RIGA (AFP) Latvia's prime minister on Tuesday rejected renewed suggestions that the country devalue its currency in an effort to help it climb out of the deepest recession in the 27-nation European Union.

Related news: • Bengt Dennis: Latvia will devalue currency • Fear of Baltic crisis hits Swedish krona

In a statement, Prime Minister Valdis Dombrovskis insisted that pegging Latvia's currency, the lat, to the euro, was part of an international bailout for the embattled Baltic state.

"The negotiations of the government of Latvia and the international investors are based on the requirement of a stable national currency that all parties comply with and confirm," Dombrovskis said.

Latvian authorities have forecast that the economy will shrink by 18 percent this year.

Talk of devaluation has simmered since Latvia swung from double-digit economic growth into sharp recession last year.

In an interview with Sweden's public broadcaster SVT on Monday, Bengt Dennis, the former head of the Swedish central bank and an advisor to the Latvian government, said devaluation was looming.

"No one knows if there will be a devaluation tomorrow or in a few months, the time frame is always uncertain. But I think we have moved beyond the question of if there will be a devaluation, the question we should be focusing on instead is how it will be carried out," Dennis said.

Dombrovskis, however, insisted that Dennis' comments "should be evaluated as an expert's personal, individual opinion which has nothing to do with ... the position of the government of Latvia on overcoming the economic crisis."

But the premier is also facing devaluation talk within his government.

On Monday, Justice Minister Mareks Seglins became the first cabinet member to speak out in favour of a debate on the issue, although he insisted he was not calling for devaluation, the Baltic News Service reported.

Latvia, a former Soviet-ruled republic of 2.3 million people, joined the EU in 2004. It pegged the lat to the euro in 2005 as part of a bid to switch to the European single currency, which it hopes to adopt in 2012.

Amid the economic crisis, the Latvian central bank has been forced to step in to protect the peg, under which the lat-euro exchange rate can only fluctuate by 1.0 percent.

In past crises, some countries have used currency devaluation as a means to restore export competitiveness.

In December, the IMF and the European Commission -- the EU's executive arm -- as well as leading regional investors such as Sweden agreed to give Latvia a 7.5-billion-euro (10.6-billion-dollar) bailout.

Under the bailout, Riga has been reining in public spending and trying to reform the economy, but it has struggled to meet lenders' requirements