New Delhi: Maldives received a major jolt on Wednesday after Fitch Ratings downgraded the island country’s long-term issuer default rating to CCC+ from B- indicating higher economic risks. “The downgrade of the Maldives’ IDRs to ‘CCC+’ reflects increased risks associated with the country’s worsening external financing and liquidity metrics,” according to the rating agency.
To put the action in context, Fitch Ratings does not assign an outlook to countries whose sovereign rating is CCC+ or below. Fitch Ratings flagged Maldives’ weakening foreign reserves buffers and rising external government debt as risks to the country’s economic situation.
While the current Maldivian government led by Mohamed Muizzu is expected to cut its external financing requirements, the country is likley to face external refinancing hurdles in 2025 and 2026, according to Fitch Ratings.
Maldives’ forex reserves to remain under stress
Maldives’ foreign exchange reserves fell to $492 million from $748 million in May 2024 indicating a rising current account deficit, Fitch said. The Maldives Monetary Authority has intervened in markets to support the currency peg against the US dollar. The country is also required to repay a $100 million swap arrangement with RBI, according to Fitch ratings.
The country’s gross foreign reserves also stood significantly lower at $73 million. The country’s foreign reserves are just enough to cover 0.9 months of current external payments in 2024, said Fitch, compared to a minimum median of 4.2 months. Maldives’ external debt is expected to climb to $557 million in 20205 and worsen to $1 billion in 2026.
To be sure, the Maldives is expected to continue to receive external funding by virtue of its strategic importance apart from tourism taxes deposited in the sovereign development fund.
However, Maldives’ current account deficit is likely to remain at 19.7 per cent of GDP nearly 6 times the median of peer countries. Fitch Ratings warned of a potential downgrade if the country faces heightened stress on account of external finance conditions such as depleted foreign currency reserves and lower creditor support.
A hit to the Maldives’ public finances if its fails to implement fiscal consolidation measures is also likely to lead to a downgrade, said Fitch Ratings.
FItch Ratings downgrades Maldives’ rating: Rating agency Fitch downgraded island nation Maldives’ foreign currency issuer default rating to CCC+ from B+ citing pressures on its foreign currency reserves. Biz News Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
