Moody’s downgrades Maldives’ credit ranking to CAA2

Global credit rating agency, Moody’s has revised Maldives’ credit ranking.

In this regard, Moody’s downgraded Maldives’ credit ranking from CAA1 to CAA2.

As per the report, the decision to downgrade was driven by the agency’s assessment that default risks have risen materially, as foreign exchange reserves – even inclusive of assets held in the Sovereign Development Fund – have remained low with prospects for a sharp recovery relatively dim.

In this regard, Moody's detailed that foreign exchange resources have declined compared to a year ago even including USD 65 million held in Sovereign Development Fund’s USD Custodial Account.

It was stressed that Maldives' reserves remain significantly below the government's external debt service of around USD 600 to 700 million in 2025, and over a billion in 2026.

“We expect current account deficits to remain wide over the next few years, compounding heightened external vulnerability risks,” read the report.

Moody's also noted that excess domestic liquidity derived from fiscal monetization during the pandemic years continues to weigh on the exchange rate peg to the US dollar. 

Notably, Fitch Ratings, another global credit agency, also downgraded Maldives’ credit rating from ‘CCC+’ to ‘CC’, assessing that there is an increased risk of default back in August.

The current administration is undertaking significant efforts to improve Maldives’ economic state. In this regard, efforts have been launched to improve the functioning of state-owned companies and in this trajectory, to combine companies with similar undertakings and liquidate companies incurring losses to the state.

Finance Minister Dr. Mohamed Shafeeg has stated the foreign reserves were increasing to levels higher than forecasted by the government, adding the fiscal reform steps implemented at the instruction of President Dr. Mohamed Muizzu were bearing positive results.

On this note, the foreign exchange reserve has increased to USD 444 million at the end of August, which stood at USD 395 million at the end of July. With the increase, the usable reserve currently stands at USD 61.22 million.

Central bank, Maldives Monetary Authority (MMA)’s statistics shows that Sovereign Development Fund’s USD Custodial Account held just USD 5 million at the end of November of last year. The number has increased to USD 65 million which MMA attributed to not exchanging the dollars entering the account.

As part of ongoing efforts to improve the foreign reserve, all the technical work pertaining to a Foreign Currency Swap Arrangement with India being undertaken by the Finance Ministry in collaboration with MMA has been completed with the signing of the arrangement being worked on.

The government is also working on formulating and implementing a fiscal policy the reduce expenditure of the state.