Male, Sep 13 (Representative) Worldwide credit rating agency Moody’s has cut the Maldives’ credit ratings and downgraded the island nation’s rating from CAA1 to CAA2, media reports said. In a statement made on Wednesday, Moody’s stated that the downgrading was due to their assessment of the Maldives’ heightened risk of default. According to Moody’s, foreign currency reserves have decreased, the amount of assets in the Sovereign Development Fund is low, and the chances for development have worsened. Moody’s assessed that the Maldives’ debt ratio seems to be considerably high during the next 12 to 18 months and that the window for accumulating foreign currency for debt service is fast closing. Although the government has been seeking to get foreign money, Moody’s noted it is still unclear if it would receive enough funds to cover its looming large debt commitments. Furthermore, the document gives insight into delays in enacting crucial financial changes while pressure on the National Reserve rises.
Moody’s said it will continue to monitor the existing rating, as the Maldives’ already precarious foreign currency situation might worsen if external finance is not obtained in the immediate future. The credit rating agency stated that the rating assessment would focus on how the government can get external finance in order to boost foreign currency reserves. Moody’s has also reduced the Maldivian Rufiyaa ceiling from ‘B2’ to ‘CAA1’ and the foreign currency ceiling from ‘B1’ to ‘B3’. According to Moody’s, the difference between the MVR ceiling and the foreign currency ceiling demonstrates the challenges that the Maldives face in currency conversion during periods of foreign currency shortages, particularly the difficulties in maintaining adequate foreign currency reserves to support the MVR’s value. Moody’s has reported that the island nation’s foreign currency reserves have decreased over the last year, casting doubt on its foreign currency sufficiency. As a result, foreign currency reserves stood at USD 437 million at the end of August, representing barely one and a half months of import coverage.
Moody’s has underlined that, even with the expected USD 65 million in the Sovereign Development Fund, foreign currency reserves have declined from a year earlier. The agency emphasised that the reserves are much lower than the USD 600 million – USD 700 million required to service the government’s foreign debt in 2025 and the USD one billion due in 2026. The credit rating agency predicts that the current account deficit will increase in the following years, causing the financial position to deteriorate further. Although food and energy costs have reduced, they remain relatively high, forcing the import bill to rise. Moody’s predicts that as tourist numbers rise, so will demand for imported goods. According to Moody’s, as a result, the Maldives’ already fragile foreign currency reserves would fall even lower, and luring international investors would be difficult.