Maldives to Fitch: Long-term fiscal reforms to hike rating

Maldives said on Thursday that it is committed to implementing robust fiscal reforms aimed at mitigating the risks identified by Fitch Ratings.

On Thursday, Fitch downgraded the Maldives' Long-Term Foreign Currency Issuer Default Rating (IDR) from CCC+ to CC, signalling concerns over pressures on the nation's external and fiscal sectors. 

The downgrade by Fitch is a reflection of the challenges the Maldives faces, particularly in managing its external debt obligations and ensuring fiscal stability. However, the government has assured that it remains committed to addressing these issues through a series of comprehensive fiscal consolidation measures.

In its statement, the finance ministry emphasised that the government is actively working to secure medium-term financing with the support of bilateral and multilateral partners.

"The government of the Maldives remains committed to mitigating the risks highlighted by Fitch through the implementation of comprehensive fiscal consolidation measures and securing medium-term financing requirements," the statement read.

Key among the government's strategies is the introduction of revenue-generating policies and expenditure controls. The finance ministry highlighted several measures, including revisions to airport taxes and fees, green tax, and import duties on commodities associated with negative externalities.

Additionally, the government is working on revising the Goods and Services Tax (GST) Act to apply the destination principle fully, which is expected to significantly expand the tax base and increase foreign currency inflows.

"These measures will significantly increase foreign currency inflows to the government, including the Sovereign Development Fund, thereby alleviating pressures on the external sector," the statement continued.

This, the government believes, will enhance its ability to meet foreign currency-denominated debt obligations and ultimately improve the country's credit rating.

On the expenditure side, the government has laid out plans to enhance the efficiency of State-Owned Enterprises (SOEs) by strengthening corporate governance, rightsizing the workforce, and achieving corporate synergies.

Additional measures include replacing major indirect subsidies with targeted direct subsidies, addressing inefficiencies in the social health coverage system, and implementing an oil price hedging strategy to protect the economy from global oil price volatility.

The finance ministry noted that these reforms are part of the broader Fiscal Strategy 2025-2027, with implementation set to begin in the coming weeks.

"The government has already demonstrated its commitment to these reforms and restoring fiscal health with the implementation of key reforms such as the revision of fisheries subsidies and the bulk procurement of medicines," the statement added.

In terms of future outlook, the government expressed confidence in the strong performance of the real economy, particularly driven by robust tourism indicators. The successful implementation of these fiscal reforms is expected to restore macro-fiscal stability and achieve debt sustainability over the medium term.

"The government remains confident that the successful implementation of fiscal consolidation measures will reflect positively on the sovereign credit rating in the near future," the finance ministry said.