Moody's downgrades Maldives' rating, changes outlook to stable

Moody's Investor Service has downgraded Maldives' credit rating once again.

Moody's graded the Maldive's credit rating at 'B3' during its 2020 review. However, in its most recent rating dated August 17, the Maldives' rating was revised to CAA1, while changing the outlook to stable from negative.

According to Moody's, the downgrade to CAA1 reflects the deterioration of fiscal strength beyond Moody's initial expectations, stemming from the significant increase in the debt burden during the coronavirus pandemic, the prospect for large fiscal deficits in the coming years, and over time, the risk of higher interest costs associated with the debt burden and greater commercial borrowing. The rating also reflects Moody's expectations that, even with a robust rebound in tourism arrivals in the coming quarters, the debt burden will only gradually decline on expectations that the government will maintain an expansionary, investment-driven fiscal policy that will repeatedly test the government's access to a diverse set of funding sources.

However, Maldives' Finance Ministry said none of the loans borrowed by the state has defaulted, and that the current circumstance is not one where the state cannot make loan payments. While the country's debt status has improved in recent days, Moody's rating does not reflect the recent improvements to the country's debt situation, the ministry said.

The government has been taking out several loans to run the government. Last year, the country's debt against GDP rose by 130 percent due to borrowings. However, with tourism picking up once again, the debt percentage has declined against GDP, although overall debt increased by 3 percent during the first quarter of 2021. The total debt, including guaranteed debt, is currently over MVR 82.8 billion.