Former finance chief questions timing of MMA private sector T-bill reform

Former Finance Minister Ahmed Inaz has questioned the timing of the Maldives Monetary Authority’s (MMA’s) decision to offer Treasury Bills (T-bills) to the wider private sector claiming it would compound the country’s budget deficit rather than directly address state debt.

Inaz, who served as Finance Minister under the administration of former President Mohamed Nasheed, said that until the present government put a lid on its expenditure to levels agreed in the national budgets of the last two or three years – extending T-bills to the wider private sector in the current climate would only prolong economic uncertainty.

The comments were made as local media reported yesterday that the Maldives Monetary Authority (MMA) had opted to allow “private groups” to purchase T-bills.

Such bills, which are sold by governments all over the world, serve as a short-term debt obligation backed by sovereign states. In the Maldives, T-bills are said to have a maximum maturity of six months, in which time they must be repaid, according to Inaz.

The economy, particularly national debt, has become an increasingly important issue for the coalition government of President Dr Mohamed Waheed Hassan.

Parliament’s Financial Committee in May released projection that the Maldives’ budget deficit will reach 27 percent of the GDP by the end of 2012, a 175 percent increase on earlier forecasts.

In recent weeks, the government has downplayed delayed payments of civil servant salaries as being the result of a banking “administrative error”, while also admitting to facing “economic difficulties” in covering months of outstanding premium payments resulting from the Aasandha universal healthcare programme.

Yesterday, Abdulla Yameen, parliamentary leader of the government-aligned Progressive Party of Maldives (PPM) told local media that the country was in “dire need” of financial assistance from the international community to help set right the economy.

Yameen and fellow PPM MP and Spokesperson Ahmed Mahlouf were not responding to calls from Minivan News today to clarify the comments.

T-bill extension

Finance Minister Abdulla Jihad said the decision to extend the availability of T-bills to private enterprise was a condition outlined by the Asia Development Bank (ADB) to secure loan funding. He was unable to give the exact amount of the loan at the time of press.

According to Jihad, T-bills had been previously only open to private financial institutions, a market place that he said was presently “saturated” in terms of demand, limiting the amount of T-bills the institutions were willing, or had the capacity, to purchase.

“The issue was to open the market to private groups,” he said.

In regards to criticism from the previous administration about state spending, the Finance Minister pointed to a recent order for all government institutions to immediately reduce their budgets by 15 percent – a pledge Jihad stressed had been successfully realised.

However, former Finance Minister Inaz said by that extending the T-bill scheme without addressing wider concerns of groups like the International Monetary Fund (IMF) over government expenditure, authorities were only prolonging current economic instability rather than tackling the present spending shortfall.

“My reaction to the MMA’s proposals is that issuing T-bills to the private sector or these private groups is not going to help the situation. The budget deficit should be reduced at all costs. Then these T-bills could be introduced as a way to meet capital expenditure,” he said.

“Expenditure should of course not be reduced to a level that would kill off independent institutions and the democratic reform of recent years. But the best way forward is to maintain expenditure say to the levels set in the 2010 or 2011 budget, while increasing income.”

While accepting that current political tensions between the government and the now opposition Maldivian Democratic Party (MDP) made it difficult reach parliamentary agreement, Inaz said that the Majlis would need to agree on any changes to the state budget.

Inaz also called on policy makers to adopt a “broader mindset” by reviewing the present government’s decision, announced earlier this year, to restore import duties and reduce GST.

He believed that taxation measures such as the GST remained the easiest solution to boosting revenue.

Inaz contended that a focus on more direct taxation would allow the government to serve as a facilitator to encourage the private sector to generate economic activity.

T-Bill reliance under Nasheed

Despite concern over the timing of the MMA’s proposals, Inaz conceded that the previous administration had itself relied on debt financed through the sale of T-bills that amounted to about Rf 1.4billion in 2011. However, he claimed that the final budget passed under the Nasheed government in December 2011 was designed to reduce the nation’s budget deficit, while also cutting down on short-term debt obligations such as T-bills.

