Fitch Ratings downgrading the Maldives’ credit rating from CCC+ to CC highlights the administration’s incompetence in managing fiscal policy, the opposition Maldivian Democratic Party (MDP) has said.
The MDP, during a press conference on Thursday, said that the second downgrade in the past three months, which had seen the rating slide down three notches, demonstrates that the administration’s incompetence continues to exacerbate the nation’s economic standing.
Fitch Ratings had previously downgraded the Maldives’ rating in June from B-, which had been maintained over the past two years, to CCC+. The CC rating downgrade came on Thursday. While Fitch usually makes rating revisions once a year, this is the first time a downward rating revision has been made within a shorter timespan — it is also the lowest rating the Maldives has received.
Fitch Ratings’ CC National Ratings denote the level of default risk is among the highest relative to other issuers or obligations in the same country or monetary union.
“Factors symbolising the deteriorating fiscal situation include rising public expenditure, delayed fiscal reforms, an unmanaged decline in the country’s official reserves, and an inability to raise funds from abroad,” the MDP said.
Fitch not downgrading the Maldives’ rating immediately after the presidential election reflects the confidence of international agencies in the fiscal policies of the, then outgoing, MDP-led administration, and their confidence in the implementation of reform measures, the party said.
Fitch has downgraded the Maldives’ credit rating due to several concerns, including a sharp decline in foreign exchange reserves and an increase in the amount of funds needed to service foreign debt.
According to the MDP, the reasons for Fitch’s downgrade were almost exclusively due to the current administration. Government actions have hindered the tourism sector and the economy, the party highlighted, pointing to strained relations with neighbouring India and the rhetoric of administration officials adversely affecting the tourism sector. As a result, the number of Indian tourists visiting the Maldives has declined sharply, with economic growth stalling, the opposition said.
Fitch had further noted that the nation’s foreign reserve shortage will likely persist for the foreseeable future, citing the increase in public investment and the country’s continued expenditure on imports as contributing factors.
The ratings agency also noted that there is no guarantee that external assistance will be forthcoming, emphasising that a medium-term solution depends on the timely implementation of the administration’s fiscal reform agenda, which, if not undertaken swiftly, would likely lead to debt restructuring with the International Monetary Fund or other multilateral aid agencies.
Meanwhile, according to the MDP, reserves have dwindled due to wasteful and unplanned spending, with foreign reserves declining sharply throughout the year despite a 15 percent increase in tourism revenue. The decline is attributed to high spending and an inability to raise financing to support reserves.
The administration has additionally undertaken unnecessary expenditures during this period of difficulty, including spending US$37 million on military drones—which were not budgeted—and paying back a US$50 million treasury bill to India despite low reserves, instead of—contrary to the debt strategy—entering into talks with the Indian government, the MDP outlined.
The administration also delayed much needed fiscal reform, the party said — reforms, according to the MDP, which had been initiated by the MDP-led administration.
Rating agencies had also warned in June that failure to take corrective measures would result in a downgrade, the party said.
The MDP called for immediate action to reduce wasteful spending, cut all non-essential expenditure, and accelerate fiscal reforms, while also calling for the assistance of friendly nations and international agencies to help bolster the nation’s foreign exchange position.
“We call for a resumption of the publication of the state’s financial accounts, as well as candour and transparency. If action is not taken soon, the financial situation will worsen, the credit rating will deteriorate further, and the economy will continue to deteriorate,” the MDP said.
The MDP also stressed the importance of improving the Maldives’ credit rating as soon as possible and emphasised the need for more prudent financial management in the coming years. The party called on the administration to act without further excuses to protect the Maldives’ economic future and that of its people.
