Moody’s Investment Service (Moody’s), one of the world's leading credit ratings agencies, announced its change of outlook on Maldives' ‘B2’ issuer rating from stable to negative, in regards to extensive debt inducing development projects.
As stated by Moody’s, “the decision reflects liquidity and external vulnerability risks proceeding from dramatic growth in the government's debt burden that is predicted to extend until the beginning of the next decade.”
According to Moody’s report, “The government's liquidity risks reflect limited financing sources, including the domestic banking system and external investors to meet sizeable gross financing needs required by the infrastructure programs. These risks could rise in the run-up to repayments on a sovereign bond that are due in 2022.”
In addition to this, Moody's expect the government's gross borrowing to increase to 8.3 percent by 2019 from around 7.1 percent of GDP in 2017, stating that “...although needs should remain contained around these levels until 2022, Moody's estimates that they will rise to 9.1 percent in that year when the repayment on the sovereign bond comes due.”
Increments in borrowing requirements is largely due to government spending on Public Sector Infrastructure Programs. In 2016-2020, the infrastructure projects are to cumulatively amount to MVR 33.8 billion or 38 percent of the estimated 2020 GDP.
On the fiscal side, owing to the infrastructure build-up, the government of Maldives' debt burden has increased by about seven percentage points, to 61.1 percent of GDP in 2017 from 54.1 percent in 2015.
Moody's expect it to increase further to 68.7 percent of GDP by 2020.
This classification comes at a time of political instability in Maldives, excessive spending and warnings of sanctions from international bodies.