The Maldives government was assigned its first credit rating on Sunday with a rating of B2.
Moody’s Investors Service, one of the top three credit rating agencies in the world, assigned the rating of B2 to the Maldives, indicating that the nation is capable of fulfilling debts and other financial responsibilities despite facing major obstacles. However, Moody’s specifies that it can be achieved by shaping the economic and financial policies of the Maldives to have minimal negative impact on the country’s economy.
In addition to the overall B2 rating for the Maldivian economy, Moody’s also issued separate credit ratings for the following:
Ba1 for local-currency bonds and deposits: low risk of unpaid debt in the short-term, but risk may increase due to economic and financial policies.
Ba3 for foreign-currency bonds: low risk of unpaid debt in the short-term, but risk may increase due to economic and financial policies.
B3 for foreign-currency deposits. high risk of unpaid debt in the short-term, and risk may increase due to economic and financial policies.
According to the statement Moody’s published last Friday regarding the Maldives’ credit rating, the ratings were based on four factors:
Potential for the growth of Maldives’ GDP via the tourism sector
Low institutional strength
Low economic strength due to high government debts
Negative repercussions on the economy due to domestic political unrest.
Moody’s estimated that the Maldives’ tourism sector will continue to grow moderately, but stressed the importance of expanding the nation’s economy and creating additional sectors. The agency projects that the Maldives’ GDP growth will average between 3.20-4.5 percent over the medium term.
The agency highlighted the Maldives’ government high debt burden at 63.6 percent of GDP last year, an amount much higher than its peers. Moody’s predicted that the debt burden will rise even further as the state undertakes a number of large infrastructure projects. The increasing amount of foreign currency loans taken by the government are added weights to the debt burden.
“However, debt affordability is supported by a large revenue base and predominantly concessional debt,” Moody’s noted in its statement.
The government has currently embarked on several large development projects, including the construction of a bridge linking capital Male with airport island Hulhule and the airport development project, along with hefty foreign currency loans. Subsequently, a number of international entities have expressed concerns over the government’s significant debt burden, including World Bank Group which has recently warned of possible negative repercussions on the nation’s economic development in the long term.
Regarding the Maldives’ first credit rating, the finance ministry declared on Saturday that the rating proves favourable to the archipelago, citing the efforts of the previous three governments to receive a credit rating as a testimony.
The ministry has avowed to advance the Maldives’ rating, which will be reviewed annually. The ministry also urged the state institutions, companies, private businesses and citizens to recognise the rating at a national extent and work to not only maintain but improve it.
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