Fitch Ratings has downgraded the Maldives' Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC+' from 'B-'. This change comes after three years of maintaining the rating at B-minus.
The downgrade comes amid the deteriorating state of the country's economy and challenges in obtaining US dollars. Fitch cited increased risks due to worsening external financing and liquidity metrics as reasons for the downgrade. The Maldives is facing significant debt repayment challenges, with MVR 9 billion due next year and MVR 15 billion in 2026, according to Fitch.
Fitch also noted that the Maldives' foreign reserves had declined from USD 493 million in May 2024 from USD 748 million a year ago, reflecting a persistently high current account deficit (CAD). Gross foreign reserves net of the short-term foreign liabilities were also significantly lower at USD73 million.
The Sovereign Development Fund (SDF), which was established to help with US dollar bond amortization through foreign-currency tourism taxes, holds limited cash balances in US dollars (USD 54.4 million as of June 11, 2024). Fitch said although the fund could assist with upcoming debt servicing, it currently has insufficient funds.
Fitch has consistently noted that the Maldives has struggled to reduce its expenditure effectively.
Given the importance of Fitch's ratings to lending financial institutions and international organizations, this downgrade will make it more challenging for the Maldives to raise funds from abroad.
