Recent events have reignited concerns about political influence over the Maldives Monetary Authority (MMA), illustrating the urgent need to safeguard the institution’s independence. The reported MVR 15 billion land transaction between the government and the MMA has sparked debate, with critics warning that the move could destabilise the Maldivian economy. The resignations of key figures, including Ahmed Zayan Mohamed from the Finance Ministry’s position on the MMA board and Shuhadh Ibrahim from the Economic Ministry’s representative role, have heightened speculation about political pressure influencing the central bank’s decisions.
The controversy has intensified following allegations by former Finance Minister Ibrahim Ameer that the government’s proposed land transaction effectively amounts to printing money — a move that could lead to inflation, currency depreciation, and an economic downturn. Meanwhile, efforts to remove MMA Deputy Governor Ahmed Imad have been linked to his reported opposition to the plan, raising further concerns that dissenting voices are being sidelined.
These developments illustrate the broader risks of political interference in a nation’s central bank — a scenario that financial experts warn can have lasting economic consequences.
The Economic Risks of Politicisation
Central banks are designed to operate independently to ensure monetary stability and protect the economy from short-term political pressures. The Maldives’ ongoing economic challenges, including a substantial debt burden and limited reserves, make such independence all the more crucial.
When central banks are pressured into decisions that align with political objectives rather than sound economic principles, the risks are significant:
- Inflation and Currency Depreciation: Expanding the money supply without corresponding economic growth risks driving up inflation. In the Maldives, this could push the US dollar exchange rate above MVR 20, as some analysts have warned, placing additional strain on import-reliant businesses and households.
- Loss of Credibility: A central bank seen as politically compromised risks losing the trust of investors and the public. This undermines confidence in monetary policy, making it harder to control inflation and stabilise the economy.
- Erosion of Financial Stability: Politicised central banks may struggle to implement policies designed to reduce debt and manage reserves responsibly, exposing the country to financial instability.
Global Best Practices and the Need for Independence
International financial institutions such as the International Monetary Fund (IMF) and the World Bank have consistently stressed the importance of central bank independence. The IMF has warned that politicised monetary policies can destabilise developing economies, with inflation and currency volatility often the immediate consequences. The World Bank has similarly emphasised that independent central banks are better positioned to implement long-term strategies that promote sustainable growth.
In the Maldives’ case, ensuring the MMA’s independence is vital to maintaining economic stability. The recent resignations and reported political pressure have cast doubt on the central bank’s ability to make impartial decisions, raising concerns about its capacity to manage inflation, control currency volatility, and support broader financial stability.
The events of the past week have highlighted the dangers of compromising central bank independence. With the Maldivian economy facing mounting debt pressures and limited reserves, the MMA’s ability to function without political interference is crucial. Aligning with international best practices and insulating the central bank from short-term political objectives is essential to safeguarding the Maldives’ economic future. Strengthening the MMA’s independence will provide the stability needed to navigate these economic challenges without risking further uncertainty.
