The rufiyaa is pegged to the US dollar. The midpoint of the exchange rate is US$:Rf12.85 and the rate is permitted to fluctuate within a band of ±20%. In recent years the currency has consistently grazed the weak edge of the band.

Although we maintain an optimistic outlook for tourism in the Maldives, the country is expected to draw down its external buffers significantly because of its high (and rising) import bill, continued support for the currency peg and the need to repay a swap arrangement with the Reserve Bank of India (India's central bank). The Ministry of Finance has also allocated about US$400m for debt obligations in its 2022 budget projections, which will be funded through credit assistance from bilateral and multilateral sources.

We forecast the currency peg to be maintained in 2023-24 as tourism receipts continue to grow. The risk that the government will be forced to move the peg to a weaker level will be high in the near term, owing to dwindling reserves, but will then diminish over 2023-24 as easing global commodity prices help to stabilise the import bill and demand for the US dollar moderates. The government will also account for political concerns, as a devaluation would be unpopular among households that purchase US dollars with legitimate means. This would adversely affect the ruling MDP's campaign for the presidential election in 2023.