Fitch has maintained the Maldives’ credit rating or debt repayment capability at ‘B Negative’ for this year, predicting positive changes to the Maldivian economy despite a shortage of foreign currency.
The Maldives rating of ‘B Negative’ was first determined by Fitch in 2021. The change was made after the country’s long-term foreign currency issuer default rating (IDR) was lowered to ‘CCC’ in the previous year (when the Covid-19 pandemic struck).
Along with the rating, Fitch also maintained a ‘Negative’ outlook for the economy. The main reasons noted by Fitch for not changing the rating were growing debt and challenges in securing funds for government spending.
“The Negative Outlook reflects the risk of heightened external financing and liquidity strains, which could imperil the currency peg to the US dollar amid rising external debt servicing, weakening foreign reserves and tight global financial conditions,” Fitch warned.
Fitch predicted that pressures on foreign currency reserves would remain unchanged in the short term and estimated that reserves at present were enough to cover one month of external payments, which was well below the projected 'B' median of 3.5 months.
Other issues highlighted by Fitch:
- High levels of foreign debt that need to be repaid over the next years and low levels of US dollars in the Sovereign Development Fund (SDF)
- Widening current account deficit due to increasing cost of imports amid rising global prices
- Delays in reducing expenditure due to increased spending on infrastructure projects and failure to implement planned changes to subsidies
- Rising debt-to-GDP ratio in the future due to the failure to reduce expenditure
Despite the difficulties, Fitch estimated that the Maldivian economy would grow by 7.2 percent this year driven by rapid growth in tourism. Fitch predicted economic growth of 6.6 percent over the next two years as well.
Fitch noted “continued bilateral and multilateral financing support facilitated by the country's geopolitical strategic importance” as a reason for affirming the outlook.
