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Fitch Ratings downgrades Maldives from 'B' to 'CCC'

Mariyam Malsa
06 November 2020, MVT 11:21
Maldives Monetary Authority (MMA) in the capital city of Male'. PHOTO: NISHAN ALI/ MIHAARU
Mariyam Malsa
06 November 2020, MVT 11:21

Fitch Ratings, one of the world's top credit rating agencies, downgraded the Maldives' long-term foreign and local currency issuer default ratings (IDRs) from 'B' to 'CCC'.

According to the Hong Kong-based agency, the downgrade reflected projections that Maldives would face more severe and prolonged external liquidity pressures than initially forecasted, as well as the spike in debt burden due to the COVID-19 pandemic and continued debt-funded infrastructure projects.

Despite noting the Maldivian government's success in securing external finance, Fitch stated that the country's foreign-currency buffers remained weak due to difficulties in generating additional foreign currency inflows without a normalisation of tourist activity.

Highlighting that Maldives had become heavily dependent on the international community for bilateral and multilateral financing, Fitch expressed its view that "risks surrounding the sovereign's ability to meet its debt service obligations have increased".

Overall, Fitch stated that the economic outlook for Maldives had deteriorated considerably due to the likelihood that the tourism industry would require a longer period to recover from the COVID-19 pandemic than previously expected.

"In our 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".

Furthermore, Fitch revealed its projection that the island nation's economy would contract by 30 percent in 2020, describing it as one of the sharpest drops in economic activity globally. The contraction also represents a higher severity than the 6.6 percent drop faced by Maldives in the 2009 global financial crisis and the 13.4 contraction experienced in the wake of the 2004 tsunami.

According to the credit rating agency, the negative growth outlook resulted in a material deterioration of forecasts for key credit metrics. Fitch disclosed its estimates that government debt would increase to 110.7 percent of GDP in 2020, compared to 62.6 percent in 2019, while fiscal deficit would increase to 21.7 percent of GDP in 2020, compared to 5.8 percent in 2019.

As with numerous countries around the world, amid the ongoing COVID-19 pandemic, Maldives closed its air and sea borders to tourist arrivals from March 27 to July 15.

Despite the reopening of borders, tourist arrivals have yet to reach pre-COVID figures. While a total of 382,760 tourists were recorded before borders were closed in March, the latest statistics by the Ministry of Tourism reveal that only 37,468 tourists arrived in Maldives between July 15 and October 28.

However, the Minister of Tourism earlier expressed hopes for the industry's recovery, estimating that 100,000 tourists would visit Maldives before the end of 2020. The tourism ministry expects a total of 500,000 arrivals for the year.

The restrictions on international travel left Maldives' heavily tourism reliant economy in an extremely vulnerable state. In mid-April, the World Bank projected that Maldives would be the worst-hit economy in the South Asian region due to the pandemic.

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