Fitch signals impending debt crisis for Maldives with ‘CC’ rating

One of the world’s largest credit rating agencies, Fitch Ratings has issued a report affirming the Maldives' credit rating at 'junk' status, citing a high probability of the country defaulting on its debt obligations.

On December 22, Fitch assigned a 'CC' credit rating to the Maldives. The agency highlighted that this rating reflects a significant likelihood of the Maldives defaulting within the rating horizon, primarily due to persistent external financial challenges and the government's elevated financial vulnerability.

Fitch noted that despite an increase in total foreign exchange reserves to USD 887 million by November 2025, the low reserve coverage presents significant challenges for securing external financing.

The "CC" rating assigned by Fitch signifies a very high credit risk, indicating a substantial probability of default. According to experts, a "CC" rating points to significant financial weakness and insufficient financial capacity to meet debt obligations. This rating falls outside the investment-grade category and is considered "junk" (or speculative grade). It is positioned slightly above 'C' (near default) and 'D' (default) ratings.

Fitch observed that while tourism revenue has been robust, steadily increasing and sustainable, the country continues to face foreign exchange shortages despite the substantial income.

The agency noted that out of the USD 4.2 billion annual tourism revenue generated by the Maldives, approximately 60 percent flows out of the country.

As a consequence, Fitch highlighted that the circulation of U.S. Dollars within the Maldivian financial system is limited, leading to a low availability of U.S. Dollars in the Maldivian economy relative to the income generated. Fitch emphasized that despite tourism being a strong and high-dollar-earning industry, the existing system hinders the adequate accumulation of U.S. Dollars within the Maldivian financial framework.

Maldives, heavily reliant on imports, holds official foreign exchange reserves of approximately USD 900 million. However, Fitch stated that the usable reserves held by the Maldives Monetary Authority (MMA) are estimated at only USD 205 million. It was noted that these usable reserves cover roughly three months of imports, which, by IMF standards, is not considered an adequate amount.

On the other hand, the total government debt stands between USD 8.5 and nine billion, with external government debt ranging from USD 3.5 to four billion. The debt-to-GDP ratio has risen significantly to between 120 and 130 percent.

Given the high debt ratio, Fitch indicated that the Maldives has limited opportunities for debt restructuring in international financial markets. The agency further highlighted that the clustering of debt maturities around a similar period presents an additional challenge for debt reorganization.

Fitch noted that the Sukuk, a component of the government's debt, matures in April 2026. While the principal amount is USD 500 million, the annual coupon rate of 9.875 percent brings the total repayment obligation to USD 525 million. Fitch stated that the current government reserves are insufficient to cover this debt when the Sukuk matures in the second quarter of 2026. Therefore, the agency stressed the importance of swift action if debt restructuring is to be pursued.

Considering the Maldives' financial situation, Fitch commented that while the country receives a relatively large inflow of dollars, the actual problem is not a lack of USD availability. Instead, it is a challenge related to retaining dollars within the country and managing financial affairs effectively.

Fitch also warned that with the government requiring a substantial amount of dollars for debt servicing and having not yet built adequate reserves for this purpose, the upcoming year is likely to see an exacerbation of dollar liquidity constraints. This could lead to higher import prices and difficulties for businesses in obtaining dollars.