Fitch Ratings has downgraded the Maldives' Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'B'. Fitch typically does not assign Outlooks or apply modifiers to sovereigns with a rating of 'CCC' or below.
According to the re-assessed rating issued by Fitch on Thursday, the downgrade of the Maldives' IDRs to 'CCC' reflects Fitch's expectation of deeper and more prolonged external liquidity pressures than previously forecast, and a sharp increase in the country's debt burden as a result of the coronavirus shock and continued debt-funded infrastructure spending.
In recent months, the authorities have succeeded in securing new external financing, but foreign-currency buffers remain low and it will be difficult for the Maldives to generate foreign-exchange inflows without a normalisation of tourist activity, noted Fitch. This shock has made the country heavily dependent on the international community for support through bilateral and multilateral financing. Risks surrounding the sovereign's ability to meet its debt service obligations have increased, in Fitch's view.
The economic outlook for the Maldives has deteriorated dramatically in recent months, as the recovery of the tourism industry is likely to be delayed and much more gradual than they previously assumed, said Fitch. In their baseline scenario, tourism activity in the Maldives will remain subdued through 2021, with arrivals recovering to pre-pandemic levels only by the end of 2022, the rating company estimated.
Hong Kong's Fitch Rating downgraded the Maldives' Long-Term Foreign-Currency and Local-Currency IDR to 'B' from 'B+' and revised the Outlook from 'Stable' to 'Negative' earlier in April. At the time, Fitch said it expected the Maldives' economy to be hit hard by the coronavirus pandemic because of the dominance of the tourism sector. While it predicted that a deep recession seems unavoidable, as tourism directly accounts for about 25% of the archipelago's GDP, the credit rating company had forecast a 5% contraction in economic activity in 2020.
The Maldives’ government has refused to accept Fitch’s revised rating. A statement issued by the Maldives’ Finance Ministry said the current economic outlook projects a more promising recovery with recent policies.