Maldives shrug off IMF red flag over Rufiyaa peg

August 13, 2007 (LBO) – The Maldives has shrugged off a red flag from the International Monetary Fund (IMF) that its currency peg with the US dollar was under threat from a record budget deficit and money printing. Sri Lanka’s external reserves have also been under pressure in recent months and the country is going to international markets for a 500 million dollar sovereign bond issue. IMF said the budget deficit of the Indian Ocean tourist paradise is set to skyrocket from 7.3 percent of the economy in 2006 to 23.9 percent in 2007.

The IMF, a global watchdog of exchange rates and inflation, last week advised the Maldives to cut the budget deficit to avoid higher inflation and a currency collapse. However Maldives has dismissed the warning.

“I give you my word the Maldivian Rufiyaa will not be devalued,” Finance Minister Gasim told journalists, Minivannews.com, an independent news service in the island reported. The press conference was called following the release of an IMF statement.

The Maldivian rufiyaa is pegged to the US dollar at 12.8.

IMF said it did not have enough data to determine whether the “exchange rate is in fundamental misalignment,” which is usually done by working out the infl