Maldives Monetary Authority (MMA) has stated the option of printing MVR 4.4 billion to meet budgetary expenses next year will adversely impact the country’s exchange rate.
According to MMA’s recommendations on the budget for 2023, if more money is printed to meet the government’s budgetary needs, there will be an increase in the flow of money in the economy, thereby lowering demand for foreign currency and adversely affecting the exchange rate of the country.
MMA said it would prefer to start open market operations (OMOs) to minimise the impact on the exchange rate. The central bank said it has been observed in recent years that commercial banks are less invested in government T-bills due to OMOs.
Last year, the parliament extended the government’s access to printing up to MVR 4.4 billion until the end of next year.
MMA also noted that the estimated state budget for 2023 does not detail how the government plans to repay the funds withdrawn so far from public bank accounts.
The budget has projected MVR 6.4 billion from the overseas market and MVR 4.7 billion from the domestic market to meet the deficit. If the funds are not received, it will once again be difficult to meet the budgetary expenses.
MMA said foreign financing also provides an opportunity to increase the country’s reserves. Foreign financing for the years 2019 to 2021 was only about 50 percent of the budgeted estimates. Therefore, in the last few years, it has been difficult to keep the official reserves at an adequate level.
President Ibrahim Mohamed Solih has pledged to raise the country’s reserves to $1 billion in five years in office. However, by the end of next year, the country’s reserves are expected to be at $600 million.