Moody’s Upholds Maldives’ Caa2 Ratings, Outlook Negative
Moody’s Ratings has confirmed the Maldives’ long-term local and foreign currency issuer ratings at Caa2 with a negative outlook.
This decision concludes a review initiated in September 2024 to assess the country’s external liquidity position and creditworthiness.
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The confirmation reflects the recent accumulation of foreign exchange reserves following a currency swap agreement with India and the introduction of new fiscal and regulatory measures aimed at shoring up foreign currency inflows. However, the negative outlook highlights ongoing challenges, including substantial external debt obligations and limited foreign exchange reserves.
The Maldives secured a currency swap agreement with India, comprising USD 400 million and 30 billion Indian rupees, which boosted foreign exchange reserves to USD 607 million in October. This marked a recovery from a low of USD 364 million the previous month. Additional reserves in the Sovereign Development Fund (SDF) have further eased immediate liquidity pressures, with USD 220 million available to support debt repayments.
Despite these developments, external liquidity risks remain significant. The Maldives faces an external debt service obligation of USD 600–700 million in 2025, rising to over USD 1 billion in 2026, including a USD 500 million sukuk maturing in April 2026. Reserves net of pre-determined short-term outflows remain in deficit, underscoring the country’s vulnerability to liquidity shocks.
The Maldives has implemented several measures to stabilise its external position. These include new foreign exchange regulations requiring tourism operators to convert dollars into local currency with local banks, and increases in dollar-denominated airport taxes and fees. The Tourism Goods and Services Tax (TGST) is also set to rise to 17% in June 2025. These efforts aim to boost foreign currency inflows and fiscal revenue, potentially alleviating pressure on reserves in the medium term.
However, the effectiveness of these measures remains uncertain, with Moody’s noting the narrowing window to accumulate sufficient reserves ahead of large debt repayments.
Maldives’ economic fundamentals, including its heavy reliance on tourism, present structural vulnerabilities. Twin fiscal and current account deficits are expected to remain wide, driven by high public spending on infrastructure and substantial capital imports. The current account deficit is projected at 13–15% of GDP over the next two years, while the fiscal deficit is anticipated to narrow modestly to 7–8% of GDP.
Moody’s also highlighted governance challenges, particularly in fiscal management. While recent improvements in corruption control and fiscal transparency were acknowledged, governance risks continue to weigh on the country’s credit profile.
The Maldives’ exposure to environmental risks, including rising sea levels and climate change, significantly impacts its credit rating. The government’s investments in resilience measures, such as land reclamation projects, were noted as positive steps. Social challenges, including disparities between urban and rural areas and low female labour force participation, remain areas of concern.
The negative outlook reflects continued uncertainty over the Maldives’ ability to secure sufficient external financing and effectively implement fiscal reforms. A downgrade could occur if default risks rise due to weaker-than-expected access to external funding or ineffective policy implementation. Conversely, stabilisation of the rating could result from greater certainty over financing flows and a sustained build-up of foreign exchange reserves.
As the Maldives navigates a precarious financial landscape, Moody’s assessment underscores the critical need for timely and effective policy action to address its vulnerabilities and ensure economic stability.
