Moody’s Ratings has warned that the Maldives continues to face “heightened external liquidity risks”, despite a modest improvement in foreign exchange reserves, as the country grapples with looming debt repayments and volatile global market conditions.
In a periodic review published on Friday, following a rating committee held on 8 May, Moody’s maintained its long-term issuer rating for the Maldives at Caa2 with a negative outlook, citing limited financing options and still-low – albeit improving – foreign exchange reserves ahead of major debt maturities. The review, which follows Moody’s 11 September 2024 decision to downgrade the country’s ratings to Caa2 with a negative outlook, reaffirmed that the credit profile remains weak, with no material improvement in risk factors since then.
Moody’s said that the government’s twin fiscal and current account deficits, alongside a sharp increase in external borrowing linked to large public infrastructure projects, had significantly “driven government liquidity and external vulnerability risks.”
The agency noted that the Maldives had experienced a rebound in tourism following the COVID-19 pandemic, which had previously “led to a significant shortfall in economic output… and a surge in government debt.” The recovery has contributed to “strong growth… reflecting healthy economic growth potential and a competitive tourism sector.”
However, risks remain acute. “Despite a gradual uptick in foreign exchange reserves observed since October 2024… the impending maturity of sizeable external debt obligations remains a significant credit concern for Maldives,” the agency warned.
Moody’s singled out the $500 million sukuk maturing in 2026 as a key test of the sovereign’s refinancing capability. “It is essential in our assessment of default risk to demonstrate that upcoming external debt obligations… will be reliably and comfortably repaid or refinanced.”
The review also highlighted broader structural vulnerabilities. While the country’s economic strength was assessed at ba1, this rating is constrained by “relatively weak global competitiveness outside of the tourism industry” and exposure to climate-related risks. Governance quality was rated b3, reflecting “challenges associated with developing institutional quality in a small island state that is geographically disperse.”
Moody’s assigned a fiscal strength rating of ca, shaped by the pandemic-era deterioration of public finances, and a susceptibility to event risk rating of caa, driven by “government liquidity risk” and the high volume of short-term debt.
Despite ongoing reforms, including foreign currency regulations and reduced capital spending, the agency noted that “implementation and efficacy… in sustainably enhancing foreign exchange reserves… remain uncertain.”
Moody’s said a downgrade is possible if it assesses “that default risks have risen, due to weaker than expected access to external financing” or if fiscal consolidation efforts stall, potentially increasing the sovereign’s debt burden.
An upgrade is unlikely under the current outlook. However, the agency noted that “evidence of effective implementation of fiscal reforms… would support a stabilisation of the rating.” The publication did not constitute a credit rating action and served only as part of a routine review of the sovereign’s credit profile.