Moody's changes Maldives' credit rating outlook to "Stable"

Moody's, one of the world's major credit rating agencies, has maintained the Maldives' credit rating at CAA2 but has revised the outlook from "Negative" to "Stable."

Moody's stated that the upgrade in the Maldives' credit outlook to "Stable" is a result of the positive outcomes from the robust policies and measures implemented over the past year and those currently being executed. This change also reflects the visible results of the careful work being done to enhance the country's capacity to service its debt.

While the credit outlook improved, Moody's expressed concern over the fiscal situation related to the large debt repayment due next year. In addition to foreign debt, the agency noted an increase in short-term domestic debt, highlighting that such debt already constitutes 40 percent of the GDP.

Furthermore, Moody's expressed concern regarding the increasing ratio of Maldivian Rufiyaa (MVR) in circulation relative to the available foreign currency.

Due to government spending exceeding revenue in previous years, the amount of high-cost borrowing to cover expenses had increased. As a result, international financial institutions had been stating that the government's fiscal situation was deteriorating and that the country's finances were on an unsustainable debt trajectory. The need to expend large amounts of foreign currency to repay these debts led to the depletion of the state's official reserve to a low level.

To overcome this situation and arrange its finances sustainably, the government began implementing special measures starting last year.

The Ministry of Finance stated that the main reason for the rating upgrade, according to Moody's statement, is the improvement in the macro-fiscal situation resulting from the Maldives' fiscal and monetary policies.

The Ministry highlighted that the revision of airport taxes and fees, Green Tax, and TGST rates to increase foreign currency revenue, along with the effective implementation of foreign currency laws and regulations, has led to an improvement in the official reserve and foreign currency liquidity.

Moody's has reported a significant increase in the foreign currency cash balance of the Sovereign Development Fund (SDF), rising from USD 15 million last year to USD 126 million as of November 9th, attributed to new financial policies.

The agency praised the government's measures to control expenditures, contributing to a reduction in this year's budget deficit. Notably, the Maldivian economy continues to grow without negative repercussions, with the tourism sector witnessing a 10 percent rise in visitor numbers and a 7.2 percent increase in total guest nights by September compared to the previous year.

The Ministry of Finance indicated that the approved budget for next year is focused on further reducing the government's deficit while maintaining economic stability. Despite retaining a Caa2 credit rating due to elevated debt levels, the government is implementing a strategy to manage the upcoming maturity of a USD 500 million Sukuk and other debts, aiming to lower the overall debt in the medium term.