Moody's maintains "junk" rating for Maldives as economic troubles persist

One of the world's largest credit rating agencies, Moody's has maintained the Maldivian government's "junk" rating as the island nation’s financial situation shows no signs of improvement and no robust measures have been taken to address it.

Moody's has noted that foreign currency reserves have been increasing since October 2024. They stated that this is a result of assistance from foreign financial institutions, amendments to foreign currency-related policies, and the implementation of government revenue policies related to foreign currency.

Although the Maldives' rating was at "Caa1" last year, Moody's has downgraded it to "Caa2" and determined the outlook at “negative”. Due to the increased risk of debt default, the Maldives is now in the "non-investment" grade in Moody's rating.

The Moody's report states that the biggest challenge facing the Maldives is servicing its external debt, including the USD 500 million sukuk due in 2026.

The report also highlights the challenges in obtaining financing from international markets, given the reduced certainty in financial markets due to U.S. economic policies.

Further, Moody's has noted that despite the improvement in foreign currency reserves since October 2024, there are concerns about debt repayment in the coming days. The review also indicates that the rating is not expected to improve in the near future. Moody's warns that if there is a regression in implementing financial reform measures, there is a possibility of further downgrading the rating.

The previous government took important steps to reduce expenditure. These include reducing the number of political positions and employees, as well as cutting down on government travel expenses. Although President Dr. Mohamed Muizzu said he would reduce the number of political staff upon taking office, it is notable that the number of political positions and employees remains high.