow the public to participate and investors to manage their savings.