Maldives stops money printing; budgets still need fixing: IMF

Dec 05, 2009 (LBO) – The Maldives Monetary Authority (MMA), the archipelago’s central bank has stopped printing money which was causing reserve losses, but the country still had to fix its budgets, the International Monetary Fund has said. The IMF has given 92.5 million US dollars to shore up foreign reserves of the tourist paradise under two facilities. Maldives got 79.5 million US dollars from the IMF’s classic bailout facility known as a standby arrangement (SBA).

Another 13.2 million US dollars came from an exogenous shock facility.

The Maldives government started heavy deficit spending after the 2004 tsunami, and later started to fill budget gaps by borrowing the domestic currency rufiyaa or printing money from the MMA.

The unbacked printed money (excess rufiyaa liquidity) causes ‘foreign exchange shortages’ and ultimately foreign reserve losses when the monetary authority tries to keep a fixed exchange rate peg by selling dollars.

The Maldives rufiyaa is pegged to the US dollar.

“The program aims to rebuild international reserves to prudent levels while preserving the current exchange rate peg to the U.S. dollar,” IMF’s deputy managing director Takashito Kato said in a statement.

“Monetary policy will