“The T-bills issued in 2011 amounted to Rf1.4 billion (US$90.8 million). We foresaw the need growing every year, but this is very difficult to maintain as the maximum maturity for T-bills is six months, during which time they must be paid back,” he said

However, Inaz added that before the controversial transfer of power in February that brought President Waheed into office, the Nasheed government had pledged to reduce its reliance on T-bills by focusing on generating revenue through economic reforms such as GST.

“This year though we were set to reduce our reliance on T-bills to about Rf 700 million (US$45.4 million) with a view to cutting back completely through repayments in the next two years or so.”

Local media reported in April last year that government debt accrued through the sale of T-bills to banks and financial enterprises was estimated to be equivalent to more than a third of this year’s Rf 12 billion (US$778.2 million) national budget, according to Maldives Monetary Authority (MMA) figures released at the time.


20 thoughts on “Former finance chief questions timing of MMA private sector T-bill reform”

  1. Inaz is correct about this. But what was this inexperienced silly boy doing as finance minister under Nasheed? He only compounded the economic woes of this nearly bankrupt country.

  2. @ramzee, I heard his (Inaz) budget speech. He proposed to cut the deficit to a single digit. He categorically refused to give Oil subsidy (100 mil) and Majlis MP's committee allowance which was not in 2011 budget but MP's in Nasheed's party and opposition then bullied him to surrender to their demand. He reduced trimmed the civil service and had a cap on the ever increase of Public service staffs. He proposed a result based budget. Worked with him then and saw his energy. He knew when to say no, unlike some who gave in or refuse to accept what is right for mere political reasons.

  3. Inaz is just stating the obvious.

    I am truly sorry if I appear to insult him but I must point out that Inaz's comments do not amount to constructive criticism.

    Anyone with half a brain knows that it would be ideal for any government to pursue fiscal austerity in order to cut down on budget deficits. However Inaz does the country a great injustice by failing to mention the political difficulties attached to reducing expenditure.

    I'm sure he himself must have learned the hard way that advocating an idealistic position within a government is pointless when its headed by an elected leadership looking forward to re-election.

    The truth of the matter is, a large cross-section of the working population is employed in the public service. This is also the main reason for our inflated budget as this considerable voting population needs to be appeased by the political leadership of our government. Meanwhile an opposition would be ready to pounce on any opportunity afforded by a sudden and drastic reduction in pay-levels.

    So its very easy to quote maxims from a textbook such as cut down on expenditure and increase income. The difficulty lies in spelling out clear policies for increasing income while proposing a politically viable solution to the problem of expenditure.

  4. The Government had failed to implement any major project or program that was budgeted for 2012. Instead it is lavishly spending paying excessively to foreign lawyers, firms, leisure travels, paying back the MNDF & MPS for their contribution in the coup, extra payments to the civil servants in the hope of converting them to accept the rogue government and giving additional allowances to PO staff and bribing them. Who is suffering? the public.. Who is enjoying the traitors. I do not understand why this place can be a state anymore... In my opinion this an occupied territory whose leader is a puppet, constitution in the dustbin, judiciary in the pockets of cronies, defense/security in the fist of two psychopaths ...can it bit be shittier than this..

  5. While Nasheeds' govt financed themselves with T-bills, they did however take steps to reduce expenditure in govt - especially in reducing the expenditure on the useless unproductive public sector. All of that however was scuttled by the then opposition. Concrete steps were taken to encourage the private sector to drive the economy and finance the govt with tax revenue. We all know how that went.

    Ironically it was the elected govt which risked the ire of the public, by adopting a policy of improving and increasing productivity in the public sector.

    There are jobs in the private sector, which pays well, but why bother when the govt prints money and pays your salary? Government employing for the sake of employing exacerbates our economic woes.

  6. @Tsk tsk
    When he says the current fiscal issues can be solved within Majlis, isn't that the same as what you are referring to? Perhaps is not a politican. Perhaps the politicians can never rectify the current problem. Perhaps it's time for a new beginning.

  7. @tsk tsk
    From your comments, its not conclusive that you possess a brain at all, certainly in terms of general decency, let alone some basic knowledge of fiscal discipline. From your very pompous comment, anyone with ‘half a brain’ of economics could only deduce your knowledge of public finance is marginal in substance, if there is any at all.

    I too am ‘truly sorry if I appear to insult’ you ‘ but I must point out that’ your comments is not a model of ‘constructive criticism’ that you appear to preach besides the ridiculous statement.

