August 10, 2007 (LBO) – The International Monetary Fund warned the Indian Ocean tourist paradise of Maldives against money printing and dangers of a currency collapse as the country heads for a record budget deficit in 2007. Until 2004 when budget deficits started to rise the Maldives had low inflation and high economic growth and has been a net importer of labour from the South Asian region. The Maldives contracted in 2004 following the tsunami but the economy recovered to grow by 19 percent in 2006.
But the budget deficit which was just 1.9 percent of the economy in 2004 had expanded to 7.3 percent in 2006 and is set to balloon to 23.9 percent in 2007.
The IMF warned the island nation to stop printing money (using central bank credit) to finance the expanding deficit and welcomed a recent law that gave the Monetary Authority of Maldives more independence.
IMF said it hoped that the recent launch of treasury bills “would help eliminate the practice of automatic central bank financing of fiscal deficits”, and asked for further development of the markets.
Inflation which was at 3.7 percent in 2006 is now expected to nearly double to 7.0 percent this year.
The Fund said