Will bring holistic reform considering Fitch's advice: Finance Ministry

Ministry of Finance has said that a holistic reform is needed to address the foreign currency shortage and improve the country's financial situation in line with advice from Fitch Rating.

The ministry, in a statement issued following Fitch's decision to downgrade Maldives' credit rating from CCC+ to CC, said that strong policies need to be adopted to increase revenue and reduce expenditure.

As of now the government has decided to raise the airport tax and green tax rates. They also have plans to hike up import duties on health-hazardous products. Along with this, Maldives is also going to increase foreign exchange earnings in the form of Tourism Goods and Services Tax (TGST) and to amend the (Goods and Service Tax) GST Act to expand the tax base.

Among revenue boosting measures to be deployed include avenues of increasing foreign revenue as well, said the government. They say with these measures in effect, they hope to be able to make dollar debt repayments easier.

The Finance Ministry said that they are also looking into cost cutting options such as reducing the operational cost of State Owned Enterprises (SOEs) and switching to target subsidy models. Additionally, the government has also started bringing in high quality medicine via bulk procurement, the ministry said.

This new CC rating represents a three-level drop within just three months and indicates a high level of default risk compared to other issuers or obligations within the same country or monetary union. Although Fitch typically reviews ratings at 12-18 month intervals, extraordinary situations have led to more frequent status changes.

In its statement, Fitch noted that Maldives gross foreign-exchange reserves fell by roughly 20 percent to USD 395 million in July from USD 492 million in May. They highlighted that this is the lowest level it has been in since December 2016.