    There is nothing called ‘fiscal austerity’ – one of the loaded words you used. Fiscal policies are one of the means of achieving austerity measures, which in any case is not the situation officially. Besides political expediency (which you passionately advocated, obvious sign there), it is hardly the approach to fiscal discipline by a sane individual.

    Imagine inflating the wage bill to ease political difficulties!! Read up some basic textbooks, if you don't want publicly insult yourself as above.

    Good night. Enjoy the

  8. why didnt minivan news mention the way in which inaz resigned from nasheed government?
    he was dragged across the street of Male' to the mdp headquaters and attacked by mdp activists while he was still their minister. shows the state of mdp.

  9. And do not forget that the pdp thugs got hold of him after mid night from Mr. Yameen's car near Male' Kuni Koshi.

  10. what did inaz say when nasheed gave out 400 uninhabited islands to his mdp thugs? Absolutely nothing

  11. Cut the public service by 75 percent. More of us could go fishing, work in the resorts or construction. Politicians,of whatever color or hue they may be, will never make these decisions.

  12. I'd stick a goat in charge of the country's finances, would do far better than the jumped up clowns currently running the show! The Maldives is heading for oblivion! Yeah...............

  13. The timing of MMA private sector T-bill indicates the MMA Governer is in bed with politics. May be MDP or PPM. You never know.

    The 100,000 rf per month is given to MMA Governer not to take sides. Unfortunately, decesions are poltical rather than for the long term good of economy.

  14. @pompous:

    A little knowledge is a dangerous thing.

    What the Maldives is having is not an economic problem per se. It is financial and political.

    There is such a term as fiscal austerity in modern parlance. I suggest you lay off on the textbooks and lectures and immerse yourself in some real-life situations to understand the modern use of the word.

    Please re-read my comment. Where have I not acknowledged that cutting down on expenditure would reduce our fiscal woes? Then please re-read and reconsider your thoughts on my comments about political expediency.

    I was merely pointing out that a person of Inaz's level who once held a Cabinet portfolio is expected to criticize policy not state maxims and preach what no sane person in this world could practice.

    Debating semantics is for high-school kids who believe that vocabulary makes a man smart.

  15. @ tsk tsk: you sir can really talk a lot of nonsense...I thought the coup government could make the economy right by some courageous stance and a bit of the current austerity affecting our major markets, and I was ready to do away with democracy until 2013 for this greater good. Now, giving back civil servants', police and army personel's salary very much looks like regaining a foothold on the more conservative section of the electorate to the detriment of the whole nation. Investor confidence is also going down the drain. With your demagogic logic, I am afraid you are even worse than Nasheed...and we lost our freedom in the process...

  16. @Mohamed.

    So Mr. Inaz not having experience in large scale frauds makes him theoretical.

    Would be nice if people like you criticize non-theoretical 'guys' (winning bids by unconventional means) for lacking at least some theory. Obviously you consider people having a theoretical foundation a liability to your interests.

    Actually your views are akin to all hooligans and hoodlums in this country - which unfortunately is the mainstream view.

    Inaz may in experienced but surely not corrupt.

    And look at the 'solid experience' that you value around you, that has made a mess of this country.

    So how much experience should a person needs to destroy a country, own resorts, destroy institutions. I hope Inaz never become experienced in that.

    Even being a simple theoretical guy a medal compared to a billionaire robber baron. So do not be so proud of your experience. Just look at the cost of your precious 'experience' to a nation.

    I loved your comment.

  17. @Mohamed: Where are the experience politicians other than Gayoom? MMA governor Fazeel Najeeb? The Intellecutal property Rights PhD? Never worked in financial sector, but worked 17 years from a clerk to a director at trade ministry? I guess the current situation can be corrected with any basic common sense guy with some sincerity and honesty!

  18. @Spectator:

    Sir, I do not represent the current government or any ruling regime in this country.

    So I am not answerable for anyone's policies.

    Maldivian leadership needs to step up in several areas. The country needs political stability for a turnaround.

  19. @tsk tsk

    So 'a little knowledge is a dangerous thing' huh.. such a cliche.

    Borrowed words? - lack of imagination? Nothing constructive to say I guess.


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