Finance Ministry snubs downgraded Fitch Ratings for Maldives

Ministry of Finance, on Friday, refused to accept Fitch Ratings' downgrade of Maldives' long-term foreign and local currency issuer default ratings.

Fitch Ratings, one of the world's top credit rating agencies, downgraded the Maldives' 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.

However, the ministry noted that recent financial policies have resulted in the progression of the Maldivian economy, further noting that Maldives was consistently making payments on its debts.

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 Maldives' heavy dependence 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 response, the Finance Ministry noted the country's efforts to bolster the tourism sector by expanding air traffic movements and increasing the number of airlines currently operating scheduled flights to Maldives.

Moreover, the ministry revealed that the budget allocated for tourist promotion would be increased in the proposed 2021 state budget.

The Speaker of Parliament Mohamed Nasheed also responded to the concerns, stating that Maldives must acknowledge international indicators. However, Speaker Nasheed said that Maldives was not in a situation that could result in a default on its sovereign loans.

Fitch projects 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.