The rufiyaa is pegged to the US dollar. The mid-point of the exchange rate is Rf12.85:US$1, 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 exchange-rate band.

Although we maintain an optimistic tourism outlook for the Maldives, the country's significant external debt burden will weigh on its external buffers, and monetary tightening by the Federal Reserve (the US central bank) will increase refinancing costs. The Ministry of Finance has allocated about US$400m for debt obligations in its 2022 budget projections, which will be funded through credit assistance from bilateral and multilateral sources.

Our core forecast is that the peg will be maintained in 2022-23 as tourism receipts recover, but there is a significant risk that the government will be forced to weaken the currency if foreign-exchange reserves remain under pressure for a prolonged period. We believe that the currency will continue to test the weaker edge of the band, especially as the US dollar continues to strengthen.