After nine months of disquiet, the resignation of five senior officials, and the loss of key technical staff amid a dispute over who held signing authority, reports indicate that money has begun to move under the bond transaction approved by the board of the Maldives Pension Administration Office (MPAO) in February. Under it, the pension fund “sells” roughly MVR 2.4 billion (US$155.6 million) of securities to the Maldives Monetary Authority (MMA) and uses the cash to buy a new long-dated government bond denominated in two currencies, rufiyaa and US dollars. Some elements of this are open to argument. The central question lies deeper. To reach it, we must look past the structure through which the transaction is being conducted and examine its real purpose and its real effect.
One operation presented as two transactions
Consider the sequence. The MMA releases money to the pension fund in the name of buying securities the fund already holds. The fund then releases that money to the Finance Ministry in the name of buying a new government bond. What the state treasury obtains from this is additional money to spend. Because each step depends on the other, neither can be separated from the other. Executing the transaction as two distinct agreements does not alter the combined result.
Taken individually, each step is lawful. The Maldives Monetary Authority Act empowers the MMA to buy and sell securities issued or guaranteed by the Government. The Maldives Pension Act permits the Pension Office to invest and manage pension assets. But where two institutions act in concert, two permitted acts directed at a single purpose may produce a financial outcome that the spirit of the law never intended.
There is a weakness in the law — but not where most people are looking
Public debate has settled on the assumption that the State’s fiscal responsibility legislation bars this transaction between these three institutions. That is not quite how matters stand.
Section 6 of the Fiscal Responsibility Act allows the Government to borrow from the central bank only as a cash-flow advance: in an amount not exceeding 2.5 per cent of average revenue over the preceding three years, repaid and settled within 91 days, at the prevailing market rate of interest. It is a facility for managing budget cash flow temporarily. It is not an instrument of long-term financing. What must be noted is that section 4(b) of the same Act provides that the Act does not apply to the central bank, the Pension Fund or the Sovereign Development Fund, and that section 44 excludes the Pension Office, the MMA and state-owned companies from the definition of “the State”. The advance rule therefore binds the Government alone. The Act has placed beyond its own reach the very thing now proposed: the central bank supplying cash to the pension fund to invest.
Two consequences follow. The first is that the pension fund cannot itself breach section 6. Because the limits in that section apply to the Government, any allegation of manoeuvring around the law falls squarely on the Government: is money being drawn from the central bank through an intermediary, outside the limit Parliament set for taking money from the MMA?
The second is that while nothing in the Maldives Monetary Authority Act sets any ceiling on the volume of government securities the central bank may hold, what the Act does provide is a good deal more troubling. Under it, the MMA operates and manages the primary market in government securities as the Government’s agent, and must exercise its powers over that market in accordance with the Government’s direction. The second step of this transaction will therefore take place inside a market the MMA runs on the Government’s instruction. Against concerns about monetary financing — the printing of money — the MMA and the Government have maintained that this was a transaction conducted by the central bank independently in the market, at arm’s length from any party. In this case, that account cannot be accepted.
The standard set by the Pension Office’s own legal advice
When the proposal first went before the Pension Board, the objection raised was that no legal opinion accompanied it. One was obtained later. The Pension Office should be reminded of what that advice requires of it: that its foremost legal obligation is to honour its fiduciary duties — the duty to safeguard what has been placed in its trust. Every decision must rest on a technical assessment that is prudent, transparent and commercially sound, and directed to the best interests of the participants in the scheme.
Because the principles of the Fiscal Responsibility Act do not extend to the pension fund, the entire legal burden falls on the Pension Act. That advice, then, does not validate this transaction. It sets the standard, and it leaves the burden with the board. Nothing published to date shows that burden discharged in a manner consistent with the Pension Act and the rules made under it.
Measuring the transaction against the fund’s own principles
Government securities are a permitted asset class under the Pension Act. The question is not whether the fund may hold this bond. The question is whether acquiring this asset in this manner, at this moment, meets the standard the law demands. The Statement of Investment Principles published by the Pension Office requires the fund to maximise value with due regard to risk, to preserve real purchasing power, to shield assets from sharp swings in value as members approach retirement, and to spread investments across different assets and geographies. The Pension Act adds four further tests: security, diversification, the highest return obtainable consistent with security, and adequate liquidity.
Measured against those standards, five problems stand out. The transaction increases exposure to a heavily indebted State rather than reducing it. World Bank figures to the end of 2025 show that state and state-enterprise debt accounted for 40, 66 and 42 per cent of the total assets of banks, other financial institutions and the MMA respectively — a dangerous nexus between the State and the financial sector which the Bank warns amplifies financial risk. When two-thirds of the sector’s holdings already rest on a single counterparty, buying more of that counterparty’s bonds is not diversification. A long-dated instrument reduces liquidity and locks the fund into below-market interest should rates rise. A dual-currency return is worth something only if the dollar leg is enforceable and the Government holds the dollars; reports put usable foreign reserves at US$148 million, which is not enough to cover even a single month of imports. If the bond cannot be freely sold, a liquidity discount lies concealed behind its stated value. And with analysts warning that inflation in the Maldives will climb further this year, any inflation or currency depreciation arising from this transaction would produce a real loss alongside the nominal gain being claimed — the expected benefit is so slight that even a small movement in inflation would erase it.
