Moody’s Ratings (Moody’s), on Tuesday, confirmed the Maldives’ long-term local and foreign currency issuer ratings at Caa2 with a negative outlook, concluding the downgrade review initiated on 11 September.
The agency also confirmed the rating for Maldives Sukuk Issuance Limited at Caa2 with a negative outlook.
“The entity [Sukuk] is a special purpose vehicle that is wholly-owned by the Ministry of Finance on behalf of the Government of Maldives and whose debt and trust certificate issuances are, in our view, ultimately the obligation of the Government of Maldives,” the ratings agency stated in its Rating Action.
While Moody’s characterised the “sizeable” currency swap arrangement with India as well as the introduction of new foreign currency regulations and tax reforms as positives and a move that would improve prospects for building up foreign exchange reserves, it concluded at the end of their review period that the Maldives’ credit profile is consistent with a Caa2 rating, opting to confirm the earlier September rating.
According to Moody’s, the negative outlook reflects “still heightened external liquidity risks,” with foreign exchange reserves remaining low comparative to the “substantial” external debt obligations over the next 12 to 18 months.
Large twin deficits and excess domestic liquidity will continue to put pressure on limited reserves, and even with the introduction of substantial reforms, the implementation and efficacy of these measures in mitigating such pressure remain uncertain, the ratings giant said.
“Meanwhile, given the lack of a comprehensive financing package, we expect the Maldives to continue to be tested on securing bilateral and multilateral financing to shore up external buffers,” the Rating Action detailed.
Moody’s placed the Maldives’ local and foreign currency ceilings at B2 and Caa1 respectively.
The three-notch gap between the local currency ceiling and the sovereign rating reflects the government’s relatively small footprint in key sectors of the economy, including tourism, balanced against weak institutions, an unpredictable policy framework, and large external deficits driven by a dependence on goods imports, the report explained.
The two-notch gap between the foreign currency ceiling and the local currency ceiling underscores the risks of convertibility restrictions during times of external liquidity stress, particularly to preserve reserve adequacy backing the country’s pegged exchange rate, Moody’s outlined.
Despite acknowledging the positive steps by the Mohamed Muizzu administration, Moody’s largely pointed those efforts not being effective enough to relieve looming pressures as its rationale for confirming the Caa2 rating.
“The government’s external debt service amounts to US$600 to US$700 million in 2025 and around a billion in 2026, inclusive of the US$500 million sukuk maturing in April 2026,” the agency outlined in its Rating Action.