The Maldives Monetary Authority (MMA) has issued a statement following Moody’s downgrade of the country’s credit rating to CAA-2, assuring that the Maldives government will meet all external debt obligations, including a significant bond repayment due in October 2024.
Moody’s downgrade, announced on Wednesday, highlighted concerns about high credit risk, dwindling dollar reserves, and mounting national debt, which may lead to a potential default. The downgrade places the Maldives in the “non-investment” category, signalling heightened financial instability.
In response, the MMA acknowledged the challenges but reaffirmed that the government remains capable of servicing its external debts. The authority emphasised the country’s commitment to meeting the upcoming bond repayment in October, and expressed confidence that future external debt obligations will also be met without issue.
The MMA’s statement also provided insights into the country’s economic outlook. Despite the downgrade, the MMA projects GDP growth to reach 4.9% in 2024 and further expand to 6.5% in 2025, driven by a robust tourism sector. The statement highlighted a 10% year-on-year increase in tourist arrivals, which reached 1.3 million by the end of August 2024.
Gross international reserves improved in August 2024, rising from $395 million in July to $444 million. Net reserves also increased to $61 million by the end of August. The MMA expects gross international reserves to surpass the $606 million projected in the Government’s Budget 2024, with the inclusion of usable reserves and the Sovereign Development Fund (SDF).
To stabilise the foreign exchange market, the MMA is planning revisions to the Monetary Regulation in September 2024. These changes are expected to increase the flow of foreign currency into the domestic banking system. In addition, the MMA will begin Open Market Operations to reduce surplus liquidity in the banking system, which currently stands at MVR 6.7 billion.
The statement came in response to Moody’s downgrade, which followed a similar rating cut by Fitch in August. Analysts have raised concerns about the country’s ability to attract foreign investment, warning that borrowing costs are likely to increase as investor confidence declines.
However, the MMA underscored its commitment to maintaining exchange rate stability and mitigating the risks posed by excess domestic liquidity and limited foreign exchange reserves.
The central bank concluded by reaffirming the Maldives’ commitment to fiscal and monetary reforms aimed at addressing the country’s financial challenges and boosting reserves in the near future.