Govt assures comprehensive reform on Fitch highlighted issues

The government on Thursday assured comprehensive reforms on the issues highlighted by the top global credit rating agency, Fitch Ratings, that has downgraded the Maldives’ credit rating from ‘CCC+’ to ‘CC’.

In its Long-Term Foreign-Currency Issuer Default Rating (IDR), released on Thursday, Fitch said that the Maldives’ total external debt servicing will increase to USD 557 million in 2025 and exceed USD 1.0 billion in 2026, including a repayment of a USD 500 million sukuk.

Fitch said the key factors driving its decision includes an increased risk of default, failing gross foreign exchange reserves, rising external debt service, public debt vulnerabilities, and uncertainties surrounding the government’s medium-term fiscal plan.

The agency assessed that intensified pressures from the country’s recently deteriorating external financing and liquidity metrics have made a default even more likely within the rating horizon.

In response to Fitch’s decision, the Ministry of Finance, in a statement said, the credit rating agency downgraded Maldives’ credit rating owing to growing risks to the country’s fiscal and debt vulnerabilities.

“In light of the fiscal vulnerabilities and setbacks in acquiring external aid highlighted by Fitch, the Maldives government is engaged in bringing comprehensive reform to the country’s revenue and expenditure and reduce acquiring additional debt in the medium-term fiscal plan,” the ministry said.

The government has assured it has taken robust steps to increase the state revenue and cut costs to alleviate the growing risks of fiscal vulnerabilities and failing gross foreign exchange reserves. These measures include hiking the airport taxes and fees, green tax, and the tax levied on unhealthy items.

The government also projects the Maldives’ official reserves, including the usable reserve and the Sovereign Development Fund (SDF), will rise above USD 606 million by the end of the year in light of the reforms.

“[These reforms will] mitigate the risks in the external sector and the official reserves, and further enhance Maldives’ debt servicing obligations in foreign currency,” the ministry added in its statement.

The ministry further highlighted the recent implementation of austerity measures on state expenses and ensure fiscal sustainability. These measures include:

Reduce wastage in state-owned enterprises (SOEs) and extend their efficiency

Transition to a targeted direct subsidy system instead of the indirect subsidy

Enhancement of health insurance system

Establish fuel hedging policies to divert shocks related to global fuel price changes

These policy reforms, the ministry said, aims at reducing Maldives’ dependency on external aid and improve the fiscal and external sector conditions. The Finance Ministry further said it is now working with global financial institutions to resolve the foreign exchange constraints Maldives currently faces.

“With the implementation of these policies and coupled with the tourism sector growth this year and in the medium-term plan will enhance the fiscal and debt sustainability conditions of the government,” the ministry added.

The government forecasts Maldives’ debt will reduce below 90% of the national GDP by 2028 with the reforms, which will have positive effect on future credit ratings.

Following Fitch’s decision, the Maldives Monetary Authority (MMA) issued a statement, and while forecasting the official reserves to reach USD 606 million by 2024 end, the central bank said the Maldives’ financial situation will improve once the reform measures are implemented in accordance with the medium-term fiscal and debt strategy.

It also added that despite the challenges facing the finance system, it is confident that collaborative efforts between the MMA, the Finance Ministry and other relevant state institutions will produce positive results.