Fitch downgrades Maldives’ credit ranking again

Fitch Ratings has downgraded Maldives’ credit rating to ‘CC’ from ‘CCC+’.

One of the world’s largest credit rating agencies, Fitch Ratings released its latest credit rating in the Long-Term Foreign-Currency Issuer Default Rating (IDR) for the Maldives on Thursday, the last time the island nation’s credit rating was publicized was back in June.

Stressing on the increased risk of default, the U.S credit rating agency noted that some of the main reasons behind its decision is the plummeting gross foreign exchange reserves as well as spiralling external debt service.

Further, the agency cited public debt vulnerabilities as well as doubts regarding the government’s medium-term financing plan, as other reasons.

Noting that the country's total foreign exchange reserves fell nearly 20 percent to USD 395 million in July 2024, Fitch said that this was a significant drop from the USD 492 million in May 2024.

Fitch went on to note that this is the biggest drop since December 2016.

The credit rater stated that the remaining total reserves after short-term external debt cuts fell to a record low of USD 44 million and that this was due to the high current account deficit, high external debt, and the steps taken by the Maldives Monetary Authority (MMA) to keep the value of the Maldivian Rufiyaa at par with the U.S. dollar.

In addition to this, Fitch stated that foreign debt guaranteed USD 50 million in the fourth quarter of 2024 will have to be repaid, while the USD 64 million government-guaranteed foreign debt will have to be repaid as well.

Fitch noted that the sovereign development fund currently has about USD 65 million, which is higher than the USD 54 million recorded in mid-June.

Although the quickest dues are settled through the reserve, the total external debt to be paid in 2025 will rise to USD 557 million and will rise to USD 1.0 billion in 2026.

This includes the return of a USD 500 million sukuk as well.

Fitch expects the budget debt of the island nation to remain high in the short and medium term.

This is due to the state spending on public investment and forced imports of food, energy and raw materials, which in turn leads to a shortage of the U.S. dollar, which in turn dominates the parallel market and reserves.

Further, the credit rater stressed on an increasing uncertainty on the government’s plan to access the market and partially refinance the USD 500 million sukuk in 2025, alongside the near-term external liquidity tensions.

Highlighting that the state wishes to raise more tourism foreign funds into the Sovereign Development Fund (SDF), Fitch said it believes there will be challenges in paying sukuk debt dues in 2026, after USD 200 million is extracted from the fund.

Fitch expects the government's direct debt in the medium term to be 109 percent of the Gross Domestic Product (GDP).

Even when Maldives’ rating in 'B-minus' was maintained for the last two years, the state's debts had remained unchanged.

In June, Fitch shed the spotlight on the possibility of Maldives falling into a pit of debt, after downgrading the island nation’s long-term Foreign-Currency IDR to 'CCC+'. The report revealed that this reflects increased risks associated with the island nation’s worsening external financing and liquidity metrics.

Fitch rating is approved world-wide as a provider of information for investors and lenders regarding the extent of risks of investing in a destination.