American credit ratings agency Fitch has downgraded the Maldives' rating to CCC+ for this year with the assumption that the country will not be able to repay foreign debt.

Fitch previously rated the Maldives at "B negative" over the past two years. With the new rating, Fitch considers the Maldives to be a country with a high chance of facing bankruptcy.

Rising public debt and difficulties in securing external financing were the main reasons cited by Fitch for the ratings downgrade. With large amounts due as debt repayments in the coming days, Fitch expected the government to reduce external financing requirements with fiscal reforms.

Fitch also expected the country's foreign reserves to remain under significant stress in the coming year. The reserve fell from USD 748 million in May last year to USD 492 million in May this year, Fitch noted.

According to the rating commentary released by Fitch, USD 233 million in sovereign external debt-servicing obligations and USD 176 million in publicly guaranteed external debt-servicing obligations will come due in 2024. The figures will rise to USD 557 million in 2025 and exceed USD 1 billion in 2026. This includes a USD 500 million sukuk.

The Maldives will have to rely on bilateral and multilateral financing support whilst the USD 54 million in the Sovereign Development Fund (SDF) at present was not a significant amount, Fitch noted.

The other issue noted by Fitch was rising debt. Fitch expected government debt to rise to 117.6 percent of GDP in 2026 from an estimated 109.4 percent last year. The figure was forecast to rise further in the medium term.

Implementation of subsidy reforms in the fiscal reform agenda proposed by the government will begin in the final quarter of the year, Fitch stated. The government has yet to disclose the timeline for this.

Fitch also forecasted a persisting dollar shortage as the country was dependent on imports and expected the government to be forced to take further stringent measures to reduce spending.