The assurance that “there will be no loss to the pension fund” is therefore not a sound opinion, in law or in finance. Fiduciary prudence looks forward. It means asking whether, after accounting for inflation, currency, duration, liquidity, concentration and sovereign credit risk, this investment delivers a return adequate to its risk when set against the alternatives.
A prescription that contradicts the central bank’s own diagnosis
The greatest difficulty for the official case is not a political argument from the opposition. It is a finding the MMA itself has published. Excess liquidity — the rufiyaa reserves banks hold at the central bank beyond what regulation requires and beyond what can profitably be lent — has reached MVR 7 billion, and the MMA has stated that this has worsened the mismatch between the supply of rufiyaa and the supply of dollars. In mid-2025 it began open market operations to draw that money back in, and raised the minimum reserve requirement from 10 to 11 per cent. On textbook principles, this transaction resembles quantitative easing. But quantitative easing is a policy aimed at the economy as a whole in conditions that call for loosening. By the MMA’s own assessment, this economy requires the opposite. The MMA must publish the monetary policy purpose of this transaction, its expected effect on reserve money and bank liquidity, and the means by which the money released into the economy will be withdrawn.
How this reaches an ordinary household
If money is created and not withdrawn, liquidity in the banking system rises. When the Finance Ministry spends the proceeds on salaries, unpaid bills, subsidies, suppliers and projects, that money enters the accounts of ordinary people. In an economy where essential goods are imported and nothing else, much of it converts immediately into demand for dollars. Prices rise and the parallel market climbs: the official rate may be MVR 15.42, but the dollar has been trading above MVR 21 on the black market. Importers pass that burden to the shop shelf. Inflation erodes the value of real wages and of rufiyaa pension balances alike. Inflation comes first; then tighter financing, and then the loss of jobs.
None of this amounts to a forecast of recession, and it would be wrong to suggest that MVR 2.4 billion is a problem confined to its own size. But with the World Bank projecting growth of 0.7 per cent for the Maldives in 2026 and the ADB projecting 1.0 per cent, releasing poorly controlled money into the economy raises the risk of inflation and foreign exchange stress at the most fragile moment available.
The real regulator, silent and unaccountable
Because the definition of “non-bank financial business” in the Maldives Monetary Authority Act excludes securities business licensed under the Securities Act, and because the institution buying the fund’s securities cannot regulate the fund, the MMA holds no supervisory authority over how the pension fund invests. The body that monitors and regulates the Pension Office’s investments is the Capital Market Development Authority (CMDA), established under the Securities Act.
The Pension Supervision Department was established within the CMDA under the authority of the Pension Act, which requires such a department to supervise the investment of pension assets and their performance, to formulate the scheme’s reporting procedures, to oversee appointments to the Pension Office board, and to take the measures necessary to enforce the law. Beyond that, the Maldives Monetary Authority Act itself acknowledges that the secondary market in government securities is regulated by the CMDA. The CMDA therefore holds two independent bases of jurisdiction in this matter: as supervisor of the Pension Office, and as regulator of the market in which the fund’s securities were sold. It has exercised neither. The silence of the true legal regulator while all of this proceeded is an institutional failure of the present moment.
Accountability, and the limits of it
Under the Pension Act, those who exercise discretion over pension assets are fiduciaries, and fiduciaries bear responsibility for breaching the rules that govern them. A fiduciary who knew, or ought to have known, that another fiduciary was acting in breach bears that responsibility equally. The Act states expressly that making an investment or incurring expenditure contrary to the Act — or authorising either — is a breach of fiduciary duty. A court may order payment of up to three times the loss caused, together with legal costs, and a party found in breach is barred from serving the scheme for a minimum of ten years. The Governance Code further requires that an established breach be investigated, reported to the regulator, and the board member concerned removed from office.
These provisions do not make every member who voted for the bond culpable. Loss, breach, causation, knowledge and the standard of care must each be established through due process, and the whole of any macroeconomic damage cannot lightly be attributed to a single decision. But no member may rest on the assumption that a collective board decision affords personal protection. When a chairman, a chief executive, a chief financial officer and board members resign and depart, those who remain are on notice that the transaction carries exceptional legal and financial risk.
Had the Government not been in urgent need of cash, and had the MMA not simultaneously been supplying MVR 2.4 billion in cash to the pension fund, would the Pension Office be making this investment, at this time, on these terms? If it would not, then this is being done to serve the Government’s own fiscal position rather than the interests of the fund’s participants.
If indirect money printing raises inflation, drives up the effective rate for foreign currency and opens the way to an economic crisis in the months ahead, there will be no room to conclude that because three institutions conducted the transaction between them, no one bears responsibility for it. The People’s Majlis and the Auditor General must establish whether these two transactions are steps linked contractually or operationally, and whether this structure defeats the purpose of section 6 of the Fiscal Responsibility Act. And because the CMDA’s silence — through the departure and appointment of board members at the Pension Office, and through everything that has followed — offers no assurance that it discharged the duty the law places on it to supervise that office and its board in the interests of the fund’s participants, the CMDA’s own part in this must be investigated.
Those responsible must face the civil, regulatory or criminal consequences the law provides. Pension savings are the property of the people who earned them. That money must not be made into a legal bridge for meeting today’s political spending at the cost of tomorrow’s retirement security.
